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Weekly Round-up: 22nd September 2017
Badge of honour
Under a new voluntary agreement, starting this week, UK Finance, the Building Societies Association and the FSCS have agreed a package of measures for retail customers’ savings and current accounts, including publishing the FSCS badge on relevant website pages, i.e. product homepage and login page where customers go to view their cash account, incorporating the badge at least once in a prominent place in the customer journey on mobile banking apps and adding the badge as standard to the standard FSCS information sheet presented to customers at account opening.
The agreement will underpin consistent use of the FSCS badge by banks and building societies across the most effective points in customer journeys to promote FSCS protection with firms having up to 18 months to implement the agreement in full and will be subject to FSCS mystery shopping.
Data shows that 82% of consumers said they felt reassured knowing FSCS exists, while 62% said they trust banks and building societies knowing that FSCS would protect them if they fail. But there’s always more to do to ensure that customers are aware of how industry and the FSCS work together, and what protections are available to them under the new agreement.
In their 9th report for the Intergenerational Commission, the think tank Resolution Foundation has taken on the hugely important topic of housing. They have explored how the housing experience of each generation has been determined by demographics, policy and the market alike, and what we might expect the future to hold and have found that today’s families headed by 30 year olds are only half as likely to own their home as the baby boomer generation was at the same age, and home ownership has declined across all regions and income groups.
With falling home ownership and a shrinking social rented sector, four out of every ten 30 year olds now live in private rented accommodation – in contrast to one in ten 50 years ago, and millennials have also been more likely to be living with their parents in their mid-20s than previous cohorts.
While the average family spent just 6 per cent of their income on housing costs in the early 1960s, this has trebled to 18 per cent. Housing costs have taken up a growing proportion of disposable income from each generation to the next. This is true of private and social renters, but mortgage interest costs have come down for recent generations. However, the proportion of income being spent on capital repayments has risen relentlessly from generation to generation thanks to house price growth.
The quality of housing has in many respects improved hugely. But millennial-headed households are more likely than previous generations to live in overcrowded conditions, and when you look at the distribution of square meterage its clear that today’s under-45s have been net losers in the space stakes compared to previous cohorts, while over-45s are net gainers. More recent generations have also had longer commutes on average than previous cohorts, despite spending more on housing.
They conclude that if similar trends to the 2002-2012 were to return, less than half of millennials will buy a home before the age of 45 compared to over 70 per cent of baby boomers who had done so by that age.
New research shows that landlords are struggling to keep up with the financial impact of multiple tax and regulatory changes. This could lead to increased rents, reduced maintenance spending and even landlords being forced to sell properties to make ends meet.
A YouGov survey of 1,000 landlords, commissioned by The Mortgage Works, Nationwide’s Buy to Let arm, found that many landlords have shielded their tenants from the financial impact of the changes, with almost a third (29%) having never increased their rent. However, the survey shows that more than two in five (44%) are now considering increasing rents, one in ten (10%) will reduce the amount they spend on property maintenance, one in seven (14%) intend to start managing the property themselves, rather than using an agent and a fifth (22%) are considering selling their rental property.
Among landlords considering increasing rent, almost three quarters (74%) intend average increases of £100 or less per month, with a similar proportion (72%) feeling it’s important their tenant is aware that the increase is just to cover additional costs. This is perhaps why almost half (45%) would prefer to inform their tenant of a rent increase personally, even though two in five (39%) worry their tenant might leave as a result.
For two in five landlords (38%), the rising costs have made them consider getting out of renting property altogether.
Aviva has enhanced its Life Insurance+ and Critical Illness+ products by making changes to four definitions which centre on the most common payment areas of heart conditions, strokes and cancers. The changes have been made to improve clarity and consistency across similar conditions which they expect would lead to a greater likelihood of having a successful claim. These three conditions are cardiomyopathy, spinal stroke and benign spinal cord tumour.
As part of the changes, the spinal stroke definition has also been aligned with the stroke definition and the definition for benign spinal cord tumours has been aligned to benign brain tumours, to improve consistency. These changes mean that for conditions such as spinal strokes, Aviva will be able to make payment at an earlier point following diagnosis and for benign spinal cord tumour claims there is no longer a need to wait for permanent symptoms. For cardiomyopathy the definition has now been broadened to include three measures of severity, including the insertion of a defibrillator.
In recognition that cancer is the most common cause of claim for children and understanding the financial impact on a family when a child is diagnosed with cancer, Aviva has doubled the maximum benefit payable where upgraded children’s benefit has been selected. Customers with a child diagnosed with cancer will now be able to claim up to £50,000 to help them during their difficult time.
The thing I like about working in compliance is that there is always a lot going on. I know some people think I spend my day with my feet up, enjoying another one of Bev’s excellent cups of tea but the reality is that there is vast amount to do. Particularly at the moment, there are some big topics on the horizon so I thought it might be good to give you an insight into two of the major ones.
General Data Protection Regulation (GDPR)
We’ll start with the GDPR; mainly because it’s fresh in my mind having just given a report to the board on this brute of a subject. If you’re not yet up to speed about GDPR, this is a new European standard for Data Protection and is a significant piece of work. Even though we’ll be leaving the EU, the UK government have effectively copy and pasted the European rules in the UK law so that we’ll be operating on a level playing field with the rest of Europe.
It’s also a slightly odd one because technically we are not responsible for our Member’s Data Protection being that AR firms are individually licenced by the Information Commissioners Office. For that reason, individual firms will have to ensure they meet the required standards however we will be providing the tools and guidance necessary to ensure all firms remain compliant with the new rules.
Some of the work we’ve been doing includes identifying all the customer data that we capture and documenting the legal reason we capture it, how long we keep it for, how it’s stored, secured, backed up etc. It’s quite a task as you can imagine. And there is the possibility that individual firms have their own forms and questionnaires they use with customers that may capture additional data so there will be a need for firms to review their own processes and assess what information they get.
The other interesting aspect is some of the new rights that individuals will have over their data. Notably, the right to have their data erased which raises some interesting compliance issues. The good news is that there is absolute right here where the data is required for legitimate purposes such as the ability to defend potential legal claims later on. That said, there must be clear processes and policies in place to manage this so this something we’re working on.
There is also the issue of information security and of particular note is ensuring those who have access to the data are only using it for the purposes stated. The issue this raises surrounds administrators and support staff so we will be introducing a process to improve the information we have surrounding the support staff within AR firms.
In the next couple of months, we’ll be publishing some guidance on the individual topics and providing a ‘Data Protection Self-Audit’ to AR firms. This document will help you understand your own data protection processes and identify what you may need to do to meet the new standards. It will also help us understand your processes and ensure we can help you become and stay compliant. Once the audit is done, we’ll then provide policies and further guidance in the new year to make sure everything is ready for 25th May 2017.
Training & Competence (T&C) Scheme
The other big topic we’ve been working on recently is an update to our Training & Competence scheme which we will publish towards the end of the year and begin using in 2018. A good T&C scheme is one of the cornerstone processes for any financial services business and is crucial for enhancing the integrity of the UK Financial System. The scheme itself sets the methodology by which supervision is carried out between the network and the AR firm, as well as with individual advisers. Gavin spoke briefly at the last conference about our plans to introduce a fresh scheme, to be effective from the new year, and over the coming weeks, I will talk more about some of the individual elements such as the key performance measures, adviser risk ratings and annual fitness and propriety checks.
The new T&C Scheme will not be a strict, ‘rule-based’ scheme but instead one that utilises evidence and risk management principles to ensure that Advisers meet the company and regulatory standards. Naturally there will be certain prescriptive areas, but it is recognised that individuals have different abilities and experience and therefore a degree of flexibility may be applied.
The key areas of activity for the scheme focus on recruitment, induction and attaining competence, and maintaining competence. The HLPartnership team of Regional Compliance Managers – Stuart, Andy, Dean, Jeanette and Richard – will oversee the T&C Scheme. I’ll provide more details on the T&C scheme in my next update.
The T&C Scheme document itself, which will be published in the coming months, summarises the minimum required activities and performance levels required for an adviser to achieve and maintain competency and provides guidance to assist the Regional Compliance Managers and Firm Supervisors with their responsibilities.
More information will be given on the GDPR and the new T&C scheme at the forthcoming conferences which are filling up fast so make sure you book your place using the links below. In particular, anyone who has not come to our conferences before or who has joined the network this year really needs to get along to one of the events. Everyone will get a lot of the day so I hope to see as many of you there as possible.
At its meeting ending on 13th September 2017, the Monetary Policy Committee (MPC) voted by a majority of 7-2 to maintain Bank Rate at 0.25%. The MPC set out its most recent assessment of the outlook for inflation and activity in the August Inflation Report.
That assessment depended importantly on three main judgments: that the lower level of sterling continues to boost consumer prices broadly as projected, and without adverse consequences for inflation expectations further ahead; that regular pay growth remains modest in the near term but picks up over the forecast period; and that subdued household spending growth is largely balanced by a pickup in other components of demand.
Since the August Report, the relatively limited news on activity points, if anything, to a slightly stronger picture than anticipated. GDP rose by 0.3% in the second quarter, as expected in the MPC’s August projections, although initial estimates of private final demand were softer than anticipated. The unemployment rate has continued to decline, to 4.3%, its lowest in over 40 years and a little lower than forecast in August. Headline and core Consumer Price Inflation in August were slightly higher than anticipated. Twelve-month CPI inflation rose to 2.9% and is now expected to rise to above 3% in October.
All MPC members continue to judge that, if the economy follows a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations. A majority of MPC members judge that, if the economy continues to follow its current path then some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target. All members agreed that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.
At this month’s meeting, seven members thought that the current policy stance remained appropriate to balance the demands of the MPC’s remit. Two members considered it appropriate to increase Bank Rate by 25 basis points. The Committee will undertake a full assessment of recent developments in the context of its November Inflation Report and accompanying economic projections.
Time for a remortgage
According to the latest statistics from UK Finance, remortgaging strengthened in July and reached its highest level since January, with customers attracted by borrowing rates that are at or close to their historic low point. The increase in activity in July means that, over the last year, the number of people remortgaging has been at its highest since 2009. Lending for house purchase was lower in July than in the preceding month, with the market expecting to continue to soften a little in the coming months. There was a smaller increase in both the value and volume of buy-to-let lending.
The proportion of household income taken up by monthly mortgage payments nudged upwards in July for both first-time buyers (17.4%) and movers (17.6%). But it remained low by historical standards. The average amount borrowed by a first-time buyer edged up from £138,750 in June to £139,000 in July. The average first-time buyer household income declined marginally, which means that their average income multiple nudged up from 3.59 to 3.60. The average amount borrowed by movers was unchanged at £180,000, as was their average income multiple of 3.39.
Remortgaging accounted for more than 70% of all buy-to-let lending in July. Buy-to-let remortgaging was 10% higher than in June, but overall the sector continued to reflect the more subdued levels of activity seen since the introduction of higher stamp duty in the spring of 2016.
East Midlands leads the way
In its latest analysis, the Office for National Statistics has said that average house prices in the UK have increased by 5.1% in the year to July 2017 (unchanged from June 2017). The annual growth rate has slowed since mid-2016 but has remained broadly around 5% during 2017. The average UK house price was £226,000 in July 2017. This is £11,000 higher than in July 2016 and £2,000 higher than last month.
The main contribution to the increase in UK house prices came from England, where house prices increased by 5.4% over the year to July 2017, with the average price in England now £243,000. Wales saw house prices increase by 3.1% over the last 12 months to stand at £151,000. In Scotland, the average price increased by 4.8% over the year to stand at £149,000. The average price in Northern Ireland currently stands at £129,000, an increase of 4.4% over the year to Quarter 2 (Apr to Jun) 2017.
The East Midlands showed the highest annual growth, with prices increasing by 7.5% in the year to July 2017. This was followed by the East of England at 7.1%. The lowest annual growth was in London, where prices increased by 2.8% over the year, followed by the South East at 3.8%.
In July 2017, the most expensive borough to live in was Kensington and Chelsea, where the cost of an average house was £1.4 million. In contrast, the cheapest area to purchase a property was Blaenau Gwent, where an average house cost £81,000.
In recognition of childhood cancer awareness month, Aegon is reminding parents to check their critical illness (CI) policies and has shared information for child CI claims since 2007. Of all the CI claims for children received by Aegon in the last 10 years, 67% were for cancer.
Since 2007, 30% of childhood cancer claims were for brain tumours, 25% were for Leukaemia and the remainder were for other forms of cancer. In 2016, cancer accounted for 83% of CI claims for children.
In the last 10 years the Insurer has paid a total of 84 claims for Child CI. These claims have included all ages from children under one to teenagers of 17. Cancer diagnosis and treatment for a child can come with a hefty and unexpected financial burden. Aegon highlights that people often forget to consider the length of treatment, the need to take regular time off work, expensive parking at hospitals, travel costs and buying snacks and food in hospital.
Many people might be unaware that their cover includes their children so Aegon are urging anyone with a family to check their policy or speak to their adviser to make sure their children are covered too.
As a network, we have forged some great relationships with providers and as a result, are provided with lots of interesting data and statistics. These are normally numbers in boxes and the particular box I want to highlight today is one entitled ‘Credit Abuse’. OK, so I appreciate what is interesting to me might not be to you, but bear with me as this is quite important to helping you stay safe.
We all know that a customer’s credit history is one of the most important criterion lenders look at when deciding whether or not to offer an advance, and in a world where information is so readily available, I would hope that the credit abuse box remains empty but sadly, that’s not always the case.
The term ‘Credit Abuse’ covers a multiple of sins and is normally applied to some form of non-disclosure relating to credit. That could be failing to disclose active credit such as loans or credit cards, using false addresses or a false address history to hide credit, or where a customer fails to disclose adverse credit. It is this last area which I want to focus on as it is the most common form of credit abuse we see.
Maybe it’s because there is a stigma attached to adverse credit and customers feel embarrassed about admitting it; maybe it’s because they think they won’t get found out. Whatever the reason, the customer often seems surprised to find their mortgage has been declined because of undisclosed information.
But there may be a further surprise. It is often underappreciated quite how connected customers and brokers are once an application has been submitted. If a customer fails to disclose information such as adverse credit, the lender is likely to assume the broker who submitted the case is either in on the deception or has been lazy in terms of getting to the heart of the problem. Either way it doesn’t look good for the broker. They will ask themselves:
Has the broker asked the right questions?
Have they taken steps to try and establish the customer’s credit history?
Has the broker taken all reasonable steps to ensure the customer provided full disclosure?
It is for this reason you should know more about the issue of credit abuse.
There are several easy ways to keep yourself safe and it is good to see a growing trend amongst brokers to get the customer’s credit report before making an application. Anyone who doesn’t do this routinely is potentially exposing themselves to a risk and it’s so easy for customers to get credit reports now that it is fast becoming standard practice in the industry.
When customers do provide a credit report, this can provide all sorts of gems of information, not just whether they’ve got adverse credit. The report will help confirm the customer’s personal details, whether or not they are on the electoral role, the amount of used credit, the amount of available credit, any linked addresses etc. It also shows who else has looked at the credit report which may be telling in itself.
Of course, the credit report has its limitations and there can be a delay of a few weeks for the latest data to appear on the report so this needs to be combined with asking the right questions in order to try and weed out any potential problems before they arise. For example:
Has the customer approached anyone else for a mortgage such as another broker, their bank, or an online portal? If so, what happened?
Has the customer ever been turned down for credit? If so, why?
It is also important to be clear about the importance of full disclosure. The customer needs to understand that if they are not open about their personal circumstances, it could lead to the wrong advice and is likely to mean the case will be declined.
I know what you’re thinking and yes, there will occasionally be customers who may not know about any adverse credit they have or may have genuinely forgotten such information. For me, that makes it all the more important to get the customer to double check what they’ve told you and for them to obtain their credit report, even if that only serves to confirm that everything is as it should be.
Mortgage lenders will continue to gather their statistics and there will continue to occasionally be numbers in the credit abuse box. But this information is far more than just statistical data – it certainly says a lot about the customer; the question is then what it says about the broker. Something as simple as getting a credit report may make all the difference.
Finally, a quick reminder about our October conferences. There are some big compliance topics on the horizon, notably the GDPR and the Senior Managers & Certification Regime so Gavin will be there to explain more about these and other important compliance information. These topics will be of particularly interest to business principles as well as advisers so do make sure you book to come along and I look forward to seeing as many of you as possible at the events.
According to the latest house price survey by the Halifax, the annual rate of growth increased from 2.1% in July to 2.6% in August with the average house price now £222,293, which is just above the previous high of December 2016 (£222,190).
The Lender highlights that recent figures for mortgage approvals suggest some buoyancy may be returning, possibly on the back of strong recent employment growth, with the unemployment rate falling to a 42 year low. However, wage growth is still lagging increases in consumer prices, which is likely to add pressure on household finances and increase affordability challenges for some buyers.
House prices should continue to be supported by low mortgage rates and a continuing shortage of properties for sale over the coming months. Sales of UK houses have now exceeded 100,000 for the seventh month in succession, and in the three months to July activity was 10% higher than in the same period last year. (Source: HMRC, seasonally-adjusted figures)
Mortgage approvals for house purchases – a leading indicator of completed house sales – also grew sharply, by 5.2% between June and July, to 68,700; the same level as in January. The increase in mortgage approvals nearly reversed all the falls seen so far this year, though they have remained in a narrow range between 65,100 and 68,700 per month over the past ten months. (Source: Bank of England, seasonally-adjusted figures)
No Time To Save
An estimated two million self-employed people in the UK are unable to save any money each month leaving them vulnerable to financial shocks, according to new research by insurer, LV=.
With the number of self-employed workers now close to five million, the second instalment of LV=’s ‘Income Roulette’ report – a study of debt, savings and protection among 9,000 people – explores how the self-employed would cope with an unexpected financial shock. The results show that four in ten (41%) self-employed people can’t afford to save any money each month and a further one in ten (11%) save less than £50. Furthermore, a third (33%) couldn’t survive for more than three months if they lost their income – meaning they fall short of the Money Advice Service’s recommended amount of savings that would allow them to be financially resilient.
When looking at barriers to saving, the figures show that monthly bills eat up the wages of nearly two thirds (62%) of self-employed people, compared to a national average of 56%, with this group also more likely to be hampered by debt (38% vs 32% national average). In addition to this, sole traders are more likely to be hit by unexpected costs such as home maintenance or car repairs (33% vs 28%).
As self-employed people don’t have the safety net of employers’ benefits, such as sick pay, they are often recommended to consider taking out some form of income protection to avoid having to rely on state support if they couldn’t work because of accident, sickness or disability. However, only 4% of self-employed people in LV=’s research have income protection, compared to a national average of 11%, with more than two fifths (42%) mistakenly believing that they’re not eligible for it.
Despite the lack of saving and insurance, the research shows this group is aware of the risks of self-employment – three in ten (28%) are worried about having an accident and not being able to work (vs the national average of 21%) and a similar proportion (29%) are worried about falling sick (vs 24%).
Increases in payouts to victims of car crashes and operations are to be scaled back after discussions with insurance industry by the Ministry of Justice. In a U-turn by ministers, changes to the so-called “Ogden rate” used to calculate compensation payouts are to be revised, after insurers said they may inflate car insurance premiums by hundreds of pounds to compensate for the potential increase in claim costs.
When the government cut the rate from 2.5% to -0.75% in February there was an outcry from insurers. After a consultation, the Ministry of Justice has proposed a rate of between 0% and 1% in draft legislation. The change appears small, but the mathematical implications for payouts can be very significant. When the new Ogden rate was imposed in February, insurers said the compensation figure for a brain injury on a 25-year-old could soar from £3m to £8m, and that the NHS and other parts of the public sector could face an extra £6bn bill.
Responding to the news, Huw Evans, Director General of the ABI said “This is a welcome reform proposal to deliver a personal injury discount rate that is fairer for claimants, customers and taxpayers alike. The reforms would see the discount rate better reflect how claimants actually invest their compensation in reality and will provide a sound basis for setting the rate in the future. If implemented it will help relieve some of the cost pressures on motor and liability insurance in a way that can only benefit customers.”
One in seven older home owners planning to downsize in later life believe they will be unable to retire unless they move to a cheaper property, a survey has found. Nearly half (47 per cent) of over-55s who own their home are planning to sell up and move to a less expensive property in their later years, according to Prudential.
And while convenience was found to be the main reason for moving, a significant proportion of people are relying on downsizing as a key part of their retirement plans. One in seven (13 per cent) of those expecting to downsize said they could not afford to retire otherwise.
Prudential’s survey of more than 1,000 people suggests that home owners in Northern Ireland and the East of England are particularly likely to expect to downsize their property, while those living in London, Scotland and the West Midlands are the least likely to sell up and move somewhere smaller.
Those planning to move to a cheaper property expect to free up around £112,000 in equity on average by downsizing. One in nine (11 per cent) believe they will make more than £200,000 by downsizing. Of those who expect to raise money from downsizing, 60 per cent will use it to boost their retirement funds and improve their standard of living. Nearly half (47 per cent) will use the cash for travelling more, while (13 per cent) want to release equity to help their children buy a house and 14 per cent plan to simply give the cash to their children.
UK Finance data shows that consumer borrowing from High Street banks remained stable at 2% in July, compared with 1.9% in the previous month. UK Finance also estimates that overall gross mortgage lending in July was £23.0 billion. Accounting for seasonal factors, this figure is above the average lending figures seen over the past year.
First-time buyers and remortgage activity on the part of homeowners has supported lending for some time, but UK Finance anticipate the pace of growth to slow slightly, dampened by a potentially more challenging economic outlook.
UK Finance suggest that consumer borrowing from high street banks remained stable in July, as continued pressure on household budgets reduced spending and saving. It appears business as usual for business lending as companies continue to borrow less and build their reserves, increasing deposits at an annual rate of 7.5%, while larger corporates are using the capital markets for funding. Steady levels of mortgage activity seen through the first half of the year continued into July. First-time buyer numbers continue to be strong, helped in part by government schemes. But that has been offset by home movers, where a shortage of homes on the market is limiting their activity.
Bank of Best Friends
Almost half of 18-35 year-olds plan to cash in on the ‘Bank of BAE’ to help get onto the property ladder, according to the latest Halifax Generation Rent research. Halifax found that 45% of 18 to 35 year-olds want to buy their first home with their ‘BAE’ (partner or loved one). The study also revealed that twice as many men (one in five) than women admitted waiting for their ‘BAE’ to try and get on to the property ladder.
Almost one in six (15%) plan to stay with their parents until they can afford to buy, so parents may be forced to sit tight in the meantime, as a third (32%) of young people aged 18 to 35 see themselves buying their first home within the next five years. The bad news for parents of under 25s is that one in 10 don’t see themselves becoming a homeowner for closer to 10 years. They are, however, still expecting a donation from the Bank of Mum and Dad, with fewer than one in five saying that inheritance isn’t an option for them.
Home truths One in 20 of those under 35 have already given up the idea of owning their own home, with the same number admitting that they’re not sure if buying a house is the right choice for them.
The research has highlighted for the first time a difference in mind-set between men and women about buying a home, with women less confident about getting on to the property ladder – 42% claimed buying a house wasn’t realistic, compared to 35% of men. Lack of income was unsurprisingly the biggest barrier for young people getting on to the ladder, with 55% of men blaming their salaries, compared to an overwhelming 70% of women.
Check The Plan
The Financial Services Compensation Scheme (FSCS) has confirmed that it does not provide protection for individuals who have a funeral plan with a provider that fails. This applies whether the plan was purchased by paying a lump sum or by paying a monthly amount to the (funeral plan) provider.
Whilst funeral plan providers can be regulated by the Financial Conduct Authority (FCA) the vast majority choose to use exemptions available to them which means they are not. Even if a regulated funeral plan provider were to sell a funeral plan to an individual, this would not be covered by the FSCS because these products are not categorised as a ‘designated investment’ under FSCS’s compensation rules.
Funeral plan providers rely on insurance companies and investment trusts to meet their obligations to customers. In some limited circumstances where the provider of a Whole of Life insurance policy or provider of a product held within a trust goes bust, FSCS may be able to pay compensation to the provider of the funeral plan or the trustees. It would then be for the funeral plan provider or the trustees of the investment fund to decide what to do with any monies that are paid out as a result. Having paid compensation, FSCS is not responsible for the decisions that funeral plan providers or investment fund trustees may make. It is unlikely that FSCS would be able to pay compensation directly to individuals.
Slowly But Surely
According to the Nationwide Building Society, the annual pace of house price growth moderated to 2.1% in August, from 2.9% in July. The slowdown in house price growth to the 2-3% range in recent months from the 4-5% prevailing in 2016 is consistent, the lender observes, with signs of cooling in the housing market and the wider economy.
The economy grew by c.0.3% per quarter in the first half of 2017, around half the pace recorded in 2016. The number of mortgages approved for house purchase moderated to a nine-month low of c.65,000 in June and surveyors have reported softening in the number of new buyer enquiries. Nevertheless, in some respects the slowdown in the housing market is surprising, given the ongoing strength of the labour market. The economy created a healthy 125,000 jobs in the three months to June and the unemployment rate fell to 4.4% – the lowest rate for over forty years. In addition, mortgage rates have remained close to all-time lows.
The Nationwide highlight that it may be that mounting pressure on household finances is exerting a drag. Wages have been failing to keep up with the cost of living in recent months and consumer sentiment has weakened. While measures of housing affordability are not particularly stretched at a UK level, pressures are evident in some regions – especially London and the South of England.
Almost a third (31%) of UK adults have experienced temporary or permanent leave from work due to ill health, a cancer diagnosis or even a death within the family, research from Aviva shows. More than three quarters (77%) of these have seen their finances suffer, equivalent to 12.3 million people.
Aviva’s Protecting Our Families report shows the reality of the financial fall-out caused by unexpected illness, with a particularly damaging effect on families with young children. The research shows more than a quarter (27%) of parents with dependent children have suffered a health crisis, with nearly all (91%) of these saying their finances were negatively affected.
UK adults who have suffered unexpected health events have noticeably poorer finances. Aviva’s data shows the average monthly income of someone who has experienced this is 24% lower than those who have not (£1,909 vs. £2,518). They also typically have 40% less in savings and investments (£2,991 vs. £5,011). In addition, they have 47% more in average debt (£9,692 vs. £6,573), possibly suggesting many who experience a health crisis are forced to turn to borrowing to cope.
UK adults who have experienced unexpected health events or a death in the family have had to resort to a number of measures to get by. Almost two in five (38%) had to apply for benefits or other support from the Government, while over one in five (22%) had to dip into their savings. In addition, 13% cited that they stopped saving for their retirement. One in six (16%) also had to sell their personal possessions.
Worryingly, 15% had to either downsize, move back in with family, start renting or even became homeless – demonstrating the life changing impact an unexpected loss of income due to ill health can cause.
The number of homemovers – current homeowners moving house – fell by 2% in the first six months of 2017 compared with the same period in 2016, according to the latest Lloyds Bank Homemover Review.
There were 171,300 homemovers in the first half of 2017 compared with 174,300 in the same period last year. The first half of 2016 saw 18,000 more homemovers (an increase of 11% compared to the first half of 2015). This increase may have been due to owners making home purchases before the introduction of the new stamp duty charges for second and additional homes.
Since hitting a market low of 117,900 in the first half of 2009, the number of homemovers has grown by 45% (or 53,000). However, the current numbers still remain at just under half (48%) of what it was before the financial crash in the first half of 2007 (327,600). A decade ago, just under two-thirds (64%) of all house purchases financed by a mortgage were made by homemovers. In 2017, this proportion has dropped to almost half (51%). Over the past five years, the average price paid by homemovers has grown by 41% (£84,869) from £206,122 in 2012, to £290,991 in June 2017, equivalent to a monthly rise of £1,414.
The average deposit put down by a homemover has increased by 40% in the past five years, from £68,663 in 2012 to £96,109 in 2017. Not surprisingly Londoners put down the largest deposit towards the purchase of their next home; £188,916 – four times higher than the average homemover deposit of £48,080 in Northern Ireland, the lowest.
Proceed With Caution
According to figures from HMRC for properties bought at prices above £40k, the provisional seasonally adjusted UK property transaction count for July 2017 was 104,760 residential and 11,750 non-residential transactions. The seasonally adjusted estimate of the number of residential property transactions increased by 1.3% between June 2017 and July 2017.
This month’s seasonally adjusted figure is 8.3% higher compared with the same month last year, but around the same level as in July 2015. HMRC do suggest caution when making comparisons of transactions between July 2017 and July 2016 as some taxpayers may have changed their behaviour as they considered the result of the June 2017 General Election, and the EU referendum in June 2016.
For July 2017 the number of non-adjusted residential transactions was about 10.3% lower compared with June 2017. The number of non-adjusted residential transactions was 1.4% higher than in July 2016 but these figures for the three most recent months are provisional and therefore subject to revision.
HMRC’s estimate on the number of transactions in June 2017 has increased since they last went to publication and they highlight some uncertainty around their estimates for the most recent month, due to the fact that purchasers have 30 days from the date of completion to inform HMRC. For Buy to Let, the seasonally adjusted estimate of the number of transactions increased by 12.1% between June 2017 and July 2017. This month’s figure is 15.8% higher compared with the same month last year.
Insured To Drive A Golf Buggy?
Owners of vehicles used on private land, such as quad bikes, golf buggies, mobility scooters and motorised lawnmowers, together with participants in motor sports, could all be forced to take out third party insurance unless the European Commission takes urgent action insurance organisations warned this week.
If the Commission fails to act then the UK government will need to change domestic law and extend the scope of compulsory motor insurance for the time the UK remains in the EU and during any exit transition period. This would lead to significant disruption and additional costs. The European Court of Justice (ECJ) in 2014 ruled that compensation for injuries suffered by a Slovenian farm worker, Damijan Vnuk, by a tractor while on private land should have been covered by compulsory motor insurance. In the UK motor insurance is compulsory for vehicles used on public roads, but not on private land.
The ABI, together with the British Insurance Brokers Association, Motor Insurers’ Bureau, International Underwriting Association, Lloyds Market Association and Lloyd’s, are urging the EU Commission to resolve this by implementing its proposal to clarify that compulsory motor insurance only applies to vehicles when in traffic and not those used on private land.
A great honour has been bestowed upon me – Gavin has asked me to take over the Compliance Blogs and to share my thoughts on the topical compliance subjects of the day. Hopefully I can do the job justice.
When thinking about writing the blog, my first thought was how tricky it is to know what to talk about; not through a lack of material but an over-abundance. The regulatory landscape is littered with hot-topics including such juicy subjects as the Senior Managers regime and GDPR but I think we’ll leave those for another time. Instead, I shall break myself in gently with a familiar topic, and something I haven’t published anything about for some months – Debt Consolidation.
Why? Well, it’s back in the news again again, thanks to some enforcement action taken by the regulator against a firm who failed to treat debt consolidation customers fairly.
As a network, we do our best to keep all our members safe but, inevitably, there will be some who may think we are too prescriptive or say things that don’t need to be said. This was certainly true of the Debt Consolidation work we did last year as a lot of people felt they understood the subject well and didn’t need the network to provide guidance on best practice. And that may well have been true for many advisers but there were equally a lot of people who felt that the guidance was useful and certainly appreciated the debt consolidation calculator tool we developed.
Well last week, then regulator took action against a directly authorised firm in Cheshire, instructing them to calculate and offer redress to customers who did not receive suitable debt consolidation advice. Unsurprisingly, I like rulings such as this. It validates the work we do and helps demonstrate the value of a network putting those protections in place.
The company in question was deemed by the FCA to have not adequately considered the costs and implications of adding debts to their mortgages. The firm also admitted it hadn’t considered alternatives to debt consolidation, not explained the implications of securing unsecured debts, and had not calculated the costs associated with extending the term of the consolidated debts.
The action required involves writing to all customers who had consolidated their existing debts over a 7-year period up to 2014. A third-party firm will then be appointed to assess the advice on each case, establish any customer detriment, and calculate suitable redress. The whole process and methodology will be overseen by the FCA so it’s quite an undertaking and not one that the firm in question will relish. It is likely to be a very costly exercise and cause significant damage to the firm’s reputation.
This case is the first direct result of the FCA’s thematic work on Debt Consolidation that they did last year. I don’t expect it to be the last by any means so it’s more important than ever to ensure any debt consolidation cases show the calculations and the risks are explained to the customer.
Would this firm have been in that position had they been in a network? Possibly – they would have at least had the support and guidance needed, and probably had any issues identified long before it became a systemic issue. A lower risk perhaps but ultimately it still comes down to the adviser doing the job properly – were these issues a result of mis-understanding or lack of knowledge? Perhaps the issue lies with the governance and oversight within the business. Or it could simply be an issue with the moral and ethical compass of the adviser. We may never know but whatever the background, this will be a hard-learned lesson for the firm and its advisers.
With the 26th Premier League season well and truly underway, research by the Halifax reveals Tottenham Hotspur as early champions when it comes to house price growth in the areas surrounding White Hart Lane.
The house prices of properties near the grounds of all 49 football clubs that have played in the Premier League since 1992 were looked at over the past 20 years to see which area had hit the back of the net for football fans or potentially scored an own goal.
Halifax’s research found that, since 1997, the average home value in the postal district surrounding Tottenham Hotspur’s stadium has risen over seven and a half times (655%), from £59,638 in 1997 to £450,104 in 2017.
The average house price for all 49 past and present Premier League football clubs has risen by an average of £243,591 (equivalent to 326%) from £74,733 in 1997 to £318,324 in 2017. Current Premier League sides have performed better than those relegated with a rise of £234,226 (336%) compared to £249,709 (320%), although both outpace the average growth of £207,230 (283%) for England & Wales as a whole.
Last year’s Premier League champions Chelsea take the title for the most expensive area to live, with an average house price of £1,108,649 for homes around Stamford Bridge. North London rivals Arsenal (£763,401) and Tottenham Hotspur (£450,104) are in second and third place respectively. At the opposite end of the table, homes in the area close to the grounds of Liverpool and Everton have an average price of £76,072 – 14 times less than top of the table Chelsea.
According to the Office of National Statistics, average house prices in the UK have increased by 4.9% in the year to June 2017 (down from 5.0% in the year to May 2017). The annual growth rate has slowed since mid-2016 but has remained broadly around 5% during 2017.
The analysis suggests that the average UK house price was £223,000 in June 2017. This is £10,000 higher than in June 2016 and £2,000 higher than last month. The main contribution to the increase in UK house prices came from England, where house prices increased by 5.2% over the year to June 2017, with the average price in England now £240,000. Wales saw house prices increase by 3.6% over the last 12 months to stand at £152,000. In Scotland, the average price increased by 2.9% over the year to stand at £144,000. The average price in Northern Ireland currently stands at £129,000, an increase of 4.4% over the year to Quarter 2 (Apr to June) 2017.
On a regional basis, London continues to be the region with the highest average house price at £482,000, followed by the South East and the East of England, which stand at £320,000 and £287,000 respectively. The lowest average price continues to be in the North East at £130,000. The East of England showed the highest annual growth, with prices increasing by 7.2% in the year to June 2017. This was followed by the East Midlands at 7.1%. The lowest annual growth was in the North East, where prices increased by 2.5% over the year, followed by London at 2.9%.
Lending On The Rise
On a non-seasonally adjusted basis, UK Finance data shows that mortgage lending in June rose with first-time buyers borrowing £5.9bn, up 26% on the previous month and 9% on June 2016. This was roughly 36,000 loans, up 22% month-on-month and 6% year-on-year.
Home movers borrowed £7.8bn, up 26% on May and 15% year-on-year. This equated to 36,500 loans, up 24% month-on-month and 9% compared to a year ago, and remortgage activity totalled £6bn, up 5% by value on May and 7% on a year ago. The number of remortgage loans totalled 34,300, up 5% month-on-month and 6% on a year ago.
Gross buy-to-let lending was also up totalling £3.0bn, up 3% on May and up 3% compared to June 2016. These equated to 19,700 loans, up 3% month-on-month and 6% year-on-year.
The proportion of household income used to service capital and interest rates continued to be near historic lows in June for both first-time buyers and home movers at 17.3% and 17.5% respectively with affordability metrics for first-time buyers indicating the typical loan size has increased from £137,000 in May to £139,000 in June. The average household income increased to £41,000 from £40,500 meaning the income multiple went up from 3.58 to 3.59.
The average amount borrowed by home movers in the UK increased to £180,000 from £177,000 the previous month, while the average home mover household income increased month-on-month from £54,900 to £55,200. The income multiple for the average home mover went up to 3.39 from 3.37.
The Deadline Is Approaching
The Financial Conduct Authority will soon be launching a campaign to inform people about the 29 August 2019 deadline to complain about payment protection insurance. This campaign will complement the regulatory and supervisory work the FCA has done – and will continue to do – around PPI.
The consumer campaign is being funded by 18 firms that together receive more than 90% of complaints about the sale of PPI. These firms include banks and other providers. The FCA have asked these firms to make a range of improvements to the way people can complain to them about PPI, ahead of the launch of the campaign on 29 August 2017. The improvements should make it quicker and easier for people to complain about PPI or check if they’ve had it.
They include redeveloping parts of their websites and online tools, to make it easier for people to check online if they had PPI, complain online about PPI using a simple, straightforward form and find more information about PPI on the FCA and Financial Ombudsman Service websites.
The FCA has also worked to ensure that firms are offering accurate, timely and free PPI checking services, which are clearly signposted with information in a format that is easy to understand. In addition, these firms will now offer a simplified process for people who have previously had complaints rejected but now want to make a new complaint about high levels of commission earned from the sale of PPI. This means customers don’t have to provide lots of information a second time.
According to UK Finance, the number of mortgages in arrears of 2.5% or more of the outstanding balance declined to 88,200 in the second quarter of this year, the lowest level since at least 1994 when this run of data began. The total was 5% lower than in the first quarter (92,600) and amounted to 0.8% of the more than 11 million mortgages outstanding in the UK.
The second quarter also saw a fall in the number of mortgages across all arrears bands, including those with the highest levels of arrears. In the same period, the number of mortgages with arrears of 10% or more of the outstanding balance totalled 25,200, down 5% from 26,500 in the preceding quarter. This brought a welcome end to a period of five successive quarters in which this figure had edged upwards from 23,400 in the first quarter of 2016.
The number of properties taken into possession also declined in the second quarter from 1,900 to 1,800 (accounting for 0.02% of all mortgages). The total was the same as in the final quarter of last year, and is the lowest figure since quarterly data was first published in 2008. In line with a trend that has become established in recent data, the rate of buy-to-let arrears was lower than arrears in the owner-occupied sector, although the buy-to-let possession rate was higher. This is because lenders extend a high level of forbearance to owner-occupiers to help them overcome any period of financial difficulty and stay in their homes wherever possible.
Fourth On The Fall
In the latest analysis from the Halifax, house prices in the last three months (May-July) were 0.2% lower than in the previous three months (February-April). This was the fourth successive quarterly fall; the first time this has happened since November 2012. Prices in the three months to July were 2.1% higher than in the same three months a year earlier. This was lower than in June (2.6%) and is the lowest annual rate since April 2013 (2.0%). The annual rate has fallen from a peak of 10.0% in March 2016.
House prices rose by 0.4% between June and July, partially offsetting the 0.9% decline recorded between May and June. Nationally, the lender suggests that house prices in July 2017 were 10% above their August 2007 peak with the average now £219,266 being £64,603 (42%) higher than its low point of £154,663 in April 2009.
New instruction for home sales fell for the 16th consecutive month in June. Whilst the average stock levels on estate agents’ books are down marginally to an all-time low. After exceeding 100,000 for five successive months, home sales fell by 3% between May and June, to 96,910. This is the lowest level since 96,740 in October 2016.
Choice Is Everything
The number of mortgage products available has increased for yet another month to stand at a whopping 4,657. The data, taken from Moneyfacts’ monthly Mortgage Treasury Report, shows that the number of live deals has risen by 53 on July and by 843 on last August, when there were 3,814 deals available.
Choice has been increasing for longer than that, though, with this month’s increase marking the 15th month in a row that product numbers have improved according to Moneyfacts.
Indeed, the residential mortgage market has grown substantially since product numbers hit an all-time low of 1,209 in April 2009. Even compared to five years ago, when the number of products stood at 2,888, there has been an increase of 61%. The research highlights the most recent increase in product numbers is largely due to lenders entering the three-year fixed rate market.
The Holiday Risk
The jaw-dropping potential costs of emergency medical treatment faced by UK travellers abroad this year is highlighted by the Association of British Insurers. Six-figure medical bills are now not uncommon. The ABI has launched a new guide to travel insurance to help travellers ensure they have the right travel insurance to cover any sky high overseas medical bills and emergency repatriation to get back home.
The USA, which attracts 3.8 million UK visitors a year, has some of the highest medical costs for example £768,000 has been paid to cover the medical costs of treating a traveller who suffered a stroke. This includes £60,000 for an air ambulance back to the UK, and £252,000 to treat a brain haemorrhage and broken shoulder suffered by a traveller when he fell off a cycle.
Elsewhere in the world, examples of emergency medical bills faced by British travellers that travel insurers have paid include £136,000 for treating complications following an insect bite in Chile. This included paying for a nurse to escort the traveller home, £125,000 to pay for surgery following a jet-ski accident while holidaying in Turkey and £81,000 to cover ongoing costs of treating a holidaymaker who contracted pancreatitis in Greece.