Cookies on this site are strictly necessary in order to enable you to move around the website and use its features. Without these cookies, we will not be able to provide required features, such as placing orders. More Information
Weekly Round-Up: 17th November 2017
Downsize in later life
Older workers are finding themselves caught in a game of retirement roulette as many are relying on external factors such as a downsizing, an inheritance or even a lottery win to be able to afford a comfortable retirement, Aviva’s latest Real Retirement Report reveals.
A quarter (25%) of over-50s workers are hoping to profit from downsizing to a smaller home or moving to a cheaper area. A similar proportion (24%) are relying on receiving an inheritance to achieve a comfortable standard of living in retirement, which suggests it’s not only younger generations who count on help from family to support their financial needs. More than a fifth (22%) are depending on relatives no longer being financially dependent on them with as many as 1.9 million older workers currently have financially dependent parents or children.
According to the report more than one in ten (13%) or 1.3 million over-50s workers say they are relying on a lottery win to afford a comfortable retirement, despite the odds of winning the National Lottery being just one in 45 million – a sign of their pessimism about their prospects of otherwise being able to retire in comfort.
Over-50s workers say they reached or expect to reach their peak earnings – or the highest amount of income earned during their lifetime – at the age of 51 on average, with this period lasting for an average of 5½ years. Although a third (34%) of older workers save more during this peak earnings period, a fifth (21%) say they have or would spend it on big one-off purchases such as a new car, kitchen or extension. A similar proportion (20%) have or would spend more on everyday living and enjoying themselves. Only 12% say they have or would increase contributions to an existing workplace pension during this time, rising to just 14% among those who expect to retire within the next two years.
Cover at a premium
The Financial Inclusion Commission (“FIC”), a cross-party campaigning body of Members of Parliament, Peers, social-policy leaders and industry experts, has released the findings of its report Access to Insurance, which highlights the gaps in insurance coverage in the UK and sets out a blueprint for widened industry access. The report outlines the extent of those without adequate insurance cover, including that almost 16 million people (35%) are without contents insurance and 60% of those earning £15,000 or less per annum have no contents cover.
Insurance is the forgotten piece of the financial inclusion debate; it gives people the peace of mind to plan financially beyond day-to-day expenditure. The analysis shows that a significant proportion of the UK population is without contents insurance, which arises from a lack of demand from individuals and problems with supply. Being young, having a low income or living in a rented property are all factors for not having home insurance. Moreover, those in social housing tend to be found in areas of higher crime, and renters themselves are less able to afford the annual premiums. A study by the FCA reports that 81% of ‘generation rent’ are without contents cover.
Those in vulnerable circumstances are also likely to lose out: older people, for example, tend not to have the knowhow to handle the industry-wide move online, and younger people struggle with financial capability: 19% of adults find information provided by insurers difficult to understand. For many, contents insurance is made unaffordable because their financial situation prevents them paying often cheaper annual premiums and from purchasing comprehensive cover.
Where is the will?
New research from mutual insurer, Royal London, reveals three in five adults (60%) don’t have a will in place, with a third (33%) not having thought about writing a will. Surprisingly, the research also found that a quarter (26%) of those aged 55 and over have not written a will. Of these, one in six (16%) over 55s with no will have never even thought about writing one.
Co-habiting couples are less likely to have a will, with three-quarters (77%) not having written one compared to those who are married or in a civil partnership (46%). Single adults (45%) and co-habiting couples (32%) are the least likely to have thought about writing a will compared to those who are married or in a civil partnership (22%) and those who have separated/divorced (21%).
Adults with children feel more pressure to write a will, with half (48%) saying they have not written a will but want to write one in the near future. Three in five parents with children under 18 (58%) also haven’t chosen guardians for their children in the event of their death.
Halifax has teamed up with Google to help homebuyers understand perplexing property jargon The new Halifax Jargon Buster website provides relatable, entertaining and easy to understand analogies to help explain common property terms, including ‘stamp duty’, ‘gazumping’ and ‘valuation’. It also provides a dictionary definition and videos.
As part of this innovative campaign, consumers can access the Jargon Buster dictionary using Google Assistant on mobile devices and Google Home, by saying “Ok Google, let me speak to the Halifax Jargon Buster”. This means that users at any stage of the home buying process can search for the mortgage term they are unsure about, and get a response with an analogy.
More than 25 of the top Googled mortgage terms are currently featured on the Halifax Jargon Buster and others will continue to be added. It may come as an unwelcome surprise to homebuyers confused by the term ‘Stamp Duty’ that it is the second largest cost, behind estate agency fees, they are likely to pay when buying a home. Halifax research shows that the national average cost of moving in the UK stands at £11,624, with stamp duty accounting for £2,897; a rise of £393 (16%) over the last year. Stamp duty jumps to just under £16,000 for homemovers in London and, contrary to the national average, exceeds estate agency fees.
Remain Vigilant for False Income and Employment Situations
This week, I’m going to talk about the need for advisers taking the the greatest care when assessing customers’ income and employment. If you are in any way involved in mortgage applications, this will be very relevant to you.
New legislation has increased the risk of an adviser being accused of committing a criminal offence by aiding a customer to evade tax, which ups the ante for adviser risks when combined with potential for application fraud and panel removal.
A recent review carried out by BM Solutions found that almost 9 out of 10 cases contained keying errors or discrepancies when it came to the income declared on the application. In many of these cases, further investigation led to the belief that fraud had been committed.
With the possibility of panel removals still being a major risk to individuals and firms, it still amazes me that advisers will take such a big risk with their livelihoods. Not cross checking the income, failing to do further checks to validate the employment, or simply not collecting enough evidence of income is where advisers are falling down and, as such, they are not taking all reasonable steps to ensure the declared income is genuine.
This remains a problem in the wider industry and even within the HLPartnership network, we still regularly come across situations where customers have lied about their job, their income, their financial history etc. with the adviser failing to notice because they didn’t carry out the most basic due diligence.
Don’t get me wrong; I know the majority of brokers understand the risk and are diligent in taking all reasonable steps to ensure the customer is telling them the truth. However, there are still those who think that it is acceptable to risk their entire career and potentially face fines or even imprisonment, just to make a few hundred quid.
I cannot make it any clearer: HLPartnership will not tolerate fraud and, if the adviser is found to be negligent and hasn’t carried out sufficient checks then this will result in termination of that adviser’s permissions. And if you think you could just go and work elsewhere, perhaps Directly Authorised or under another network, then think again. Regulatory references are detailed and brutally blunt. Panel removals, suspicions of financial crime involvement, suspensions, investigations, industry debt etc. are stains on your reputation that will not wash out.
At the recent Business Development Forum events around the country, we talked about the concerns BM Solutions naturally have over this. They have found, through their review across the industry, the following common, key themes:
Advisers not collecting payslips;
Payslips collected that were not acceptable e.g. not latest payslips or old documents;
Income keyed on the system (employed and self-employed) not matching the fact find or documents collected;
Self-employed income declared but the adviser not collecting corresponding SA302 documents;
Self-employed verification not acceptable e.g. HMRC logo and/or tax reference not showing;
Income from land and property where the adviser didn’t collect SA302, SA105 or P60 / Self-Assessment, where those properties are in the background
Gross annual rental income (GARI) not provided at all or keyed incorrectly e.g. using monthly figures rather than grossing up to annual, using the bank statement which can be the net income if using a rental agent; etc.
Each of these situations could well lead to false declaration of true income, resulting in the application being treated as a fraud. For many situations, particularly property income, it could even be that the adviser is aiding the individual to evade tax, which is a criminal offence in itself and can now result in action taken against advisers personally, as well as the company they work for.
Recent guidance published by HMRC sets out these new offences being committed where a relevant body fails to prevent an associated person criminally facilitating the evasion of a tax.
HLPartnership has a zero tolerance to financial crime within the network and, in effect, these new rules do nothing to change that. But just to be clear (again) HLPartnership will not accept any act that supports an individual customer benefitting from tax evasion. All applications, whether regulated or buy to let, would require the customer to provide legitimate documentary evidence of earnings to support the application. Our policy does not allow a customer to self-declare their income, nor does it enable the customer to proceed without providing the relevant supporting documents, such as payslips, P60s and SA302 documents.
Lenders are ever vigilant to such issues and, of course, BM Solutions will be on high alert following their recent review. If you are not already familiar with their website (www.bmsolutions.co.uk) it’s a good idea to take a few minutes to become acquainted with it.
Of course, every lender’s procedures will vary and it’s not a case of one size fits all. Below are a few points to consider that will help keep you on the right side of the lender’s requirements:
Firstly, before submitting the application, take time to check you have answered everything correctly. Leave it a few hours and come back to it if necessary.
Gather all of the information from the borrower at the first available opportunity, such as their proof of income, identification, proof of deposit and Assured Shorthold Tenancies (AST).
In light of the recent Buy-to-Let tax changes and the new rules for portfolio landlords, you may be required to gather more information on applicants than in previous years. Where the application is subject to manual underwriting, a fully completed Customer Profile Form will need to be submitted – details of which are on the BM Solutions website.
All the correct documentation is worthless however if it is not keyed in or uploaded correctly. Double check the applications before you press the submit button and if you have made a mistake, tell the lender as soon as possible to get it corrected.
If you are in any doubt about how to key the case properly or have any questions, please speak to your relevant BDM for guidance and keep a record of what they advise.
BM Solutions have produced a number of keying guides, available on their website, which will guide you through keying in income for different employment types. For completeness, we’ve also added to these to our website. Click the following links for the guides:
Check payslips. A quick online search shows just how easy it is to obtain ‘replacement pay slips’ and without thorough diligence you may well be fooled. Request the applicant’s most recent payslips and check for any obvious irregularities – are they clear and legible? do they contain any formatting or spelling mistakes? Cross-reference the National Insurance number, employer’s address and tax code against other documents provided and make sure the amount they are credited each month matches the amount on their bank statement.
FPI payments (Faster Payments). If these appear on bank statements you should delve deeper. When did the applicant start to receive these and are they genuinely from their employer? Does the explanation make sense? Do the numbers stack up?
Customer profile. Use your instincts when it comes to scrutinising the applicant. Does it seem feasible how and what they are paid, given their profession or the benefits they claim? Have they started a new or secondary job recently and does this seem workable given their primary job?
Existence of employer. Sometimes the simplest of details catches a fraudster out. Creating an identity for their employer may be something the applicant has overlooked. An online search should show some evidence of their employer, either on Yell.com, Google Street View or Companies House.
Apply the same rules. The same stringent tests should also be applied to self-employed borrowers and those with a second job. Check the applicant’s status within the company – if they are a director or have a large shareholding they may need to be treated as self-employed.
Confirm income. Request the borrower provides evidence of their income, printed directly from the HMRC web-portal. Documents available on there include the applicant’s ‘tax year calculation’ (also known as an SA302) which can be printed for the last four years and their ‘tax year overview’. Scrutinise these in the same way you would a payslip. Is the HMRC logo present and clear? Are the Unique Taxpayer Reference, customer name and tax year all present and correct?
Existence of business. If self-employed, how do they generate business? You should be able to find evidence of this either online or in a local newspaper.
Finally – and arguably most importantly – report anything you believe is suspicious about the case to HLPartnership. We will ask for your suspicions in writing and have a form on the Members Area of our website to make it easier to do. Why do we want it in writing? Because it provides evidence that you have reported your suspicions and have fulfilled your responsibility to help stop fraud or other financial crime. Remember, failing to report a crime is almost as bad as actively being involved yourself, which is why there is a substantial fine and possible prison sentence for turning a blind eye.
Fraud is a plague on our society and it’s simply not worth getting involved either deliberately or through a lack of care with your clients. Please stay vigilant, protect yourselves by checking and validating the information, and if you do suspect something, report it.
The Nationwide Building Society is reporting that the annual rate of house price growth picked up slightly in October to 2.5%, from a revised 2.3% in September, remaining within their 2-4% range that has prevailing since March.
It is suggested that low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appears to be weighing on confidence. One key driver for House price growth is still the lack of homes on the market. Economic growth was a little stronger than expected in Q3, resulting in the Bank Base Rate rate rise last week (to 0.5% from 0.25%).
In today’s mortgage market however, the proportion of borrowers directly impacted by the rate rise is smaller than in the past, in part because the vast majority of new mortgages in recent years were extended on fixed interest rates. The share of outstanding mortgages on variable rates (and which are therefore likely to see an increase in payments when the Bank Rate increased) has fallen to a record low of c40%, down from a peak of c70% in 2001.
Moreover, the 0.25% increase in rates is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, the increase of 0.25% would increase monthly payments by £15 to £665 (equivalent to £180 per year). That’s not to say that the rise has been welcome news for many borrowers. Household budgets are under pressure from the fact that wages have not been rising as fast as the cost of living. Indeed, in real terms (i.e. after adjusting for inflation) wage rates are still at levels prevailing in 2005.
Barclays has introduced a new fraud intervention service to its online banking system. Customers tricked into transferring money to a fraudster can immediately get support to fix the situation with one simple phone call. When a payment made online is flagged as suspicious and out of character, Barclays will intervene to ask the customer three questions to identify whether they are a likely victim of a fraudster. For example, ‘Has someone just called you saying they are from your bank asking you to move money to a ‘safe’ account?’
This new step to the online banking process is triggered by suspicious and out of character behaviour, including an unusually large transfer to a new or existing payee. The move comes as Barclays revealed that a third (34 per cent) of UK adults have now been a victim of fraud or scams, falling for this not once, but twice on average in their lifetime. The financial impact of this is huge, with the average amount stolen reaching £893.34 per time.
Furthermore, (33 per cent) of fraud and scam cases have gone unreported to banks and nearly three quarters (72 per cent) were not reported to the police, due to one in four Brit’s being too embarrassed to admit they have fallen victim.
Managing the Mortgage
UK Finance has published its latest set of figures showing that the number of mortgages in arrears of 2.5 per cent or more of the outstanding balance fell again in the third quarter of 2017, but cases of possession edged upwards from a historically low level. At 88,300, the number of loans in arrears was two per cent lower than in the second quarter of the year (90,400) and at its lowest level since this run of data began in 1994. The number of mortgages in arrears of 2.5 per cent or more of the outstanding balance fell again in the third quarter of 2017, but cases of possession edged upwards from an historically low level. At 88,300, the number of loans in arrears was two per cent lower than in the second quarter of the year (90,400) and at its lowest level since this run of data began in 1994.
The number of properties taken into possession in the third quarter nudged upwards to 1,900, the same total as in the first three months of this year. The second quarter total of 1,800 cases of possession had been the lowest since quarterly data began in 2008, and the proportion of properties taken into possession (at 0.02 per cent) has remained unchanged in each period since the second quarter of 2015. Within the total, the number of owner-occupied properties taken into possession increased in the third quarter from 1,100 to 1,300, while buy-to-let repossessions fell from 700 to 600. The last time the number of owner-occupied possession rose was in the first quarter of 2014, when the total increased from 4,900 to 5,000.
Buy-to-let arrears were flat, apart from a small increase in those with higher levels of debt. Overall, the number of buy-to-let mortgages in arrears increased by two per cent to 5,100 (5,000 in the second quarter).
In October, interest from buyers continued to decline with 20% more respondents to the Royal Institution of Chartered Surveyors UK Residential Market Survey seeing a fall in new buyer enquiries over the month. Agreed sales were also reported to have fallen again with 20% more respondents noting a decline in transactions over the month at the national level. Regionally, Wales, Scotland and the North East were the only areas to see any pick-up for agreed sales, while sales trends were either flat or negative across the rest of the UK. Going forward, national sales expectations remain flat over the coming three months, while the twelve month view has turned marginally negative.
Following a couple of months in which new instructions were broadly stable, the latest results point to a renewed deterioration in the flow of fresh listings coming to market (net balance -14%). In keeping with other indicators pointing to a slower market, it is now also taking longer to complete a sale, with the average time rising to 18.5 weeks nationally, up from 16.6 in February 2017 when the measure was first introduced.
In October the survey showed 1% more professionals reporting a price rise nationally rather than fall (+6% in September), although there remains significant differences between regions. Respondents in London are continuing to report a decline in prices, with 63% more respondents reporting a fall rather than rise over the month (the poorest reading since 2009). Similarly, respondents are reporting a weakening picture in the South East, while East Anglia and the North East also returned readings below zero. By way of contrast, the North West of England, Wales, Scotland and Northern Ireland have all reported sentiment consistent with house price gains.
At its meeting ending on 1 November 2017, The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to increase Bank Rate by 0.25 percentage points, to 0.5%. The MPC still expects inflation to peak above 3.0% in October but is expected to fall back over the next year and, conditioned on the gently rising path of Bank Rate implied by current market yields, to approach the 2% target by the end of the forecast period.
The MPC highlighted that the decision to leave the European Union is having a noticeable impact on the economic outlook with constraints on investment and labour supply appearing to reinforce the marked slowdown that has been increasingly evident in recent years. Unemployment has fallen to a 42-year low and the MPC judges that the level of remaining slack is limited and consumer confidence has remained resilient. In line with the framework set out at the time of the referendum, the MPC now judges that it can raise interest rates to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target. All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.
The Bank believes that there remains considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal. The MPC will respond to developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation. The Committee will monitor closely the incoming evidence on these and other developments, including the impact of today’s increase in Bank Rate, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.
On the range
According to the Nationwide Building Society, the annual rate of house price growth picked up slightly in October to 2.5%, from a revised 2.3% in September and remaining within the 2-4% range that has prevailing since March. Low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appears to be weighing on confidence. The lack of homes on the market is providing support to house prices.
The proportion of borrowers directly impacted by a rate rise is smaller than in the past, in part because the vast majority of new mortgages in recent years were extended on fixed interest rates. The share of outstanding mortgages on variable rates (and which are therefore likely to see an increase in payments if the Bank Rate is increased) has fallen to a record low of c40%, down from a peak of c70% in 2001.
One of the many factors that impacts housing demand is population growth. England’s population increased by 11% between 2001 and 2015 (from 49.4m to 54.8m). International migration has been an important driver, accounting for 60% (3.2m) of the change over the period. Between 2011 and 2015, there was a 2% increase in the number of households in England (from 21.3m to 21.9m). The increase has been largely driven by those born outside of the UK, in particular from the EU.
Let the train take the strain out of homebuying
Homebuyers working in London and willing to commute for an hour could save £480,000 on average on the purchase price of their home highlighted in research from Lloyds Bank. Unsurprisingly, homebuyers can get more for their money outside of central London (zones 1 and 2) due to lower property prices. Commuting for an hour can save homebuyers an average of £480,858 (60%).
House prices in a selection of towns about an hour’s train journey away from the capital (including Crawley, Windsor, Rochester, Peterborough and Oxford) are, on average, around £316,000; that is £480,858 lower than the average of £797,158 for a property within travelcard zones 1 and 2. This is also significantly lower (£199,778) than the average property price in zones 3 to 6.
The difference between house prices for commuters travelling approximately 60 minutes would pay for the current annual rail cost (£5,169) for 93 years. Homebuyers looking to buy a home in a town approximately 40 minutes away from central London (including Hatfield, Billericay, Orpington and Reading), will pay an average price of £424,903; still £372,255 (47%) lower than in zones 1 and 2 – and with a lower average annual rail pass costing £3,615. The difference of £372,255 would pay for the current annual rail cost for nearly 103 years with a 20 minute commute saving homebuyers £299,328 (38%).
Some commuters to central London however live in areas that command higher house prices. These include commuters from Beaconsfield, who pay an average of £1,054,215 compared to the average house price of £797,158 for those living in central London, a difference of £257,057. Gerrards Cross (£903,142), Ascot (£824,421), Weybridge (£822,672) and Wimbledon, (£807,574) are also more expensive.
Plan for the worst
New research from Royal London shows only one in four (23%) adults have organised their financial information well enough to allow their loved ones to handle their financial affairs relatively easily on death. One in three adults (33%) have dealt with the financial affairs of someone who has died, yet only a quarter (23%) have their own comprehensive file of financial information.
More than one in 10 (12%) adults admitted that it would be very difficult for anyone to handle their financial affairs after they died. Of those who have had to deal with the financial affairs of a deceased relative, more than two thirds (69%) have their financial affairs well organised compared to those who have never had to deal with this (45%).
When it comes to other concerns, the research found stark differences across age groups in the UK. Those over 55 are three times more worried about their health compared to under 55s. Similarly, under 55s are more worried about money than those over 55. Of those who are worried about money only two in five (38%) consider it as their biggest priority.
Nearly half (46%) of millennials, those aged 18-34, said money was their main worry, yet only a quarter (24%) said saving or making more money was their main priority over the next 12 months.
In the event of a death, most families rely on savings (33%), followed by pension funds (26%) and cash from the sale of a property (21%). Worryingly, one in seven (14%) adults under 55 didn’t know what assets or income their family would live off if they were to die.
In their latest view on the housing market, UK Finance has suggested activity in the housing market has built up modest momentum since the start of the year. The number of transactions has remained just above 100,000 each month since January, supported by recovering levels of house purchase approvals. Their house purchase approvals data which covers just over two-thirds of the market, implies they expect activity to recover a little further as we head towards the end of this year. Looking at activity over the longer term, there’s been little movement in transactions since early 2014.
Within the 100,000 a month average figure, the activity mix has changed. Before March 2016, when the stamp duty change on second properties led to a jump in activity, roughly one-in-ten transactions were by landlords, but in August this year, the comparable figure was closer to one-in-17. Over the same period, first-time buyers have fared better, accounting for a larger proportion of house purchases, helped by government schemes such as the Help to Buy equity loan. Home movers and cash buyers have seen less movement as their share of the market remains unchanged.
More recently though, home mover numbers have shown some signs of growth, helped by low mortgage rates as their debt service costs reach historic lows. Another factor that may have helped home movers is the change to the Prudential Regulation Authority’s macro-prudential policy on loan-to-incomes. This allows lenders to more effectively manage the flow of loans at high income multiples and has coincided with the proportion of home mover loans at or above 4.5 loan-to-income ratio to overtake that of first-time buyers.
According to UK Finance, housing market activity has built up modest momentum since the start of the year, helped by an increase in first-time buyer numbers. The trade body for the finance industry’s latest update on borrowing show gross mortgage lending in September estimated to be at £21.4 billion, 5 per cent higher than a year ago. Meanwhile the level of credit card borrowing from High Street Banks, compared to a year earlier, is 5.5 per cent higher.
The figures show business borrowing has moderated over the course of 2017, with the growth rate for borrowing by wholesale and retail businesses slowing the most, as these customer-facing
sectors could be affected by any cutbacks in consumer spending.
UK Finance highlight that rising inflation continues to put pressure on household budgets which is impacting consumer spending. Consumer credit growth has edged up a little compared to last month, but is in line with annual growth rates over the last year. The increase in the level of consumer borrowing could raise red flags for lenders as they may be “over-exposed” if there is a change in economic conditions according to Standard and Poor’s. The ratings agency suggests recent double digit annual growth rate would be unsustainable if continued at the same pace with cheap central bank term funding schemes helping consumers to pay for their borrowing.
The government is seeking views as it looks to develop a way to provide individuals in debt with up to six weeks free from further interest, charges and enforcement action. This period would give those affected time to take action by seeking financial advice about how to manage and relieve their debt burden. Debt advice is key in helping people access a range of solutions, including informal repayment plans and debt write-off options, in order to help people get back on their feet.
Although many people can and do use credit successfully to manage their personal finances, for the minority who get into difficulties the government wants to offer more support. The new scheme could include legal protections that would shield individuals from further creditor action once a plan to repay their debts is in place.
Problem debt, where people are falling behind on their financial repayments or see their debt as a heavy burden, affects millions of people in the UK. Causes can range from the sudden loss of employment to a more gradual dependence on debt to make ends meet, with many people waiting 12 months or more before seeking help. A six weeks’ grace period, where those suffering are safe from enforcement action and interest charges, could help give people the time and opportunity to seek debt advice.
Start at Work
Insurance company Zurich, in collaboration with the Smith School of Enterprise and the Environment at the University of Oxford, has published the UK recommendations from its report, ‘Embracing the income protection gaps challenge: options and solutions’. The study, outlines practical recommendations for how government, employers, insurers and intermediaries can work together to build financial resilience where the main adult wage earner in a household becomes too ill to work or dies.
The urgent need for solutions in the UK comes as state support for those unable to work is being reduced and the working population ages, with people at increased risk of becoming disabled during their career. Zurich’s study, based on extensive research, outlines practical recommendations to address critical issues and gives insights into how governments, employers, insurers, intermediaries and individuals can work together to close income protection gaps (IPGs). Key recommendations for the government include creating an environment for optimal workplace-based solutions, such as financial incentives for employers to provide group income protection insurance. Zurich is asking the government to incentivise employers to invest in medical monitoring and health and fitness programmes and to integrate policy frameworks alongside encouraging the retention of older workers and those with a disability, through progressive retirement options and employer obligations.
Homebuyers looking to live in one of England’s picturesque market towns will need to pay a premium of £30,788 compared to neighbouring areas, according to latest research from Lloyds Bank. House prices in English market towns typically command a premium and have grown, on average, by 21% in the past five years to an average price of £280,690 – 7.9 times the average gross earnings of all full time workers across England.
House prices in market towns across England are, on average, £30,788 or 12% higher than their county average and nearly seven in 10 (67%) market towns cost more when compared to the rest of their county. Since 2015, house prices in these areas have grown by £6,850. Beaconsfield becomes the first market town where average house prices cost over £1 million
South East England dominates the top 10 most expensive market towns with Beaconsfield being the most expensive, with an average house price of £1,049,659 – the first market town to break above the £1 million mark. Henley on Thames (£831,452) and Alfresford in Hampshire (£541,529) are the next most expensive market towns. New towns in the South East to break the top 10 most expensive are Thame (£476,365), Hertford (£452,843) and Saffron Walden (£441,583). Outside southern England, Altrincham is the most expensive market town with an average property value of £431,295. Beaconsfield – close to the Chiltern Hills and within a 40 minute commute to London – also carries the largest house price premium with homes costing 161% (or £647,623) above the county average of £402,036.
The horse racing market town of Wetherby has the second highest premium with an average house price that is more than double (110%) the average house price in West Yorkshire (£366,873 against £175,056). For homebuyers looking for more affordable market town living, bargains can be found in northern England. Ferryhill with an average property value of £78,184 and Crook (£115,659), both in Durham, are the least expensive market towns. Immingham in Lincolnshire follows with an average house price of £115,769 with further Durham towns Stanhope (£142,535) and Saltburn (£144,717) next.
The latest figures from retirement income providers Retirement Advantage show funding home and garden improvements and clearing and consolidating existing debts are the most popular reasons for using equity release.
Home improvements were the most common reason given for taking out equity release loans in Q3 according to Retirement Advantage’s customer data, with one in four (25%) taken out to help pay for renovations. One in five (21%) customers taking out equity release loans between July and September cited settling their mortgage as a reason, with nearly one in seven (13%) using it to help consolidate unsecured debts.
Summarising the report Retirement Advantage suggest there is a groundswell of customers recognising that their property can play just as much a role in their retirement planning as pension income and other assets. The data shows a wide variety of reasons given for using equity release, from buying cars (9%) to funding holidays (12%) to helping first time buyers (3%) to even covering day to day living expenses (12%). Significantly, one in 20 loans are taken out to buy new property that could in turn be eligible for equity release.
First step on the housing ladder
UK Finance data shows that lending for house purchase was higher in August 2017 than in both the preceding month and a year earlier. Looking at the data first-time buyers borrowed £5.7 billion, 16 per cent more than in July and 12 per cent more than in August 2016. They took out 34,400 mortgages, 14 per cent up on the preceding month and nine per cent more year-on-year.
Home movers borrowed £8.4 billion, 18 per cent more than in July and 20 per cent more than in August last year. This equated to 38,500 loans, up 17 per cent on July and 13 per cent on August 2016. Remortgaging by home owners totalled £6.4 billion, four per cent less than in July but eight per cent more than in August 2016. The number of people remortgaging totalled 36,700, down one per cent on July but five per cent higher than a year ago.
Buy-to-let lending totalled £3.1 billion, down three per cent on July 2017 and the same as in August last year. This equated to 20,400 mortgages, the same as in July but four per cent more than in August last year.
Looking at first time buyers, the proportion of household income taken up by mortgage payments edged up for first-time buyers (17.5 per cent) but was unchanged for movers (17.6 per cent). Overall, it remains low by historical standards. The average amount borrowed by a first-time buyer increased from £138,999 in July 2017 to £140,035. There was a smaller proportionate increase in the average first-time buyer household income, and the average income multiple increased from 3.60 to 3.63. The average amount borrowed by movers increased from £180,000 to £182,750.
It’s a wonderful life
The latest Halifax children’s Quality of Life Survey revealed that the Orkney Islands held on to its crown based on low primary school class size, high school spending per pupil, low population density and traffic levels. Children in the Orkneys are also likely to be surrounded by adults in employment and with high personal well-being. North Yorkshire’s Craven scooped third place and top in England, thanks to its high employment rate, primary and secondary class sizes, low traffic levels, population density and personal well-being.
The top 50 ranking best places for children to live were split between the South (South East, South West and East of England) and the North (Scotland, North West, Yorkshire and the Humber, West Midlands, East Midlands and Wales).
The region with the most spots in the top 50 best places to raise kids is the South East (12); including Hart, Waverly, Woking, Mole Valley and Test Valley. 10 are in Scotland – along with the top two; the Western Isles, the Highlands, Perth & Kinross, Argyle & Bute, Dumfries & Galloway and the Scottish Borderswith seven in the East Midlands including the local authorities of Rutland, Erewash and Harborough.
Many of these areas score highly in categories relating to the environment in which children are brought up. These include high levels of employment, bigger houses where children are more likely to have their own bedroom, faster broadband, relatively low traffic volumes, population densities and where adults rate personal well-being highly.
Universal Credit not for Landlords
Just two in 10 landlords say they are willing to let to tenants in receipt of housing benefit or universal credit, according to latest research from the National Landlords Association (NLA). The findings come on the week the House of Commons Work and Pensions Committee questions the Secretary of State for Work and Pensions about the roll out of Universal Credit.
They show that the proportion of landlords who say they are willing to let their property to housing benefit claimants has fallen to just 20%, down from 34% at the start of 2013. The research, taken from the NLA’s Quarterly Landlord Panel, also shows that two in three landlords who let to housing benefit recipients say they have fallen behind on rental payments in the last 12 months.
The NLA has already provided written evidence to the Committee’s inquiry, outlining some of the major problems the new system is causing landlords, and why so many are shying away from accepting Universal Credit tenants. These include the difficulty of communicating and interacting with the Universal Credit administration system, the time and effort it takes to secure direct payment of the housing element of Universal Credit to the landlord, and the six week waiting period causing tenants to be two-months in rent arrears by the time of the first payment.
It’s conference season and it was great to catch up with lots of people in Bristol last week. It was a great day and there will be lots of benefit for the people attending Crawley and Milton Keynes this week. I like the idea that the conferences are about working on your business rather than in your business and it is a great way to share ideas, learn new things and keep up to date with the industry and that is exactly what our Training & Competence (T&C) scheme is designed to do.
In my last update, I mentioned that we are revamping our T&C scheme and with the market as it is and so many changes coming through, it is more important than ever to take every opportunity to stay on top of developments. This is particularly so in a network environment where there are a large number of disparate operations with a wide geographical reach. A good T&C scheme is a fundamental control requirement with the regulator, but more importantly, it is the mechanism by which we can work closely work with you at firm and individual level to keep you safe in business.
The Scheme details the steps taken for recruitment, induction and attaining competent adviser status (CAS). Achieving competence is simply about demonstrating suitable skill and knowledge to perform the role so your Regional Compliance Manager (RCM) will work with anyone yet to achieve competence to lay out what they need to do in order to evidence their ability. This could include a mixture of training, one-to-one meetings, role-plays, observed interviews, knowledge assessments and file reviews.
Whilst the T&C scheme focusses heavily on what is expected to gain Competent Adviser Status, we should not overlook the importance of maintaining that much cherished status. As a network, we have an expectation on us from the regulator as well as our lender and protection partners, to monitor each individual on how they perform as a competent adviser. This is why we have designed a series of performance measures, or KPIs, to enable us to track each individual against the standards expected of them in the role they perform. These will be reviewed quarterly.
Key Performance Indicators (KPIs) set the standards to be maintained and provide a measure to help determine the competency of the Adviser. These are clearly recordable and measurable items in terms of the way each adviser conducts business and are highly influenced by the adviser demonstrating that they are putting the customer’s best interest at the heart of everything they do and making every effort to prevent fraud and financial crime.
The measurements are overseen by the firm or individual’s appointed RCM. The RCM’s role is to analyse all information and data and discuss appropriate action with the adviser. Assessment of the measures is undertaken quarterly and will result in a risk rating, classified as Red (high risk), Amber (medium risk) or Green (low risk) – a ‘RAG’ risk rating.
Subsequent to the assessment and the outcome of the risk rating the network will be able to set out future, ongoing monitoring and, where necessary, to set up formal meetings to discuss and aid ongoing competency.
The measures to be assessed will include the following:
Sales and persistency data – bias, cancellations and lapses
Data and information from product partners – lenders and insurers
Complaint data and customer survey feedback
Any instances of errors, omissions or general rule/procedure breaches
Continual Professional Development (CPD)
Performance reviews (one to one meetings)
Two of the most important measures, in my view, are the file review outcomes and the business quality feedback we receive from our product partners and much of our attention will focus on these key areas.
In due course we will let you know more detail about these measures and what is required to ‘pass’ each measure. The process will be pragmatic and some measures will have a greater influence than others. As a reassurance I will say now that for any adviser that is following our procedures and dealing with customers in fair manner you will have no problems. The system is designed to ‘catch’ those that are falling short of the standards and to help them to develop their competence, which I know is something that you all would welcome.
Fitness & Propriety
In addition to the quarterly reviews, we will perform a regular assessment of the overall fitness and propriety of individuals, which will focus greater attention on firm principles (directors/owners) in line with the regulators expectations. These annual reviews will include knowledge testing as well as financial checks on all advisers and approved persons. It is important therefore that if you are suffering any financial issues that you self-declare and report these to your RCM.
So, having introduced the scheme to you, we will be shortly publishing the full details of the T&C Scheme document. This is a 21-page document laid out to follow the expectations of an adviser from first appointment, through initial training, gaining CAS and how to maintain that status. The document comes with a host of useful resources for Supervisors to use with their team, particularly for advisers with Trainee status.
In the meantime, I hope those of you attending the roadshows at Milton Keynes and Crawley enjoy the day and don’t forget to record this on your CPD log on the Members Area of our website.
According to the latest analysis by the high street lender Halifax, the annual rate of house price growth has picked up for the second consecutive month, rising from 2.6% in August to 4.0% in September. The average house price is now £225,109 – the highest that Halifax has on record. House prices in the three months to September were 1.4% higher than in the previous quarter, the fastest quarterly increase since February.
The Lender suggests that, while the quarterly and annual rates of house price growth have improved, they are lower than at the start of the year. The research indicates that UK house prices continue to be supported by an ongoing shortage of properties for sale and solid growth in full-time employment. However Halifax highlight that increasing pressure on spending power and continuing affordability concerns may well dampen buyer demand.
There has been recent speculation on the possibility of a rise in the Bank of England base rate but Halifax does not anticipate this will have a significant effect on transaction volumes.
The Barclays and Cabinet Office-backed security initiative Cyber Security Challenge UK, hosted an immersive competition to test the skills of thirty cyber enthusiasts. The competition required contestants to adopt the role of interns at a fictitious cyber security firm, who had to defend their company from a cyber-attack, triggered by an insider, all while their superiors were on a team-building canoeing adventure.
In the scenario, the ‘interns’, who were staffing a fictitious security firm called ‘Research4U’, had to spring into action after a hacking group launched a large-scale cyber-attack on the company, stealing confidential technology, source code and client data. The story saw hackers demand a ransom of £10m to prevent releasing the data to the press.
Competitors had to infiltrate and stop the fictional hacker group and destroy the leaked information before it could be released. Leading cyber specialists from Barclays and other leading industry organisations assessed the contestants on a range of skills to rank their performance and suitability for careers in the industry.
On the Market
This month, the Royal Chartered Institute for Surveyors has reported a decline in both sales and new buyer enquiries with sentiment from their members now flatter than any point since last summer’s referendum result. In September, 20% more respondents to their research noted a fall rather than rise in demand from would-be buyers, extending the run of negative readings into a sixth month. Alongside this, 15% more respondents reported a fall in agreed sales rather than a rise which is the lowest since July 2016.
When broken down regionally, London and the South East were at the forefront of the decline in sales, but weakness in transactions was widespread during September. In fact, only Wales and the South West were cited to have seen an increase in sales, while all other parts of the UK saw sales flat. Looking ahead over the next three months, there appears to be little change anticipated in national sales activity, with expectations slipping to -1% (from +7% previously). Likewise, the twelve-month outlook is also flat at the national level, although respondents are a little more optimistic in Wales, Scotland and Northern Ireland.
As sales and new buyers decline, RICS report that new instructions to sell were more or less stable for the second report running, having declined continuously for the past eighteen months. Consequently, average stock levels on estate agents’ books held broadly steady (albeit near record lows), at 43.3.
Money is there
In its latest review of the UK lending market the Bank of England has reported that the availability of secured credit to households, for example mortgages and second charge loans has increased slightly in the three months to mid-September. This was focused on borrowers with low loan to value ratios (75% or less) and was driven by lenders’ market share objectives. Lenders expect availability of these loans to be unchanged over the next three months.
The availability of unsecured credit to households decreased in Q3 and there is expected to be a significant decrease in Q4. Credit scoring criteria for granting both credit card and other unsecured loans appears to have tightened again in Q3, while the proportion of unsecured credit applications being approved falling significantly.
Overall demand for secured lending for house purchase fell slightly in Q3. This was driven by a slight fall in demand for prime lending but Lenders expect total demand for secured lending for house purchase to be unchanged in Q4.
The data the Bank of England used was supplemented by discussions between Bank staff and major UK lenders Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland. This group of lenders account for around 70% of the stock of mortgage lending, and 50% of consumer credit (excluding student loans).
It is ten years since the financial crisis began and the Bank of England (BoE) has published its new regime called “Resolution” which aims to protect the UK Economy should a major bank fail. Like many countries at that time, 10 years ago, the United Kingdom did not have a regime for dealing with banks which failed. This left two choices when banks got into trouble: let them fail, risking major disruption to businesses, households and the wider economy, or bail them out. Faced with potentially disastrous consequences governments, the United Kingdom’s included, felt they had no choice but to bail the banks out.
Resolution aims to change this. It ensures banks can be allowed to fail in an orderly way. Just like when any other business fails, losses arising from bank failure would be imposed on shareholders and investors. This protects the public from loss and incentivises banks to operate more prudently. Resolution policy has come a long way since 2007. Parliament passed legislation in 2009 to create a resolution regime for the United Kingdom, including objectives for the UK authorities and powers for the BoE as resolution authority. They have stated that Resolution cannot be an afterthought, in order to have the option of resolution, if and when a bank fails, they need to ensure in advance that there are resources that can be bailed in and that other barriers to effective resolution have been removed.
The Bank conducts resolution planning for all banks, building societies and certain investment firms operating in the United Kingdom and is working with firms to increase their resolvability. The Bank believes that transparency about banks’ resolvability is both in the public interest and has already published the loss absorbency requirements it has set for each of the major UK banks to be met in stages starting from 2019. From 2019, the Bank will publish summaries of major UK banks’ resolution plans and its assessment of their effectiveness, including any changes needed.
We have seen major developments in the United Kingdom on resolution over the past ten years with the way a bank failure would be dealt with today being very different from the time of the crisis. This announcement from the BoE represents important progress on resolution that contributes to a safe and more stable financial system.
Escape to the country
Countryside homes are £44,454 (20%) more expensive on average than in urban areas, according to the latest annual Halifax Rural Housing Review. Whilst a ‘rural premium’ exists across the country, the research found substantial differences across Great Britain – the greatest in the West Midlands where the average house price in rural areas (£280,776) is £89,272 (47%) higher than in the region’s urban areas (£191,504). The smallest difference is in the East of England where there average premium on countryside homes drops to £27,765 (or 9%).
Property in rural areas is less affordable than in urban areas, with the property price in rural areas 7.6 times average annual earnings compared with a ratio of 6.5 in urban areas. All 10 of the least affordable rural local authority districts are in southern England, where North Dorset is the least affordable rural district with an average house price of £361,603 – 11.4 times local annual average earnings (£31,723). The second least affordable area is Chichester with an average house price of £411,547 (10.8), followed by West Oxfordshire (9.9).
Those wishing to escape to the country on a more manageable budget should look to the most affordable rural districts in the north of England and Scotland. Copeland and East Ayrshire are the most affordable rural districts in Britain, where the average house price is 4.1 times local average gross annual earnings. Between 2012 and 2017, the average price of a countryside home rose by 31% compared with an average increase of 43% in urban areas, resulting in the urban-rural premium gap narrowing from 31% (or £47,769) in 2012 to 20% (£44,454) in 2017.
Despite this, the rate of growth for both urban and rural areas has been the same at 3% over the past year.
It’s a runner
Changes to the way insurers categorise damaged vehicles which are salvaged will offer used car buyers a new way of finding out more about the history of the vehicles. Starting this week an update to the Salvage Code means vehicles which were structurally damaged but judged repairable will have their registration certificate – known as the V5C – marked with an ‘S’ and the following text: “This vehicle has been salvaged due to structural damage but following a technical evaluation declared suitable for repair.”
This will give a clear sign to consumers that they should check repairs have been done to an appropriate standard, by investing in a vehicle inspection or using a recognised car history checking service. Since it will take a while for the change to filter through the used car market, there are some other key tips being published by the Association of British Insurers for people shopping for a second hand vehicle. For example watch out for anything suspicious like slightly different colours of paint or use a car history checking service which can uncover problems such as whether the vehicle’s been stolen or has outstanding finance and check for gaps in the service history.
These new measures taken in the new Code of Practice with regard to the categorisation of vehicle salvage should not only protect the public further through the additional safeguards preventing unsafe vehicles returning to the road but also help to detect and deter criminal activity. The code should provide consumers with further peace of mind regarding the provenance of a vehicle prior to purchase.
Extended to March
The Government has made its Help to Buy funding scheme available to assist all eligible buyers purchase a new home up to the end March 2021. New home purchasers will be able to access an equity loan of up to 20% outside of London and up to 40% within London of the purchase price subject to a maximum purchase price of £600,000. The equity loan is being funded by the HCA. There is no cap on the buyer’s household income.
People looking to access the scheme will be required to raise their own funding, (a mortgage plus any deposit where available) of at least 80% (60% in London) of the purchase price. The home buyer’s mortgage loan will be secured as a first charge on the property in the usual way and will rank ahead of the HCA’s charge in relation to the equity loan provided by the Homes and Communities Agency and those looking to use the scheme must also have a minimum deposit of 5% of the value of their new home.
Each equity loan term is for 25 years subject to earlier repayment on any sale of the property and can be repaid on a voluntary basis at any time. The amount payable on the loan is based on the relevant percentage share of the market value of the property at the time the loan is repaid. For the first five years the equity loan is charge free, then at the start of year 6, an equity charge is levied of 1.75% rising at the Retail Price Index + 1% per year.
Financial fraud losses of £366.4 million in the first half of 2017 were 8 per cent lower year-on-year, figures from UK Finance show. The data, which covers payment cards, remote banking and cheques, also shows that the industry prevented over £750 million of fraud during the same period, or 67 per cent of attempted fraud. This compares with £400.4 million of losses and £678.7 million of prevented fraud in the first half of 2016.
The new data comes as the banking industry and government join forces to launch the next phase of Take Five to Stop Fraud – the national campaign that offers advice to help customers protect themselves from fraud. Launching on Monday 2 October 2017, the campaign is focused on helping customers to recognise scams and confidently challenge any requests for their personal or financial details by remembering the phrase ‘My money? My info? I don’t think so’.
Data for January to June 2017 shows that the industry helped prevent over £500 million in attempted card fraud. Actual fraud losses on cards were down 11 per cent on the same period the year before – to £287.3 million despite card spending rising by 8.4 per cent year-on-year across the six-month period. Card fraud as a proportion of spending equates to 7.5p for every £100 spent, down from 8.7p in the first half of 2016. It peaked in February 2002 when it was 18.9p per £100.
Overall there were 937,518 cases of financial fraud, a figure that has remained stable compared with the same period the year before.
Take time to study
In the same time it takes to undertake the average degree course, university towns across the UK recorded an increase in average house price of 22.5% (£38,666), according to new research from Halifax.
Across 65 university towns, the average house price has grown from £172,179 to £210,845 in three years – an increase of £38,666, equivalent to a rise of £1,074 per month or 22.5% since 2014. The top 10 university towns with the largest price growth are all located in southern England. The largest price growth was in Guildford, home to the University of Surrey, which increased in value by £105,362 and also doubles up as the most expensive university town, with an average house price of £511,673.
This is nearly two and a half times higher than the average for all universities. The next most expensive is Winchester with an average house price of £458,228, followed up by Uxbridge where Brunel University is located, (£441,273), Oxford (£424,258) and Cambridge (£397,170). The greatest percentage increase was in Bedfordshire, where house prices increased by 42% from £200,086 to £284,707 in the last three years. This is followed by Coventry, where the average price has grown from £154,573 to £207,974 – an increase of 35%.
The least expensive student town is Paisley which has the University of the West of Scotland with an average price of £122,681 – about quarter of average price in Guildford. Others include Bradford (£127,643), Hull (£134,938), Sunderland (£138,548) and Middlesborough (£142,412).
Work to party
As Fresher’s Week rolls out across the UK, universities research reveals how four in ten students will soon be juggling both the world of work and study due to money worries – with many clocking up big timesheets. Research from Nationwide highlights that some four in ten (43%) students work during term time, putting in an average of just under 13 hours per week (13%). However, around a fifth (18%) of students work in excess of 18 hours a week with three per cent working more than 30 hours on top of their studies. More than one in ten (13%) hold down more than one job, while two thirds (63%) take on evening shifts due to study commitments.
The top reason cited by students for working during university is to finance their social life (64%). However, for four in ten (40%), they work simply to lower post-university debt, which according to the survey of more than 1,000 UK students is £41,348 on average. The poll also shows three quarters (74%) are concerned about how much debt they’ll be in when they finish university, with more than half (53%) thinking they will never pay off their loan. Therefore, earning while learning could be seen as a practical solution to keeping debt at bay.
The research shows that around one in six (16%) students would consider getting an additional job if they were struggling for money at university, while 15 per cent would put in more hours at their existing job. However, parental support still tops the list, with four in ten (40%) claiming they would turn to mum and dad for help. And while nearly one in five (18%) would use their overdraft – a common fall-back for students – just one per cent would resort to using a payday loan.
Follow the rules
The Competition and Markets Authority (CMA) has published its final report following a market study into the use of price comparison sites and other apps. The year-long examination found that these sites offer a range of benefits, including helping people shop around by making it easier to compare prices and forcing businesses to up their game. But where sites are not working in people’s best interests, the CMA is taking action. As part of this, it is opening a competition law investigation into how one site has set up its contracts with insurers, because it suspects this may result in higher home insurance prices.
The CMA has also laid down clear ground rules for all sites on issues such as communicating how they plan to use people’s personal data and clearly displaying important information like price and product descriptions. They have set out ground rules for how sites should behave, as well as being clear on how regulators can ensure people have a better experience online.
The main recommendations from CMA’s final report included a statement that all sites should follow their ground rules. They should be Clear, Accurate, Responsible and Easy to use (CARE). All sites should be clear about how they make money; how many deals they’re displaying and how they are ordering the results. Sites should be clear on how they protect personal information and how people can control its use and it should be made as easy as possible for people to make effective comparisons or use different sites, for example through better information about products.
The report also reveals that nearly two-thirds of people using a price comparison site visited more than one when shopping around. This is something the CMA is advising everyone to do, along with other top tips, if they want to get the best deal.