Weekly Round-Up: 27th October 2017
Lending up but with a word of warning
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.
Weekly Round-up: 20th October 2017
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.
Compliance Update: 18th October 2017
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:
- File reviews
- 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.
Weekly Round-up: 13th October 2017
Highest on record
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).
Weekly Round-up: 6th October 2017
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.