Weekly Round-Up: 15th December 2017
UK Finance, the trade body representing major financial institutions in the UK has is slightly more optimistic about the next two years than they were a year ago. In their latest summary of the mortgage market they expect more first-time buyers over the next two years, helped in part by competitive mortgage rates and government housing schemes. UK Finance highlighted that Home movers numbers have recovered a little in 2017, but look set to remain flat over 2018 and 2019, as they have benefitted less from government support and have been largely left to fend for themselves. The number of home owners re-mortgaging with a new lender has grown strongly in 2017, and the expectation is for this to continue over the medium term.
It appears that regulatory and tax changes are amongst several factors that are reducing confidence in the buy-to-let market. This has led to subdued house purchase activity by landlords since the middle of 2016 and it is expected that there will be more of the same over the next two years.
Housing market activity on the whole has recovered somewhat over the last 12 months helped by first-time buyers, but this recovery only brings activity levels back to where they have been since 2014. Looking ahead, UK Finance expect activity to continue flat over the next two years, in part a result of economic uncertainty.
Bank Account switch
The Financial Conduct Authority (FCA) has this week published final rules which will require providers of personal current accounts and business current accounts to publish information that will help customers to compare the service they could receive from different providers.
The new information will help customers, comparison websites and the media to make meaningful comparisons of the services different current account providers offer. By encouraging competition it is expected that the new rules will mean providers will improve their service and performance. Under the new rules, customers will be able to find how and when services and helplines are available, contact details for help, including for 24 hour helplines and how long it will take to open a current account. Consumers will also know how long it will take to have a debit card replaced and how often the firm has had to report major operational and security incidents along with the level of complaints made against the firm.
The Consultation Paper also looked at introducing rules requiring publication of service metrics related to how long it takes to arrange to use powers of attorney. Following the feedback received, the FCA welcomed the industry’s agreement to coordinate the development of a voluntary industry agreement on vulnerability.
Who wants to be a millionaire?
The latest house price data from Lloyds Bank today revealed that sales of million pound properties in northern England strongly outperformed many other parts of the country in the first six months of 2017. Purchases of prime properties in the North West and Yorkshire and The Humber rose by 55% and 45% respectively. Increases were also seen in the West Midlands (up 33%) and the South East (up 15%). Overall, there was a modest drop (-1%) in the number of properties sold for more than a million pounds across Great Britain in the first six months of 2017, in contrast to the same period in 2016, with actual number of sales edging down from 6,684 to 6,613.
Million pound home sales in London fell by 7% from 4,230 to 3,940. Other areas which experienced significant decreases in the number of purchases of premium-priced properties include Scotland (down by 35%), East Midlands (down by 27%) and Wales (down by 31%). This is part of a growing trend as the average price for million pound properties has dropped for three consecutive years, from £1,862,578 (H1 2014) to £1,717,141 (H1 2017), a fall of 8%.
Mirroring the trend of rising sales in the north of England, Yorkshire and The Humber had the fastest price growth over the last year at 5%, increasing from £1,378,578 to £1,452,252. Average prices for houses sold over £1 million pounds in London remained unchanged. The prime market may, however, have been distorted recently by buyers completing purchases before the introduction of higher stamp duty on buy-to-lets and second/additional homes on 1 April 2016.
New research by Royal London has suggested that 5.8 million renters don’t know how they’d cope if they were too ill to work. The survey revealed that almost half (48%) of working private renters have never thought about how they would cope financially with a long-term illness. On top of this, 39% of this group have no savings to fall back on at all, compared with 23% of the wider population.
While 58% of renters do have some savings – albeit less than £2,000 – this wouldn’t offset the average debt per renter, which sits at over £4,600. Indeed, 32% of working renters owe between £2,000 and almost £10,000, with 14% owing £10,000 or more. This means that savers not only don’t have the savings to keep themselves covered during periods of illness or unemployment, they don’t even have the savings necessary to pay off their debts.
Asked what they would do if they were unable to work for three months or more, 48% said they’d apply for state benefits, while 45% stated they would reduce their household expenses and 36% said they would use their savings. Only 4% mentioned income protection.
Weekly Round-Up: 8th December 2017
Plan for Christmas
New research launched today shows that parents will be dreaming of a low-cost Christmas, with 2017 set to be an expensive Christmas for present buying. Parents are expected to fork out an average of £128.80 per child on presents during the festive season according to Barclays – raising the total amount British parents will spend on Christmas presents this year to a projected £141.7m across the nation.
The research of 1,000 British parents showed that the burden could in part be driven by poor financial planning, with a third (29%) admitting to leaving their Christmas shopping to the last minute. And although a third sensibly start saving for Christmas between July and September, a shocking fifth (20%) claim not to save money at all.
But the total cost may reach even greater heights according to the research, with respondents admitting they’d be happy to spend up to 30% more on sold out gifts their children wanted through reseller sites. Even more extreme, one in 10 parents said they would be prepared to spend as much as 80% more on RRP. Revealing the pressure that parents are under at Christmas, one in three admit to dipping into their savings and overdrafts in order to finance presents, with a fifth admitting it is a big financial burden.
Showing just how pressuring many find the festive seasons, two-fifths of respondents (46%) admitted to adopting extreme measures to cut back on spending after Christmas, including skipping meals, saying no to school trips and cancelling holidays.
Ho Ho Ho Help
A study from Scottish Widows’ independent think tank, The Centre for the Modern Family, reveals four in ten (43%) grandparents help their families to fund the festive season, spending a collective £932 million. More than a third (36%) of them make sacrifices to compensate for the extra expenditure at Christmas.
The Silver Supporters report, the second chapter of this year’s series looking at later life finances, reveals that grandparents contribute on average almost £140 towards decorations, festive food and gifts to ease the burden on their relatives. This is in addition to spending more than £400 on gifts of their own for children and grandchildren, bringing total expenditure to almost £550 – equivalent to the average December State Pension payment.
However, one quarter (24%) of grandparents admit they feel more financial strain every year and did not expect to support their family as much as they do. As a result, grandparents have been forced to reprioritise what they’re spending their money on to compensate for extra outgoings at Christmas. Of those who have made sacrifices (36%), action ranges from not treating themselves (90%) to more severe action such as turning the heating off or down (64%) and selling possessions (32%). All too aware of the financial pressures facing younger generations, two fifths (41%) of grandparents admit they feel compelled to contribute because their family could not afford Christmas otherwise. Almost three in ten (29%) also believe that without help, their family would not be able to get together at all.
Additional research found that providing financial support at Christmas is symptomatic of a bigger financial burden. Older generations contribute almost £35bn throughout the year to keep their families afloat; 15% make regular payments to their children to help cover the cost of rent, mortgages and household bills. Individual grandparents say they fork out financial help to the tune of over £2,200 a year, although the vast majority (85%) did not make provision for these outgoings. More than half (53%) feel under financial stress – 14% say this is a direct result of giving financial support to children and grandchildren.
The Association of British Insurers (ABI) has urged the Government to take steps to reduce threats to property as it goes ahead with Budget plans to build 300,000 homes a year in England by the mid 2020s.
Insurers pay out almost £13 million every day for homes and businesses which have suffered damage and loss, but the industry is also committed to efforts to reduce the chances of customers having to claim in the first place.
The Association of British Insurers (ABI) has spelt out its Building Blueprint – ten policy priorities to make all properties less vulnerable to the main threats of fire and weather, which between them account for around 50% of all claims in terms of cost. The growing issue of water leaks within buildings is also included.
Highlighting the fact that insurance is there when the worst happens, to fix your home or to help keep your business afloat after damage the ABI feel it’s better for everyone if major floods and fires can be minimised or prevented entirely. Environmental changes mean the risk of flooding is growing for many parts of the UK, and this year has brought a stark reminder of the worst that fire can do. As it embarks on an ambitious building plan for homes, the ABI feel it is important that Government has a firm eye on the steps it should be taking to help all properties, including businesses, be more resilient in the face of these threats.
According to the latest Halifax House Price Index, prices in the last three months (September-November) were 2.4% higher than in the previous quarter (June-August). This is the fastest price growth, on this measure, since January. Prices in the three months to November were 3.9% higher than in the same three months a year earlier although the annual change in November was lower than in October (4.5%) and House prices rose by 0.5% between October and November, following a 0.3% increase in October marking the fifth consecutive monthly rise. The average price of £226,821 is 3.2% higher than in January (£219,741).
Turning the attention on sales, data from HMRC suggests transactions grew by a modest 2% to 105,260 in October to reach their highest monthly level in 2017. Sales have remained above 100,000 in all months this year. In the three months to November home sales were 7% higher than in the same period a year earlier. Bank of England figures show there were 64,575 mortgage approvals – a leading indicator of completed house sales – in October down from 66,111 in September, a decline of 2.3%. Since reaching the second highest monthly level this year in July approvals have fallen in three consecutive months. Following a couple of months in which new instructions had held broadly stable, the Royal Institution of Chartered Surveyors data shows the supply of homes for sale sharply deteriorating. On this measure, supply has now fallen in 20 consecutive months to October. On the demand side, new buyer enquiries weakened in both September and October, marking the seventh consecutive month this measure has fallen.
Weekly Round-Up: 1st December 2017
Homes in national parks attract a premium of £116,501, according to new research from Lloyds Bank. House prices in the twelve national parks surveyed are, on average, £116,501 above the average for their surrounding county – a house price premium of 46%. The majority (11 of 12) of national parks have higher house prices than the average for their county, with four – the New Forest, the South Downs, the Peak District and the Lake District – attracting a premium in excess of £150,000.
The average house price in a national park of £368,804 is 11.7 times higher than local average gross annual earnings. The comparable ratio for England and Wales as a whole is 8.0. The average house price in national parks across England and Wales has increased by £51,463 (16%) over the past ten years, from £317,341 in 2007 to £368,804 in 2017. The biggest percentage increases were in South Downs (41%) and The Broads (23%). However, the £51,463 increase is £19,998 lower when compared to the average house price rise since 2007 across the whole of England and Wales.
Properties in the UK’s most visited national park command the largest premium with average prices more than double (105% or £186,351) those in the surrounding area. New Forest (86% or £268,856) and the Peak District (84% or £151,969) have the second and third highest premiums. Snowdonia is the only national park where property prices are below the average for the surrounding area (-3% or -£4,936). With an average house price of £180,126, which is 6.8 times local average annual earnings, Snowdonia is the most affordable national park in the survey.
The average house price in New Forest is £581,448, 15.2 times local gross average annual earnings. South Downs is the second least affordable with an average house price to earnings ratio of 14.9, followed by the Lake District (11.5).
Driven by remo
According to the latest statistics from UK Finance, although lending slackened in September, it remained higher than a year ago. Remortgaging was particularly strong, with borrowers seeking to lock into historically low interest rates in advance of the widely anticipated rise in Bank base rate at the beginning of November. Over the last year, the number of loans for remortgaging has been higher than in any period since 2009. Low borrowing rates mean that mortgage repayments as a proportion of income appear to be close to their historic low point. While it is suggested that this ratio may edge upward in the coming months, monthly mortgage payments will remain affordable for the vast majority of borrowers.
On a seasonally adjusted basis, lending to first-time buyers and movers was higher than in August, and there were year-on-year increases by volume and value. Remortgaging held up month-on-month and was stronger than a year ago as borrowers sought to fix their mortgage costs ahead of the widely anticipated increase in Bank base rate. Buy-to-let borrowing for house purchase declined in September but was at the same level year-on-year. On a positive note the proportion of household income used to service capital and interest repayments declined in September for both first-time buyers and home movers to 17.3% per cent and 17.5 per cent respectively.
The typical loan size for a first-time buyer declined from £140,000 in August to £138,016 in September. Their average household income also declined but by a smaller amount proportionately, from £41,259 to £40,826. That meant the income multiple edged down from 3.63 to 3.61. The average amount borrowed by home movers in the UK declined from £182,785 the previous month to £180,000, and the average mover household income declined month-on-month from £56,102 to £55,581. This meant that the average income multiple went down from 3.40 to 3.39.
Buy-to-let activity continued to be driven by remortgaging, which accounted for more than two-thirds of total lending. Buy-to-let house purchase and remortgaging activity in September remained at a similar level seen since the change in stamp duty on second properties introduced in April last year.
CIC guide goes public
The Association of British Insurers has launched a public consultation on changes to its Guide to Minimum Standards for Critical Illness Insurance. Formerly known as the Statement of Best Practice for Critical Illness Cover, the Guide aims to help customers and those advising on the products more easily compare the cover offered by the policy to help them make informed decisions when considering buying critical illness (CI) insurance.
The Guide was initially launched in 1999 and has been periodically updated since then. The proposed changes at this review include taking account of the significant medical advances in the detection and treatment of certain conditions, as well as a changing market that reflects product innovation and rising consumer expectations of CI insurance.
While the guide sets out a minimum standard for all CI products, many insurers feel that it is appropriate to offer customers cover above this standard, and the majority do. They can also provide cover for other conditions beyond the 22 defined in the new Guide hence the need to give customers the necessary information and guidance so they can make an informed choice.
Nothing to get stressed about here
The Bank of England (BoE) has announced the results of their 2017 stress test of the UK banking system. For the first time since the BoE launched its stress tests in 2014, no bank needs to strengthen its capital position as a result of the stress test. The 2017 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs.
The economic scenario in the test is more severe than the global financial crisis. Significant improvements in asset quality since the crisis mean that the loss rate on banks’ loans in the stress test is the same as in the financial crisis.
In the test, banks incur losses of around £50 billion in the first two years of the stress. This scale of loss, relative to their assets, would have wiped out the common equity capital base of the UK banking system ten years ago. The stress test shows these losses can now be absorbed within the buffers of capital banks have on top of their minimum requirements. Banks have continued to build their capital strength during 2017. As a result, the Prudential Regulation Committee (PRC) judged that all seven participating banks now have sufficient capital to meet the standard set by the test.