Weekly Round-Up, 27th July 2018
Industry figures on mortgage product transfers alternatively known as rate switches have been published for the first time by UK Finance. The numbers reveal that 390,200 homeowners switched product with their existing provider (product transfers) in the first quarter of 2018 which represents £53.7bn of mortgage debt refinanced internally. These figures do not feature in any market data on remortgaging, or other published gross mortgage lending data.
Of the total number of product transfers, 203,200 transfers, worth £29.5 billion, were conducted on an advised basis and 187,000 transfers, worth £24.2 billion, were execution-only. The figures reflect the Financial Conduct Authority’s (FCA) findings in its interim Mortgages Market Study highlighting that customer engagement is high and the majority of mortgage customer’s switch to a new deal shortly after their previous deal expires. The data also supports the FCA’s observation that most borrowers choose to remain with their current lender when they switch product.
The data suggest that there is a positive outcome for consumers as they can make these transactions in a wide variety of ways to suit their needs. For those who require help in choosing the right product, mortgage advice is widely available from intermediaries, with more than half of borrowers taking advice for their new deal.
First before second
The number of people moving home has dipped in the first half of the year and now account for only around half (49%) of the housing market – the first time homemover numbers have fallen behind first-time buyers since 1995, according to the latest Lloyds Bank Homemover Review.
There were 170,000 homemovers in the first half of 2018, down by 1,700 (1%) compared with the same period last year and down by 33,000 (16%) from the second half of 2017. This inactivity may be being fueled by a shortage of suitable properties for sale but reflects the broader housing market which is showing little sign of movement. The fall in homemover numbers follows a rise in 2017, which reported the highest level of movers in 10 years. This also coincides with a 3% rise in first-time buyers to 175,500, so that for the first time since 1995, just under a half (49%) of all house purchases financed by a mortgage were made by homemovers – down from 62% in the first half of 2011.
Over the past five years, the average price paid by homemovers has grown by 35% (£77,457) from £219,479 in 2013, to £296,936 in 2018 – a record high. The average deposit put down by a homemover has also increased by 31% in the past five years, from £76,303 in 2013 to £99,592 in 2018. Not surprisingly Londoners put down the largest deposit of £189,167 towards the purchase of their next home, which is nearly four times the average homemover deposit of £48,003 in Northern Ireland.
However, whilst Londoners put down the highest deposit in monetary terms, homemovers in the South West and East Anglia contribute the largest deposit as a proportion of average house price – 38% (£117,892 and £116,278 respectively in cash), followed by South East (35%). Of the estimated 23.1 million households in England, 14.4 million (63%) were owner occupiers. This remained unchanged in 2016/17. However, the composition of owner occupation rates has moved towards an increased proportion of outright owners (34%) versus mortgagors (28%), partly explained by large numbers of baby boomers reaching early retirement age. So, whilst homemovers with mortgages are stabilising, the bigger picture may be that this is in part because homemovers who don’t need a mortgage are on the increase.
In 2006-07, about three quarters (72%) of those aged 35-44 were owner occupiers. By 2016-17, this had fallen to half (52%). While owner occupation remains the most prevalent tenure for this age group, there has been a considerable increase in the proportion of 35-44 year olds in the private rented sector (11% to 29%).
Financial fears are creeping into sleeping hours, as new research by Royal London shows money worries are a top cause of nightmares. Two in five (41%) people said money makes them anxious, which can have a big impact on the subconscious. One of the most common types of dreams is teeth falling out (18%). Teeth symbolise power and confidence, with financial concerns leading to nightmares about you losing them as you’re not in control.
The research highlights the link between our dreams and what we get up to when we’re awake; nine in 10 people think real life issues (88%) and their emotions (91%) affect the type of dreams we have. People in the UK take it one step further, with three in 10 (31%) basing real life decisions on dreams or nightmares. Nightmares plague millions of people, with nearly nine in 10 (85%) of us suffering from them. A quarter (23%) suffer from nightmares once a week or more frequently, with falling (40%) and violence (29%) being the more common types of nightmares.
The data also shows a gap between men and women when it comes to dreams, with more than half (56%) of men having based decisions or changed something in their life after a dream in comparison to just a quarter (27%) of women. Two in five men (44%) suffer from nightmares once a week or more frequently in comparison to one in six women (17%). Women (37%) are also more private about sharing their nightmares with other people in comparison to men (27%).
Pets over people
Epoq’s new research into employee-paid and self-paid insurance benefits, reveals that 32% of those surveyed have pet insurance in comparison to 25% with some form of income protection. The research was conducted by Opinium in June 2018 among 1,234 employees from across the UK.
The majority (23%) have paid for the pet insurance themselves, with the remaining 8% receiving it as an employee benefit, in comparison to just 14% of people who choose to pay for income protection themselves (and 12% employer-paid).
This suggests that pet insurance is a form of cover and employee benefit that is valued by employees more than income protection, despite income protection generally considered to be one of the most important forms of insurance for employees to have as it replaces your salary if you can no longer work due to illness or disability.
Employees were more likely to buy pet insurance than critical illness cover (31%), private medical insurance (31%), phone/gadget insurance (30%), dental insurance (25%) or income protection (25%). Bearing in mind all employees surveyed will be earning an income, but not all will have a pet, this seems to be a concerning misallocation of priorities.
Weekly Round-Up, 20th July 2018
Lloyds top the table
This week saw UK Finance publish their data showing mortgage lending by their members in 2017. The data shows members’ gross mortgage lending in the latest calendar year and balances outstanding at the end of 2017, rounded to the nearest £100 million and ranked on the same basis.
This means that the very smallest lenders – those with under £50 million of lending – do not feature in the research. Lenders reported data for both new lending and mortgage balances, and accounted for some 97 per cent of the total mortgage market – as published by the Bank of England.
For 2017, gross lending totalled £257 billion, up four per cent on 2016. This was lower than the 11 per cent growth seen in 2016. However, within this UKK Finance have seen increased competition for business. This year there are 65 lenders in their analysis for gross lending, up from 60 lenders the year before. Growth in new lending was strongest amongst lenders ranked between 21-30 in 2017, who lent £3 billion more for housing than 2016’s 21-30 group – a growth rate of 40 per cent.
The largest lenders saw more modest growth. Although Lloyds has continued to increase lending activity with a seven per cent rise compared to 2016, the next three lenders on the analysis (Nationwide Building Society, Royal Bank of Scotland and Santander) all saw lower volumes than in 2016, compared to the previous year and corresponding contractions in market share. Despite this, there was no change in the top ten gross lending table, with all lenders retaining the same rankings as in 2016.
However, there was movement in the 11-20 group: Paragon climbed from 21st to 19th with an impressive 78 per cent increase in lending activity. Legal and General also made a sizeable jump, moving from 27th to 23rd place following a 67 per cent increase in lending. Other lenders with significant lending growth include: Tesco Bank (71 per cent), Metro Bank (50 per cent), Foundation Home Loans (200 per cent), and Pepper UK (200 per cent). In their most recent market forecasts, UK Finance predicted gross lending of £260 billion in 2018 – an increase of about two per cent. Lending in the early months of 2018 has, so far, outpaced these forecasts, driven largely by stronger-than-expected remortgage activity. The uncertainties were set out last year – not least those relating to the UK economy – and remain; these have the potential to affect the path of lending for the rest of this year and beyond. However, the market has shown this year that, yet again, it is competitive and robust enough to continue to help UK mortgage customers as their needs change.
The Family Gap
While the end of the school year can’t come fast enough for some youngsters, a third of the UK’s parents will be forced to take seven days or more off work this summer to take care of the kids, new research from Halifax has revealed. A fifth (19%) of parents will need to take at least two weeks off work to cover childcare gaps, with many relying on grandparents to step in.
Nearly half of children (44%) have even considered asking their parents to move in with them. This may not come as such a surprise to some as just under a third (31%) of grandparents already look after their grandchildren every week and almost one in 10 (9%) on a daily basis.
Across the country, parents in Northern Ireland are the hardest hit during the holidays, having to take 12.1 days off over the summer break to look after their children, compared to the UK average of 5.6 days. Meanwhile when it comes to having grandparents as house guests to ease the pressure, two thirds of Londoners have considered sharing their home with their parents, compared to only in 20 Scots mums and dads (5%). In reality though, only 2% of grandparents currently live with their children, although this doubles to 4% for Londoners. Grandmas and grandpas are also clocking up the miles to provide valuable childcare cover – commuting for an average on 2 hours 46 minutes each round trip, with those who provide weekly cover racking up nearly 143 hours a year.
The majority of grandparents (55%) live within 30 minutes of their children, while more than one in 10 (17%) are more than two hours away. Grandparents in Wales and Northern Ireland have the longest average travel times of 3 hours and 50 minutes and 3 hours 44 minutes respectively for each round trip, while those in London have the shortest journey, at just under two hours. Moving closer to their family is a priority for more than one in 10 (11%) grandparents, however this drops to 6% where a move is specifically to help with looking after grandchildren. Welsh grandparents are most likely to move to be closer to their offspring (20%), while more grandparents from the South East (13%) than any other region have already moved house to be nearer to their children and grandchildren.
On the other hand, more than one in 10 (17%) grandparents want to keep their current home so they have plenty of space for family visits. Downsizing is still a popular trend among grandparents with an empty nest, with more than one in five (21%) having already downsized and a further fifth considering moving to a smaller property. These options appeal most to grandparents in the North East and Wales (both 55%). The study revealed that pester power isn’t only for younger children – as two-thirds of parents (67%) admit to putting their parents under pressure to help look after their grandchildren. Grandparents also feel some strain, as almost half (47%) admit their children take it for granted that they’ll help out with childcare. Grandparents in London feel the most taken for granted (56%), followed by those in Scotland (54%) and Yorkshire (52%).
Shop till you drop
As the tenth anniversary of Barclaycard introducing contactless technology to the UK approaches in September, the latest insights from Barclays reveals ‘touch and go’ is now the preferred way to pay among British shoppers.
According to the latest analysis more than half (51 per cent) of all transactions up to the eligible spending limit of £30 are now made using contactless, which shaves seven seconds off the time taken to process a transaction compared to Chip and PIN.
The news comes as industry body, The UK Cards Association (UKCA), revealed that credit and debit payments have doubled in the last 10 years, with the increased use of contactless being one of the main drivers of this growth. While contactless card transactions have been continuing to grow over the past few years, data from the Index shows that mobile payments are now also catching on at a rapid rate. The amount spent by users of Barclaycard’s Android Contactless Mobile app has jumped by 90 per cent in 2017.
Shoppers in the midlands and the north of England are increasing their use of contactless more than anywhere else in the UK, with the biggest jumps in spending seen in Derby (up 45 per cent), Chester (up 44 per cent), Newcastle Upon Tyne (up 42 per cent), Coventry (up 42 per cent) and Stoke on Trent (up 41 per cent).
Fear of investing
Inflation can be the big enemy of savers, eroding the value of their hard-earned money according to Scottish Friendly. Even if inflation ticked along at the level the Bank of England tries tirelessly to keep it at (2%) it could nonetheless have a significant impact over time on money sitting in cash if interest rates are lower than inflation.
Currently, inflation is 2.4% and the very best easy-access cash savings rate paying just 1.33%2. Why then do savers not act and switch some of the money they have in cash to other investments which could potentially generate higher returns above inflation? In their study, Scottish Friendly recently found that half of all British savers are now suffering from ‘investophobia’, opting to leave their money in cash despite the reality of rock bottom rates.
A phobia can lead people to make decisions that aren’t easy to understand, or which may indeed appear to be irrational to an outsider. Scottish Friendly’s findings suggest that many savers may be acting in a similar fashion when it comes to investing. Indeed, more than two-thirds of the savers in the research are aware that interest rates on savings accounts are less than the current rate of inflation, but the fact that they are losing money in real terms seems to do little to change their minds. Furthermore, 53% of respondents said they wouldn’t consider investing in stocks and shares even though inflation reduced the value of the money they have in secure cash savings.
Why such behaviour? The most common reason cited by almost half of respondents was the fear of losing money via investing and certainly investing is not without risk and the value of investments can go down as well as up.
Weekly Round-Up, 13th July 2018
According to the latest research from the Halifax, house prices continue to remain broadly flat, with the annual rate of growth marginally slowing from 1.9% in May to 1.8% in June. Activity levels, like house price growth, have softened compared with the final months of last year and mortgage approvals have been in the low range of 63,000 to 67,000 since the start of the year, whilst home sales have remained flat so far this year. This is in contrast to the continuing strength of the UK jobs market with job creation still strong and pressure on household finances easing as real income growth edges up.
Figures suggest, at the half way stage of the year, the annual rate is within the Bank’s forecast range of 0-3% for 2018 and they continue to see very positive factors of continuing low mortgage rates, great affordability levels and a robust labour market. The continuing shortage of properties for sale should also continue to support price growth.
UK home sales grew by 1% to 99,590 in May but in the three months to May sales were 4.8% lower when compared to the same three months a year earlier. This weakness reflects the slowdown seen in mortgage approvals over the past year. Completed sales since December according to HMRC seasonally adjusted figures have held steady, averaging close to 99,000 per month.
After falling for 26 months in succession, new instructions edged up in May. Furthermore average stock of homes for sale on estate agents’ books held broadly steady, albeit close to historic lows. On the demand side, new buyer enquiries fell again, although the pace of decline has slowed since the start of the year.
Here Comes The Sun
In its latest report on the Mortgage Market, UK Finance have reported that the mortgage market is seeing a pre-summer boost, driven by a rise in the number of first-time buyers and strong remortgaging activity. There is also a particularly encouraging increase in homemovers, after a period of relative sluggishness in this important segment of the market.
The statistics indicate that there were 32,200 new first-time buyer mortgages completed in the month, some 8.1 per cent more than in the same month a year earlier. The £5.4bn of new lending in the month was 12.5 per cent more year-on-year. The average first-time buyer is 30 and has a gross household income of £42,000. For Homemovers, there were 31,100 new mortgages completed in the month, some 4.4 per cent more than in the same month a year earlier. The £6.6bn of new lending in the month was 4.8 per cent more year-on-year with the average homemover being 39 with a gross household income of £55,000.
Completed remortgages totalled 36,000 in the month, some 7.1 per cent more than in the same month a year earlier. The £6.3bn of remortgaging in the month was 6.8 per cent more year-on-year. There were 5,500 new buy-to-let home purchase mortgages completed in the month, some 9.8 per cent fewer than in the same month a year earlier. By value this was £0.7bn of lending in the month, 22.2 per cent down year-on-year.
There were 14,600 new buy-to-let remortgages completed in the month, some 15 per cent more than in the same month a year earlier. By value this was £2.3bn of lending in the month, 21.1 per cent more year-on-year.
Affordability remains a challenge for some prospective buyers and this is reflected by a gradual increase in loan to income multiples, Meanwhile purchases in the buy-to-let market continue to be constrained by recent regulatory and tax changes, the full impact of which have yet to be fully felt.
One Claimed Every Minute
The Association of British Insurers (ABI) has revealed that the number of travel insurance claims made in 2017 increased by 30,000 year-on-year to 510,000, costing £385 million and amounting to one claim every minute throughout the year. This is the highest amount paid since the £455 million Icelandic ash cloud pay-outs of 2010 and was largely driven by a significant rise in cancellation claims.
After a slight (£2 million) increase, medical expenses still make up a majority of the £385 million claims paid, despite an 11% increase in the value of claims for trip cancellations from £130 million to £145 million. Medical expense continue to be the most expensive type of claim, with an average of nearly £1,300 and many claims climbing to the tens of thousands of pounds.
The significant increase in cancellation claims was driven by notable airline disruption, restrictive bad weather at home and abroad, as well as the cost of the average family holiday increasing by more than £500 in 2017 according to estimates from Travelex. This further highlights the importance of buying travel insurance as soon as the holiday is booked – not at the last minute. Travel insurance acts as a guardian angel when overseas and should be an essential element of a holiday shopping list. Insurers are paying out £1 million every day to cover the unexpected costs of illness, injury or cancellation. Medical expenses can often cost tens of thousands of pounds, whilst the large increase in cancellation claims shows just how important it is to purchase cover as early as possible.
Changes to State benefits covering mortgage payments during prolonged loss of income due to sickness will not lead to a mortgage protection pay-out being means-tested against any benefit entitlement, a request for clarification from the Department for Work & Pensions (DWP) by the Building Resilient Households Group has revealed.
The introduction of a Support for Mortgage Interest Loan (SMIL), which came into effect on 6 April 2018, increased the need for mortgage holders to consider protection in order to protect payments in the event of long-term sickness absence or due to other causes. SMIL is help towards paying the interest payments on your mortgage or other loans for home purchase, repairs and home improvements. This help is in the form of a loan. Before 6 April 2018, SMIL was paid in the form of a benefit. However, now it is paid as a loan. Until now there was uncertainty as to how a received insurance pay-out would be treated under the new system. According to Building Resilient Households Group, the DWP has confirmed that any income received from an insurance policy specifically intended to cover mortgage payments will be disregarded when entitlement to means-tested benefits is assessed. This applies to both legacy benefits and Universal Credit.
The DWP also pointed out that two provisos should be noted. Firstly, if insurance pay-outs are restricted to the payment of a mortgage (direct to lender) they will be fully disregarded, but if the claimant has choice over how to spend the payments then any portion which DWP judge to be intended and used for mortgage cover will be disregarded.
Secondly, if a claimant applies for a SMIL their insurance pay-out will be taken into account when their offer of a loan is considered – however this is unlikely as people receiving an insurance pay-out covering mortgages would generally have no need for a loan.
Weekly Round-Up, 6th July 2018
Many homeowners ready to take their second step on the property ladder now rely on financial help from family and friends to help make the jump from their first home, according to the latest Lloyds Bank Second Steppers report. More Second Steppers are having to borrow from family and friends to trade up the property ladder, with one third (33%, up from 27% last year) saying that they require financial support from their mum and dad, grandparents or friends.
The average amount that Second Steppers expect to borrow has also increased by over £4,000 (£4,219) compared to last year to £25,450, despite 57% having already received financial support for their first property worth an average of £19,824. In addition, nearly three-fifths (58%) say they wouldn’t be able to make their next move up the home-owning ladder without generous family and friends coming to the rescue.
As well as using equity from their current property (62%) and personal savings (39%), over one in five (22%) second steppers will mainly look to borrow from the Bank of Mum and Dad to raise the deposit required to fund their next move. Grandparents will also be asked to support (13%) and even friends (6%). Where second steppers look to borrow from the Bank of Mum and Dad, parents have had to make sacrifices. Over half (54%) will raid their own savings to provide help and just under half (48%) of these plan to downsize to release more equity to support their kids. Two-fifths also plan to remortgage to raise money to give to their children so they can trade up the property ladder. Just under a third (29%) also said they will sell another property to help and nearly a fifth (19%) said they would sacrifice holidays or hobbies in order to support their offspring.
But movers are also planning to make sacrifices to sell their first home and achieve their second property aims. Almost three in ten (28%) Second Steppers have said that they will have fewer children than originally planned due to the challenges they have faced whilst trying to make the next move. This is up by 16% from last year. More Second Steppers are also delaying having children due to the difficulties faced. Although today’s Second Steppers need to borrow more from family and friends, two in five (40%) say that conditions have improved since last year. There has also been an increase in the number of Second Steppers who are saving to support their next move, with 67% saying that they are making regular contributions to their savings, a slight increase from last year (61%). The number of Second Steppers overpaying their mortgage to help increase equity has also increased from 41% to 47%.
Remortgage Leads The Way
According to the latest figures from UK Finance, the trade body that represents Banks in the UK, estimated gross mortgage lending for the total market in May to be £22.2bn, 8.8 per cent higher than a year earlier. The number of mortgage approvals by the main high street banks in May has also risen, increasing by 3 per cent compared to the same month a year earlier.
As in April, increased approval numbers were driven by remortgaging, some 18 per cent more than a year earlier. In contrast, approvals for house purchase were 3.8 per cent lower than the same period a year earlier. May’s increase in mortgage approvals was driven by strong growth in remortgaging, as a large number of fixed-term mortgages came to an end and homeowners took advantage of a competitive market to shop around for attractive deals. Increased efforts by lenders to contact their customers before their current mortgage deal expires have also contributed to this rise.
Credit card spending was 2.3 per cent higher than a year earlier, with outstanding levels of card borrowing having grown by 5.7 per cent over the year. The total of 193 million credit card purchases in May was well above the previous 12 month average of 181 million, reflecting increased retail sales. Outstanding overdraft borrowing was 3.9 per cent lower compared to the same time last year. The modest growth in card spending reflected a boost to retail sales amid the good weather over recent bank holidays and the Royal Wedding celebrations.
Personal deposits grew by 1.6 per cent in the last 12 months, although this was a lower annual rate than seen historically. Deposits held in instant access accounts were 4.4 per cent higher than a year earlier reflecting a mixed picture of the economy as household incomes continue to be squeezed. This may explain the growth of deposits held in instant access accounts, with consumers increasingly choosing to keep their money close to hand.
To mark the 70th anniversary of the NHS, Aegon asked a panel of 700 consumers from age 18 to 64 to reflect on aspects of life that might influence their financial well-being at age 70 such as work, health and caring responsibilities. This year the NHS joins an increasing number of people who are celebrating their 70th birthdays. And just as the NHS is facing up to future challenges, so will individuals if they don’t plan beyond their 70th birthday to ensure they have all they need to be financially secure in later life.
The survey revealed that more than one in four people (26.9%) think they will be working either full or part time at age 70, with women (24.5%) slightly less likely than men (27.5%) to think this despite them on average living longer. This suggests a clear move away from the previous practice of women retiring at 60 and men at 65.
Working into later life is only possible for those who remain in good health, and it’s positive to see that 45.8% of people believe they will still be fit and healthy enough to work if they choose to at the age of 70 although it’s risky to have no fall back plan should health deteriorate. In general the survey revealed that most people envisage being physically and mentally fit and able at the age of 70.
Nearly one fifth of people (19.5%) think that they will still be financially supporting family when they are 70. And an additional 21.8% were unsure. This suggests the bank of mum and dad will be a feature of an increasing number of septuagenarians.
The Association of British Insurers (ABI) has revealed that the number of travel insurance claims made in 2017 increased by 30,000 year-on-year to 510,000, costing £385 million and amounted to one claim every minute throughout the year. This is the highest amount paid since the £455 million Icelandic ash cloud payouts of 2010 and was largely driven by a significant rise in cancellation claims.
After a slight (£2 million) increase, medical expenses still make up a majority of the £385 million claims paid, despite an 11% increase in the value of claims for trip cancellations from £130 million to £145 million. Medical expense continue to be the most expensive type of claim, with an average of nearly £1,300 and many claims climbing to the tens of thousands of pounds. As an example, a millennial’s average medical claim was three times more expensive than their average non-medical claim (£261 compared with £812).
The significant increase in cancellation claims was driven by notable airline disruption, restrictive bad weather at home and abroad, as well as the cost of the average family holiday increasing by more than £500 in 2017 according to some estimates. This further highlights the importance of buying your travel insurance as soon as you book your holiday – not at the last minute.