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FCA Seeks To Set Free ‘Mortgage Prisoners’

The City watchdog is calling for reforms to help “mortgage prisoners” who are stuck on high borrowing rates but not allowed to switch.

Tens of thousands of home owners who took out loans before the financial crisis are trapped on lenders’ standard interest rates because of changes to rules on whether they can afford repayments.

It means that even if they have been paying off their mortgages every month they may not qualify to switch to a deal which is cheaper.

The Financial Conduct Authority (FCA) is to consider seeking an industry-wide agreement to approve applications from those who took mortgages out before the crisis and are up-to-date with payments.

But this would only help a small fraction of the estimated 150,000 stuck in this position and for the rest it is seeking talks to find other “possible solutions”.

The findings are part of an interim report by the FCA into the mortgage market which found that around 30% of customers are failing to find the cheapest mortgage for them, typically overpaying by £550 a year over the introductory period of the loan.

It also said that there were around 800,000 consumers who could switch at the end of introductory periods, but did not, to cheaper two-year deals that would typically save them £1,000 a year.

The watchdog wants to make it easier for consumers to work out at an early stage for which mortgages they qualify to make it easier for them to assess and compare those products.

More broadly, however, the FCA found there were “high levels of choice and consumer engagement” in the mortgage market.

Home buyers today typically take out long-term mortgage contracts with short fixed interest rate periods at the start, after which the deal changes to a standard “reversion” rate which is typically higher.

The FCA found that more than three-quarters of consumers switched to a new deal within six months of moving to a reversion rate – but that leaves a substantial minority who do not.

It also identified a relatively small proportion of borrowers known as “mortgage prisoners”.

These are consumers “who took out a mortgage pre-crisis, are on a reversion rate and up-to-date with repayments, and would benefit from switching to a new deal but cannot”.

That is because, since the crisis, there have been major changes to lending practices and rules aimed at ending the problem of people borrowing more than they could afford.

In the case of “mortgage prisoners” it may mean that they are effectively told a deal is too expensive for them to take on even though they are currently paying more.

The FCA believes there are 30,000 such customers with authorised mortgage lenders and a further 120,000 on a reversion rate whose mortgages have been sold on to non-regulated firms.

A proposed agreement between lenders to approve applications from these borrowers for mortgages would help around 10,000 from the first group, who have home loans with lenders that remain “active” in the mortgage market.

The FCA said that for the rest it would discuss possible solutions with relevant firms, consumer groups and the Government.

Source: Juice Brighton

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Six London boroughs rank in 10 worst areas for rental growth in England

London boroughs were among the worst performing areas for rental growth last year, with Kensington and Chelsea taking the wooden spoon.

According to research from buy-to-let mortgage lender Landbay, six of the bottom ten ‘rental fallers’ over the past year were all in London, including Kensington and Chelsea , Kingston upon Thames, Hammersmith and Fulham, Tower Hamlets, Barnet and Harrow.

In total half of London’s boroughs (17 out of 33) have seen rents fall year on year. Only Bexley, Havering and the City of London saw rents rise by more than 1 per cent.

Bottom 10 areas for rental growth in England

Rank Region Geography YoY change (per cent) Average rent (£)
1 London Kensington and Chelsea -1.40 3,024
2 North East Hartlepool -1.19 404
3 East England Luton -1.15 768
4 South East Windsor and Maidenhead -1.07 1,252
5 London Kingston upon Thames -0.98 1,272
6 London Hammersmith and Fulham -0.81 1,884
7 London Tower Hamlets -0.79 1,725
8 South East Wokingham -0.78 1,031
9 London Barnet -0.69 1,481
10 London Harrow -0.68 1,317

The study showed that the average rent for a property in England grew by 0.64 per cent in the year to April, with London’s falling rents weighing down otherwise resilient growth.

Hotspots for rental growth over the last year include Leicester (3.02 per cent), Nottingham (2.96 per cent) and Northamptonshire (2.44 per cent), with eight of the top ten ‘rental risers’ situated in either the east midlands or east of England.

Top 10 areas for rental growth in England

Rank Region Geography YoY change (per cent) Average rent (£)
1 East Midlands Leicester 3.02 647
2 East Midlands Nottingham 2.96 663
3 East Midlands Northamptonshire 2.44 732
4 South West Bath and North East Somerset 2.35 976
5 East England Peterborough 2.24 639
6 East England Cambridgeshire 2.21 948
7 East England Suffolk 2.15 734
8 East England Norfolk 2.06 709
9 East England Southend on Sea 2.06 762
10 South West Bournemouth 2.04 821

John Goodall, CEO and co-founder of Landbay said: “Falling rents in some parts of the country, especially expensive prime London locations, distort the picture for the rest of England where rents are continuing to grow at a steady pace.

“Partnered with the fact that rental demand shows no signs of giving up, prices will continue to rise over the coming years unless the government takes action. Without a radical house building plan for both first-time buyers and purpose-built rental properties, there is no way supply will ever be able to catch up with demand.”

The average rent paid for a property in England now stands at £1,232, or £768 if you exclude London, according to Landbay. The lowest average rent is found in the north east (£552), where rents have shown very modest long-term growth over the past five years.

Source: City A.M.

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Bank unlikely to raise interest rates in May after latest economic data

The Bank of England is unlikely to raise interest rates when the Monetary Policy Committee (MPC) meets next week, after the latest data further pointed to a lacklustre economy, experts said.

Output in Britain’s crucial services sector lifted only slightly in April, following a plunge in March, PMI data from Markit/CIPS Service showed today.

It is the latest in a string of disappointing data on the UK economy, which has prompted market expectations of a May interest rate rise to fall from 90% to around 10% in a matter of weeks.

Earlier this week, data from the same provider showed manufacturing output in April fell further than expected.

It comes after UK economic growth for the first quarter came in below expectations at just 0.1%.

At the start of the year, Bank of England monetary policymakers had warned interest rates were likely to rise sooner and faster than had been expected.

But last month governor Mark Carney acknowledged that economic performance data had become “softer”.

Interest rate rise not likely before August

Most economists now believe a rate hike is unlikely in May but predict a rise could still be on the cards in 2018.

The Monetary Policy Committee (MPC) is considered most likely to increase interest rates to coincide with the release of its quarterly inflation report, making August the next opportunity after May.

Paul Hollingsworth, senior UK economist at Capital Economics, said: “The slight pick-up in the services PMI in April will do little to assuage fears that the economy has suffered a loss of underlying momentum and makes the chance of a rate hike next week extremely slim.

“Taken together with the construction and manufacturing surveys released earlier this week, the all-sector PMI points to GDP growth of about 0.3%, suggesting that the economy is struggling to re-gain momentum.”

However, he added: “With the survey noting that wage cost pressures in the services sector are building, the committee is unlikely to want to wait too long before raising interest rates again.”

Source: Your Money

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Leicester, Nottingham and Northamptonshire are best areas for rental growth

Leicester (3.02%), Nottingham (2.96%) and Northamptonshire (2.44%) were found to be hotposts for rental growth over the last 12 months, Landbay’s Rental Index has found.

The index, powered by MIAC, also found the average rent for a property in England grew by 0.64% in the year to April. This is as falling rents in London (-0.27%) continued to weigh down on otherwise resilient rental growth in the rest of England (1.19%).

John Goodall, chief executive and co-founder of Landbay, said: “Falling rents in some parts of the country, especially expensive prime London locations, distort the picture for the rest of England where rents are continuing to grow at a steady pace.

“Britain will always need homes, and the growing cohort of people that can’t buy, or don’t want to, will more than ever rely on the private rental sector to house them in the years ahead.

“Rental growth may not be what it used to be, but the pace of change varies wildly between regions. Prospective landlords need to be astute to maximise their profits, using variations in rental growth and yields over the past year to pick out some of the most promising regions for buy-to-let.

“Consistent rental demand will obviously drive returns in the long-term, but by selecting the right location yields will be even greater.”

And eight of the top 10 hotspots for rental growth were situated in either the East Midlands or East of England. These two regions, as well as the South West, continue to lead the way in terms of rental growth, with annual increases of 2.06%, 1.50%, and 1.54% respectively.

Six London boroughs feature in the UK’s bottom 10 places for rent falling over the past year, including Kensington and Chelsea (-1.40%), Kingston upon Thames (-0.98%), Hammersmith and Fulham (-0.81%).

Also Tower Hamlets (-0.79%), Barnet (-0.69%) and Harrow (-0.68%), and in total half of the London boroughs (17 out of 33) have seen rents fall year on year.

Meanwhile, Bexley (1.37%), Havering (1.30%) and City of London (1.19%) have all seen rents rise by more than 1%, with just six boroughs exhibiting growth ahead of the 0.64% average in England.

The average rent paid for a property in England now stands at £1,232, or £768 if you exclude London.

The lowest average rent is found in the North East (£552), where rents have shown very modest long-term growth over the past five years, increasing by just 1.8% during this time. Despite a year-on-year increase of 0.26%, rents in the North East have been falling since the start of 2018.

Source: Mortgage Introducer

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5-year fixed buy-to-let rates continue to fall

Pricing of 5-year fixed rate buy-to-let mortgage products continued to decline in Q1, despite a steady increase in 5-year swaps, suggesting that lenders chose to reduce their margins to remain competitive.

Mortgages for Business’s buy-to-let mortgage index also found costs were absorbed across low, medium and high loan-to-value products. This makes 5-year fixes more attractive to landlords seeking certainty over their outgoings in the longer-term.

David Whittaker, chief executive officer, said: “Change has been the only constant in the buy-to-let market in recent years so we felt it was time to take a more holistic approach to tracking and analysing industry developments.

“This new buy-to-let mortgage index combines and replaces four previous indices plus our commentary on the money markets.

“Whilst the current picture shows that lenders and landlords have much to accommodate, the data reveals that slowly, both are moving towards solutions which should keep buy to let a popular if less prolific investment in the years to come.”

Lenders also absorbed more costs across 2 and 3-year fixed rate products.

Over the quarter, the average pricing of rates available to landlords borrowing via limited companies also fell, except on 5-year fixed rates which increased by 10bps from 4.2% to 4.3%.

Although the number of lenders offering products to corporates remained unchanged at 16, the total number of products available increased by 1%, lifting availability to 25% of the entire market.

Rates available to limited companies are generally higher than the market average, because the cheapest products are typically offered by lenders without the systems or underwriting skills in place to offer products to limited companies.

The index also found that the number of buy-to-let mortgages without a fee grew for the fourth consecutive quarter.

Nearly one fifth (19%) of all products had no lender arrangement fee in Q1, up from just 11% in Q2 2017.

Some 39% of products have flat fees charged at an average of £1,441. On the remaining products, lenders charge an arrangement fee based on a percentage of the loan amount, typically 0.5-3%.

Source: Mortgage Introducer

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Seize the chance for radical housing reform

Britain – and London in particular – needs a sweeping overhaul of the planning system.

We are building a fraction of the homes we need to keep up with rising demand, and with a third of young people now faced with spending their entire lives renting, the crisis cannot afford to be brushed under the carpet any longer.

This is a cross-party issue.

On Wednesday, Labour MP Siobhain McDonagh set out a proposal to build one million homes in and around London by challenging the designation of some “green belt” land. As McDonagh points out, much of this land isn’t green at all – rather than rolling fields and verdant parks, it is disused brownfield sites fenced in barbed wire. Allowing developers to build much-needed homes within commuting distance from the capital would provide far more value for local residents than leaving sites abandoned and useless, while boosting housing supply for millions.

MPs, think tanks, academics, charities, and campaigners all know this. But for decades, a plague of nimbyism has stood in the way of a pragmatic, reality-centred strategy.

This could be about to change, with two new appointments this week to the government’s housing team.

James Brokenshire, who took over as housing secretary on Monday, is a bit of an unknown quantity when it comes to this issue. If he wants to make the most of his new role, he should continue the work of his predecessor, Sajid Javid. Under Javid, “nimby” councils that failed to build enough homes were to have their planning permission powers withdrawn.

Other ideas included new commuter towns, and relaxing rules about extending residences. We can only hope that Brokenshire continues in this vein, ideally taking an even bolder approach.

More encouragingly, Toby Lloyd has been appointed Number 10’s housing adviser. The former head of policy at the charity Shelter has been a vocal advocate of reviewing the green belt and giving local authorities the power to build homes where they are most needed.

These ideas and others (such as mechanisms to reduce the cost of land and reviewing who benefits from the added value when land is granted planning permission) are sure to ruffle feathers, but a critical situation requires a truly radical overhaul.

Theresa May promised to make fixing the housing crisis a cornerstone of her premiership. So far, it hasn’t quite gone to plan.

Let us hope that Brokenshire and Lloyd can inject some much-needed dynamism into tackling this systemic problem.

Source: City A.M.

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Bank of England: Mortgage approvals fall back to second-lowest level since August 2016

The Bank of England (BoE) has reported that March mortgage approvals fell back to 2017 levels, following a six-month high in January.

The BoE’s latest monthly money and credit statistical release shows that approvals have now fallen to their second-lowest level since August 2016, and are 22.7 per cent below their long-term average of 81,404.

Mortgage approvals for house purchases fell back to 62,914 in March from 63,781 in February and a six-month high of 67,018 in January after a near three-year low of 61,093 in December.

Analysts cautioned that while unseasonable weather may have affected numbers, it is more likely that the latest BoE figures show a cooling in the housing market.

“It is very possible that mortgage approvals for house purchases in March were affected by the severe weather,” said Howard Archer chief economic adviser at economic forecasting group EY ITEM Club. “Even allowing for this, the underlying performance over the first quarter points to the housing market remaining muted”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics said that bad weather could also not explain the drop in unsecured borrowing, which was at its lowest since November 2012.

The BoE figures also suggest there is little chance of house prices seeing a meaningful increase this year, and further dampens expectations of a rate rise this month.

“The latest mortgage approvals show the housing market is continuing to struggle to gain traction and we suspect that any meaningful upturn will remain elusive over the coming months,” said Archer.

“We expect house price gains over 2018 will be limited to a modest two per cent.”

Source: City A.M.

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James Brokenshire has no time to waste in fixing the capital’s housing crisis

As James Brokenshire takes up his new role as housing secretary, his top priority must be to fix the capital’s broken housing market.

It is no exaggeration to say that London is in the midst of a housing crisis. Demand far outstrips supply; while we have built 200,000 new homes over the last decade, London’s population has grown by approximately one million people. We need to be building 66,000 new homes every year if London is to keep up with demand. Last year, we completed 26,000.

The failure to build more homes is not just a social issue – it’s a threat to London’s global competitiveness. A staggering 70 per cent of Londoners aged 25-39 say that the cost of their rent or mortgage makes it difficult to work in the capital. That doesn’t help fill up the talent pool or plug our widening skills gaps.

It is no surprise, then, that almost three quarters of businesses think London’s housing supply and costs are a significant risk to the capital’s economic growth. London firms face an annual £5.4bn wage premium – equivalent to £1,750 per person – to compensate workers for high housing costs.

In the face of this deepening crisis, it is pretty unedifying to see everyone passing the buck. Some blame property developers for land-banking. Others point the finger at local authorities and City Hall for planning bureaucracy. Some politicians have even blamed foreign buyers so they don’t have to take difficult decisions that they believe will annoy some of their voters.

But for millions of Londoners who rent, housing is the key electoral battleground, with 43 per cent agreeing it will help them decide how to vote in tomorrow’s local elections – just ahead of Brexit (42 per cent), and a candidate’s position on the NHS (37 per cent).

Over half of Londoners agree that more homes need to be built in their backyard, rising to nearly two thirds of people who live in inner London (63 per cent).

Londoners can’t find a place to call home because we are failing to build anywhere near the number of homes we need. So, as voters go to the polls on Thursday, let’s face up to what we need to do to tackle the housing crisis.

First, we need London’s councillors to back new homes, supporting the development that residents want, and thinking about better ways of building – everything from build-to-rent and micro-homes, to increasing the density of housing in the capital.

Second, we need the Greater London Authority to evolve from an organisation that sets policies and distributes limited government money into one that pushes (and, where necessary, intervenes) to drive the delivery of more homes.

Third, we need more land to build on, including public land, and a locally-led review of the green belt to ensure that what it’s protecting is truly green and pleasant.

None of this will be enough without more money from central government – to date, it has only put a down-payment on tackling the escalating housing crisis.

And finally, we need ministerial continuity. When the government appointed Alok Sharma in June 2017, that made him the fourteenth housing minister since 2000. Sajid Javid officially picked up the housing beat when his role expanded to cover housing, communities and local government in January 2018. Now he’s moved to the Home Office, leaving Brokenshire with the job.

The turnover of those responsible for housing outstrips the rate that the average Londoner moves home. Given how little time these ministers spend in office, it is no surprise that they are stuck tinkering around the edges of the problem, rather than building more homes.

To fix our housing crisis, we need more money, more land, and better ways of building.

But first, we need to jump off the ministerial merry-go-round.

Source: City A.M.

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Buy-to-let mortgage choice hits record high

The number of buy-to-let mortgages on the market has hit its highest ever level, as lenders compete for landlord borrowers, analysis has revealed.

There are now more than 2,000 buy-to-let products, up from 1,558 this time last year, according to Moneyfacts.

The increase in options from providers comes despite regulation and taxation changes that are credited with dampening appetite in the sector.

Charlotte Nelson from Moneyfact, said: “The buy-to-let (BTL) market has seen quite a rollercoaster ride over the past year, including multiple changes that have required both landlords and providers to rethink their options.

“However, this hasn’t appeared to deter providers, marking an increase of 464 deals in just one year.”

New Prudential Regulation Authority (PRA) landlord borrowing rules launched at the end of September mean lenders have to apply stricter standards to those with four or more properties.

The change could explain the boost to product numbers, as providers offer two different products to cater to the different borrower types, according to Nelson.

Moneyfacts recently found the number of limited company buy-to-let mortgages has also increased.

Nelson added: “Amid this upheaval, the market has seen many landlords and aspiring landlords take a step back to assess their options and figure out whether they are making the right choice.

“As a result, buy-to-let providers are now competing for a smaller pool of customers.

“Offering variety in their range is one way in which they can compete.

“While it has been a tough time for the BTL market, the fact that the number of available deals is still growing shows it is still a viable option.”

Source: Your Money

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Trading in interesting times – markets brace for the latest Bank of England interest rate decision

Following a decade without so much as a hint of a rate rise, expectations are high for the UK’s second increase in just seven months.

Most economists expect the Bank of England to raise the base rate to 0.75 per cent this month, up from the current 0.5 per cent. The UK’s economic picture is now looking fairly rosy, with unemployment at a record low and wage growth nudging higher than inflation.

Caroline Simmons from UBS Wealth Management also points out that the recent outlines of a Brexit transition deal have softened business uncertainty, which means conditions look ripe for an interest rate hike.

But what impact could this have on the stock market?

“Even in the disingenuously orderly world portrayed by finance textbooks, the relationship between interest rates and stock prices is complicated,” says Will Hobbs, head of investment strategy at Barclays Wealth.

“If the quoted share price of a company is the sum of all of its predicted future cash flows discounted back to a present value (accounting for opportunity, costs, and other factors), higher interest rates should cut that present value. However, interest rates tend to rise when the economy is warming up, alongside corporate profits, which usually provides an important offset.”

Take advantage

So, how you can position yourself to benefit?

Higher interest rates make it more expensive for businesses to borrow, which means you should be looking for firms with strong balance sheets – that is, companies with healthy profits, and no or low debt.

You should also focus on sectors with most to gain from the gusto of a growing economy, and banks are an obvious starting point, says Hobbs, noting that higher interest rates tend to boost the banking sector’s profitability.

Businesses that hold significant amounts of client money should profit from a rise in interest rates

Insurance companies could be another safe bet.

“Insurers should also be able to generate higher profits from re-investing their premiums in higher yielding bonds,” says IG’s Oliver Smith.

UK banks have reformed since the credit crunch of 2008, making them far more appealing from an investment perspective.

“Many financial services businesses that hold significant amounts of client money should profit from a rise in interest rates from what is an exceptionally low base,” says Lee Wild from Interactive Investor. He points out, however, that it’s unlikely this will translate into better returns on cash savings this time around, with businesses more likely to pass the benefits onto their bottom line.

Where to watch out

And where are the danger zones?

With the peak of the house price boom behind us, Wild warns investors to be wary of housebuilders, which have become more vulnerable to a downturn in the cycle, particularly as increased borrowing costs put pressure on household budgets. “Rising mortgage costs could pop the housing bubble,” he adds.

You should also be wary of defensively-orientated stocks, particularly those with bond-like cash flows and dividend payouts, says Hobbs. He suggests that consumer staples and utilities are the two sectors which stick out.

Importantly, a rate hike could certainly serve as another blow to the retail sector, which has been battling various headwinds for years.

“Unfortunately, there will be little respite for the hard-pressed retail sector, which faces the triple whammy of rising borrowing costs, tightening consumer finances, and more competition from online competitors,” says Smith.

But the IG portfolio manager also points out that, while a rate rise was a dead cert just a couple of weeks ago, Friday’s disappointing GDP data has dampened some of the excitement, meaning markets now attribute just a 28 per cent probability of an increase.

“Yet,” he adds, “this actually presents more of an opportunity for stock pickers; if there is a rise in rates it should create some share price volatility, with expectations that the economy is healthier than it looks.”

There’s certainly no doubt that Mark Carney’s comments will be closely analysed by the market. It’s interesting times all round.

Source: City A.M.