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Resilience of UK banks to doomsday Brexit scenario to be revealed

The Bank of England’s annual stress test will put the seven largest lenders through extreme scenarios. The ability of Britain’s biggest lenders to withstand the economic shock of a no-deal Brexit will be revealed this week when the Bank of England publishes the results of its annual health check on the sector.

The stress tests put the UK’s seven largest banks – Lloyds Banking Group, Barclays, Royal Bank of Scotland, HSBC, Santander, Nationwide Building Society and Standard Chartered – through extreme scenarios, equivalent to the UK crashing out of the EU without a deal.

The Bank has already warned that a no-deal cliff-edge Brexit would have the potential to send the pound plunging further, hit economic growth and even lead to interest rate rises if falls in the value of sterling ramp up inflation.

But Governor Mark Carney has repeatedly stressed that the UK’s financial sector is resilient and last year’s stress test found all banks were sturdy enough to withstand the worst-case Brexit scenario and still keep lending.

It was revealed last year, however, that Barclays and RBS emerged as the weakest and only passed thanks to action they took over the year to boost their balance sheets.

The latest stress test results on Wednesday will reveal how resilient the banks are now and come as fears mount that Prime Minister Theresa May will struggle to secure backing for her Brexit deal.

The Bank, which also publishes its bi-annual financial stability report on Wednesday, will a day later send a keenly-awaited report on the potential economic impacts of a no-deal withdrawal to MPs on the Treasury Select Committee.

This will be included in an analysis of how the EU withdrawal agreement will affect the Bank’s ability to deliver on its monetary and financial stability remits, as requested by the Commons committee.

Mr Carney warned in a recent hearing with the cross-party committee of MPs that a no-deal, no-transition Brexit would be the “worst outcome” and was “not in the interests of either party”.

“There would be an economic shock in Europe as well, and particularly in Ireland,” he warned.

This year’s bank stress test will contain the same economic doomsday scenario as in 2017, including deep simultaneous recessions in the UK and global economies, large falls in asset prices – compounded by the additional stress of misconduct costs.

It will also test banks against a 33% fall in house prices, interest rates surging from 0.75% to 4% within two years, and the unemployment rate rising to 9.5%.

Source: Shropshire Star

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London house price boom over, at least for now

The days of London house price rises hugely outpacing inflation won’t be returning anytime soon, even if Britain and the EU strike a Brexit deal, the vast majority of economists and analysts polled by Reuters said.

Property values in the capital, long a haven for foreign investors, more than tripled in the last 20 years, but demand and turnover have crumbled since the June 2016 vote to leave the European Union and property taxes were raised.

According to the Nov 13-22 Reuters poll, London house prices will fall 1.7 percent this year and another 0.3 percent in 2019. Asking prices in London fell 1.7 percent this month from October, according to property website Rightmove.

Sterling, the stock market and businesses have had a turbulent few years since Britons narrowly voted to end their 45-year membership of the EU.

With just over four months left until Brexit day, Prime Minister Theresa May faces opposition from lawmakers in all parties to her negotiated withdrawal deal, fuelling fears the country may leave without one.

As that risk appeared to grow on Nov. 15, shares in housebuilders Persimmon (PSN.L), Taylor Wimpey (TW.L) and Berkeley Group (BKGH.L) fell between 6 and 7 percent in their worst daily performance since the referendum.

“Things are starting to look a bit bleak. Uncertainty is about the only thing we can be certain about over the next two years,” said independent buying agent Henry Pryor.

Asked if there would be a return to strong turnover and above-inflation house price growth in London and the South East if a Brexit deal was struck, 14 of 17 respondents said no. Two said it would happen regardless and one said it depended on the deal.

But Brexit is not the only factor holding back prices – a sharp increase in Stamp Duty Land Tax, paid when buying a house, has particularly affected the capital where houses are much more expensive than the rest of the country.

“The high rates of SDLT will continue to stifle transaction volumes, especially in expensive price areas like London and the South East,” said Ray Boulger, a senior manager at mortgage broker John Charcol.

After next year’s modest dip London prices will rise 1.5 percent in 2020, the poll found. A separate Reuters survey said overall inflation would be 2.0 percent that year. [ECILT/GB]

Graphic on UK and London house prices forecast: tmsnrt.rs/2Q89SKn?eikon=true

Graphic on UK house price-to-earnings ratio: tmsnrt.rs/2R1jZgW

Graphic on outlook for London’s housing market: tmsnrt.rs/2DCgt8Z?eikon=true

LITTLE CHANCE OF CORRECTION

When asked about the probability of a significant correction in London’s housing market by end-2019 the median forecast was only 20 percent, significantly down from the 29 percent given in August. That may be partly explained by the view that prices are already falling.

But not everyone was gloomy about the capital’s prospects.

“London demand is starting to poke its head above the stamp duty-laden parapet again,” said Russell Quirk, chief executive of online estate agent eMoov.

“History tells us that you can’t subdue London long term and therefore it’s clear that the current downturn in the capital’s volumes and values is temporary.”

Nationally, house prices are forecast to rise 2.0 percent this year, 1.8 percent year and 2.0 percent again in 2020, the poll found.

Those moderate gains are below expectations for wage increases and will likely cheer first-time buyers who are struggling to get on the property ladder.

When asked to rate the level of London house prices on a scale of 1 to 10, where one is extremely cheap and 10 extremely expensive, the median response was 8. Nationally they were rated 7, where it has been for a couple of years.

While borrowing costs are currently low, the Bank of England is forecast to raise rates again after Brexit. But the new level of Bank Rate will still be historically low at 1.0 percent and it is not expected to rise to 1.25 percent until early 2020.

Source: UK Reuters

Landlords
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Landlords rely on brokers for better deals

Landlords rely on brokers to guide their financial choices because they feel intermediaries have access to better deals, according to research by a bridging lender.

In a survey of 2,000 adults who own three or more residential properties, 35 per cent agreed they rely on brokers to inform choices made when securing finance for a property purchase.

The research, conducted by bridging lender Market Financial Solutions, found 41 per cent of the landlords who relied on brokers felt they could access better rates than a borrower going direct with the lender.

Paresh Raja, chief executive of Market Financial Solutions, said: “Whether it is someone purchasing their first house or their 50th, this research shows how instrumental brokers are in guiding property buyers through the financial options available to them.”

Recent figures released by fintech firm Mortgage Brain found a significant difference between the cost of comparable buy-to-let mortgages and mainstream residential products.

As of November 1, the cost of a five-year fixed buy-to-let mortgage at 80 per cent loan-to-value (LTV) was 24 per cent more than the same product type for a residential mortgage.

A two-year fixed buy-to-let mortgage at 80 per cent LTV cost 20 per cent more than its residential equivalent.

The survey of landlords with a portfolio of three or more properties also found a preference to explore financing outside of traditional mortgage products, with 41 per cent expressing a want for a better understanding of the options available to them.

Mr Raja said: “Importantly, beyond the historically dominant mortgage providers, there are now many forms of alternative finance that buyers can call upon.

“And property investors are clearly keen to explore options outside of mortgages that might be better suited to their particular circumstance.”

Mr Raja said with more than a third of landlords relying on brokers, it is vital intermediaries have in-depth knowledge of all financing options and not just different rates for the same product.

Steve Olejnik, managing director at Mortgages for Business, said he thought the number of respondent landlords using brokers to guide financial decisions in the survey was surprisingly low.

He said: “In my experience nearly all buy-to-let mortgage business is done via intermediary channels.

“But there will be landlords who purchase in cash and therefore don’t require finance – I would think therefore that those not going to a broker are predominately cash buyers.”

Mr Olejnik said brokers are becoming increasingly important in filling the advice gap.

He said: “In a buy-to-let environment more complex than ever, landlords really do need broker advice to find the right product.”

Source: FT Adviser

house price
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London house price boom to end as buyer’s market returns

The London property market is slowly returning into the hands of buyers, as the days of house price growth outpacing the rise of inflation look set to come to an end.

Industry analysts and economists polled by Reuters over the last week have predicted house prices in the capital will fall 1.7 per cent this year and a further 0.3 per cent in 2019, even if the UK does not secure a Brexit deal.

Property values in London have more than tripled in the last two decades, boosted by foreign investors.

Asking prices in London fell 1.7 per cent this month from the same period in October, according to data from Rightmove.

Brexit uncertainty is not the only thing holding back prices, as sharp increases in stamp duty and land tax stifle transaction volumes.

Experts have predicted London prices to rise by 1.5 per cent in 2020 after the upcoming dip, while economists have said inflation will rise two per cent.

However online estate agent Emoov’s chief executive Russell Quirk had a message of positivity for Londoners looking to sell in the next few years.

“London demand is starting to poke its head above the stamp duty-laden parapet again,” he told Reuters.

“History tells us that you can’t subdue London long term and therefore it’s clear that the current downturn in the capital’s volumes and values is temporary.”

Nationally, house prices are forecast to rise two percent this year, 1.8 percent next year and two percent again in 2020. Though moderate, those gains are below expectations for wage increases and will likely appease first-time buyers who are struggling to get on the property ladder.

Source: City A.M.

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Plans for 400 homes in Walsall revived

More than 400 homes will be built on a Walsall estate under plans which are set to be given the green light when they come before council bosses next week.

Walsall Housing Group and Keepmoat Homes want to build 407 homes on land at Goscote Lane, in Goscote, near Pelsall, as part of the borough’s ‘biggest ever residential regeneration scheme’

Walsall Council’s planning officers have recommended the scheme is approved at the meeting on Thursday.

The news comes after planning bosses approved a plan to build 426 houses on the land in April last year, but no work began and now a fresh application for 407 homes has been submitted.

Head of development at Walsall Housing Group, Mark Ramdehal, said: “This is the final phase of the borough’s biggest ever residential regeneration scheme, delivering more than 800 new energy efficient homes in North Walsall.

“These revised plans have seen us replace proposed one and two bedroom apartments with two, three and four bedroom houses, in recognition of the need for more affordable family homes within the region.

“Subject to planning permission, we aim to be on site in the New Year, with the first homes completed by the end of 2019.”

The 407 houses includes 281 dwellings for private sale, and 126 for affordable general needs which compromise of bungalows and houses.

In the application, agent Konstantina Zannetaki says: “The development is part of the wider Goscote Lane Corridor Regeneration scheme, which is part of Walsall Council’s Strategic Regeneration Framework (SRF) initiative.

“The aim of the initiative is to regenerate the wider area with new, high quality housing and attractive, usable open spaces.

“The aim of this scheme is to create a safe, secure and desirable place to live in. It is vital that the proposals are influenced by and respond sensitively to the site’s context and surrounding buildings.”

The main entrance onto the site would be along the western boundary at the junction with Goscote Lane and Goscote Lane Crescent. A secondary entrance would run parallel to this, further south.

Councillor Ian Robertson, who represents the Blakenall ward, said: “We hoped that it would have started by now, but we welcome the fact that it’s moving forward and a new community can grow where the old one failed.”

Source: Express and Star

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Hammond warns of threat to economy if MPs reject Brexit deal

Chancellor Philip Hammond said the deal was better for the UK than staying in the European Union because it would help heal a divided nation.

The UK would face “economic chaos” if MPs reject Theresa May’s Brexit deal, the Chancellor has warned.

Philip Hammond appealed for the Commons to support the plan, with the prospect of “very serious” consequences, including job losses, from a no-deal scenario.

His comments came as the Prime Minister travelled to Brussels with her Brexit deal under threat at home and abroad.

Mrs May will hold talks with European Commission president Jean-Claude Juncker and European Council president Donald Tusk before a summit of EU leaders on Sunday which is expected to endorse the deal thrashed out between negotiators from the two sides.

But Spanish Prime Minister Pedro Sanchez has threatened to “veto” progress without further guarantees for Madrid over the status of Gibraltar.

Mrs May also faced domestic difficulties, with her relationship with the Democratic Unionist Party looking increasingly strained as Arlene Foster’s party held its conference in Belfast.

DUP leader Mrs Foster warned that the confidence and supply deal propping up Mrs May’s minority administration would have to be “revisited” if her Brexit deal gets through Parliament.

The DUP has strongly opposed the deal and the guest star at its conference will be Boris Johnson, a prominent critic of the Prime Minister’s approach and a potential rival for the Tory leadership.

The tensions over Gibraltar concern Spain’s demand that the territory’s future is considered a bilateral issue between London and Madrid rather than between the EU and UK.

Mr Sanchez has suggested that Sunday’s summit could be scrapped unless there is a breakthrough.

Mrs May has insisted her deal is in the interests of “the whole UK family” including Gibraltar.

On the domestic front, Mr Hammond’s intervention is aimed at winning over critics including more than 80 Conservative MPs – from both the Leave and Remain sides – who are threatening to vote against the agreement.

He also sought to reassure the DUP over their “understandable concerns” about the Northern Ireland backstop provisions aimed at preventing a hard border with Ireland.

If we want this country to be successful in the future, we have got to bring it back together after this process

Chancellor Philip Hammond

Mr Hammond told BBC Radio 4’s Today programme that he believed the deal on offer was better for the UK than remaining in the EU, stressing that it would help heal the divisions caused by Brexit.

“It’s a way of leaving the European Union with minimum negative impact on our economy,” he said.

“Economics is not the only consideration – we also have to look at the political healing process, bringing our country back together because countries that are disunited and divided are not successful countries.

“If we want this country to be successful in the future, we have got to bring it back together after this process.”

He warned that a no-deal Brexit would unleash “economic chaos”, adding: “If the meaningful vote is lost we are in uncharted territory. We will be faced with potential economic chaos; I am sure we would get a very negative reaction from the business community, from investors, from the markets.

He added “we might end up with no deal, we might end up with no Brexit” if the Withdrawal Agreement is blocked by Parliament.

If the deal does pass the Commons, the repercussions could bring down Mrs May’s Government, with the DUP hinting at withdrawing the support of its MPs.

The DUP’s 10 MPs have proved reluctant to vote with the Government since the terms of the Brexit deal became known and the termination of their Westminster arrangement would be a major blow to the Prime Minister.

DUP leader Arlene Foster told the Times that Mrs May’s deal would be a worse outcome than a Labour government led by Jeremy Corbyn.

“It is, and the reason I say that is on day one of us leaving the European Union there would be no difference, we would be exactly the same as the rest of the UK, but in year five or 10 we would be different,” she said.

“If people are looking to Dublin for representation in Europe because we’re the subject of EU rules that is so dangerous in terms of the union … All the things we build the union on – the economic, the cultural, social, political and historical start to diverge.”

DUP leader Arlene Foster and deputy leader Nigel Dodds have strongly opposed Theresa May's deal (Brian Lawless/PA)
DUP leader Arlene Foster and deputy leader Nigel Dodds have strongly opposed Theresa May’s Brexit deal (Brian Lawless/PA)

The DUP’s Westminster leader, Nigel Dodds, used his speech to urge Mrs May to ditch her Brexit plan.

“The DUP wants a deal with the European Union, we understand that businesses, families and communities want certainty,” he said.

“But it is not this deal. It is not a deal at any price. The Prime Minister used to say that. We still say that.

“So, Prime Minister, the message from this conference, from every section of this party is – bin the backstop.”

The Daily Telegraph reported that the next stage of Mrs May’s Brexit sales pitch will be on the immigration concerns believed to have been a key factor in the Leave vote.

According to leaked Cabinet papers, the Home Office has drawn up plans to issue low-skilled migrants with 11-month visas “with restricted entitlements and rights” while they are living in the UK.

Alternative plans could allow EU migrants aged between 18 and 30 to live and work in the UK for two years, with a strict cap on numbers.

The Government will abolish the cap on highly skilled “tier 2” migrants entirely, the report said, with the plans set out in the week beginning December 3 – a week before the crunch Brexit vote is expected in the Commons.

Source: Shropshire Star

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65% of brokers would take on short-term finance clients because of the ability to diversify

Some 65% of brokers said the key reason they would take on short-term finance clients was the ability to diversify, followed by 60% it was because of the increased demand for bridging cases, InterBay Commercial has found.

Furthermore 70% said that the demand for bridging has risen in the last year and only 8% said they thought demand for bridging loans had fallen.

When asked about the reasons to take on a bridging application, 65% pointed to the fact that bridging cases often involve higher fees and therefore presented an opportunity to earn additional income.

Darrell Walker, head of sales, InterBay Commercial, said: “With the continuing political uncertainty around Brexit, activity in the property market is sluggish and impacting on sales.

“Brokers therefore need to be able to provide their clients, particularly investors, with fast and flexible options to finance their next project so they can make the most of higher yielding alternatives, such as HMOs.

“As the demand increases for specialist finance products, brokers should make sure they are informed. This requires more education around the options lenders offer and the speed at which the solution can be secured.

“But most important is the relationship that has been built with the BDM who is best placed to inform brokers on product availability and criteria guidelines as well as offering flexible tailored advice.”

In addition 12 times as many brokers expect demand for bridging to grow rather than shrink (62% vs 5%). Of those who thought it would grow, most paired the demand with rising house prices (42%), closely followed by growing demand from buy-to-let investors (40%).

With this expected growth within the specialist lending market, there is an increasing need for brokers to be able to specialise and be aware of the lending options available to their clients.

Brokers are not the only ones adapting to the growth in demand for bridging. 67.5% of brokers said that lenders have increased the variety of bridging products that they have on offer.

Source: Mortgage Introducer

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Alternative finance platforms report stellar growth

The UK alternative finance market grew by 35% to £6.2 billion in 2017, with P2P and crowdfunding accounting for 30% of all deals, according to a report by Cambridge Centre for Alternative Finance.

Peer-to-peer business lending retained the top spot, with £2 billion in transaction volume in 2017 and 65% year-on-year growth, estimated to be equivalent of 29.2% of all new bank loans to small businesses in 2017. That’s nearly double the 15.3% figure in 2016.

Consumer lending in the P2P space commanded £1.4 billion, with property lending standing at £1.2 billion and invoice trading at £787 million.

Equity-based and real-estate crowdfunding platforms also had a stellar year, with the former growing by 22% year-on-year to £333 million, and the latter hitting 200% y-o-y growth at £200 million.

But debt-based securities stagnated at £79 million, while rewards-based models decreased by £4 million to £44 million in 2017.

Institutional financing helped propel the figures, accounting for 40% of funding for P2P business lending. This trend of institutionalisation was also seen in equity-based crowdfunding, where 49% of the funding was provided by venture capital funds and professional investors “co-investing” with retail investors.

The CCAF also asked UK online alternative finance platforms to provide an indicative breakdown of their operating costs and budget allocation, finding that on average and across models, they spend about 15% on IT, 14% on research and development, 14% on sales and marketing, and eight per cent on reporting and compliance.

Bryan Zhang, the executive director of the Cambridge Centre for Alternative Finance says: “This report reflects an industry that is playing an increasingly important role in helping consumers and businesses access finance, whilst growing to become more diversified, sophisticated and institutionalised.”

Bruce Davis, director of the UK Crowdfunding Association adds: “As we move into uncertain times with Brexit discussions ongoing, the UK will need to ensure its home-grown providers of investment capital can keep providing vital investments to grow businesses and improve the UK’s productivity and international competitiveness. We hope that policy makers and regulators alike will think about ways that they can further support the growth of the industry as it matures and diversifies further.”

Source: Fin Extra

UK commercial property
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Demand by investors for UK commercial property remains strong

The level of demand for UK commercial property remains strong, despite continued lack of clarity over Brexit.

According to the latest GVA review of commercial property investment market, European investors were more risk averse to the UK market because of the uncertainty caused by Brexit but demand from overseas investors, particular from China and the Far East, strengthened in 2018.

Domestic investors have also made a ‘come-back’ to the UK market and have accounted for approximately 12 percent more acquisitions in 2018, compared to the previous year.

In the North East, the lack of availability of investment property is one of the biggest factors affecting growth and there remains strong competition, particularly for prime well let assets.

Regardless of political uncertainty, the fundamentals of the UK commercial property market will continue to make it an attractive place to invest, with London remaining the number one priority target of investors outside of Europe.

Overall, the report concludes, the UK commercial property market will remain attractive with the exception of retail.

Source: Workplace Insight

stamp duty
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First-time buyers save £426m in stamp duty

The government is facing calls to extend first-time buyer stamp duty relief and increase access to the housing market as figures showed £426m was relieved since the exemption was introduced.

Statistics released by HM Revenue & Customs today (21 November) showed that in the most recent quarter 58,800 transactions claimed first-time buyers’ relief, bringing the total number of claims since the relief’s introduction to 180,500 – a monetary value of £426m.

The relief was introduced in November 2017 to purchases of residential property by first-time buyers for £500,000 or less and then extended in last month’s Budget to first-time buyers buying through shared ownership schemes.

The HMRC figures showed stamp duty transactions increased by 11 percentage points to 307,100 between the second quarter and third quarter of this year.

The latest transaction figures are 8 percentage points lower than those recorded in the third quarter of 2017 but this data was not directly comparable due to the devolution of stamp duty to Wales in April 2018.

But there were concerns stamp duty remained a “financial barrier” to those higher up the housing ladder.

Kevin Roberts, director at Legal & General Mortgage Club, said this was particularly the case for growing families looking to upsize or last-time buyers looking to downsize.

He said: “The changes in the Chancellor’s recent Budget were certainly welcome, however, if we are to create a housing market that is accessible to all we must do more for older homeowners by extending the stamp duty exemption.

“After all, encouraging movement higher up the ladder allows properties further down the ladder to be freed up, which could help lift the stagnated transaction market we have been seeing.”

Shaun Church, director at Private Finance, said the stamp duty exemption had arguably been one of the most successful initiatives at getting more buyers onto the housing ladder but he said it should not end there.

He said: “We urge the government to turn its attention to last-time buyers as too many would-be downsizers remain in their family homes unwilling to move due to the hefty tax bill they would incur.

“Encouraging these homeowners to move to smaller and more suitable homes would unglue the housing market, and unlock a supply of properties for prospective buyers further down the chain, helping to rebalance the supply of UK property in relation to demand.”

Source: FT Adviser