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Peer-to-peer lenders told to clean up poor practices or face crackdown

The financial regulator has sent a seven-page letter to peer-to-peer lending firms warning them the industry must clean up poor practices or face a “strong and rapid” crackdown.

Peer-to-peer firms match individual borrowers or companies with lenders willing to put money aside for longer, hunting for a good return. As the banking middleman is cut out, borrowers often get slightly lower rates, while lenders can sometimes earn 6%+, though the regulator has repeatedly said it’s concerned that many don’t understand the risks involved.

Now The Times has revealed that in a letter sent to 65 firms, the Financial Conduct Authority (FCA) has highlighted an array of problems with some lenders, including weaknesses in disclosure of information to clients, complicated charging structures and poor record-keeping.

The letter itself hasn’t been published, and when we contacted it today the FCA wouldn’t officially comment. But we understand that the contents of the letter quoted in The Times is correct.

For more on how this works, including a full breakdown of the risks, see our Peer-to-Peer Lending guide.

What is peer-to-peer lending?

Peer-to-peer lending websites are industrial-scale online financial matchmakers. They can allow borrowers to get slightly lower rates, while investors who offer loans get far improved headline rates, with the sites themselves profiting via a fee.

But investing your money this way is NOT like traditional saving, as there’s no savings safety guarantee and you could lose your money. It may also be hard to get your money out early and your cash may not be lent straightaway, so you may get no interest for a while. See our Peer-to-Peer Lending guide for a full list of risks.

What does the letter sent by the FCA say?

MoneySavingExpert.com hasn’t seen the text of the letter sent by the FCA, so we don’t know full details.

However, according to The Times, the FCA says in the letter that certain platforms have made “significant changes to their business models without notifying us”. It also adds that this is being driven by pressure on many in the industry to return profits, resulting in them taking “additional, opportunistic risks” in certain areas, and warns of “severe” consequences to the stability of platforms.

The letter reportedly says the FCA is “reviewing the adequacy of a number of firms’ financial resources” and says the industry must “act now” to clean up poor practices or face a “strong and rapid” crackdown.

For full details, see The Times’ story Peer-to-peer lenders given final warning by Financial Conduct Authority (you’ll need to register to read the whole article).

What else is the FCA doing on this?

In June 2019, the regulator published new rules designed to better protect investors, which all peer-to-peer firms will need to follow by 9 December 2019. These rules include a limit on how much new investors can put into peer-to-peer lending, new checks to ensure you have the knowledge and experience to invest and stronger rules on plans if a lender goes bust. See New FCA rules on peer-to-peer lending for more info.

By Callum Mason

Source: Money Saving Expert

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UK rate cut ‘plausible’ if Brexit uncertainty persists: BoE’s Saunders

The Bank of England may need to cut interest rates in the likely scenario that high levels of uncertainty over Brexit persist, policymaker Michael Saunders said on Friday in the first clear signal that the BoE is considering a cut.

Last week, without directly raising the prospect of cutting interest rates, the Bank of England said Brexit and slower world growth were increasingly causing Britain’s economy to perform below potential.

Saunders – who was one of the first BoE policymakers to vote for higher interest rates in 2017 and 2018 – said it was now his view that the unpredictable path of Brexit would effectively act as a “slow puncture” for the economy.

“Growth has slowed to a mere crawl,” he told local businesses in Barnsley, northern England. “I think it is quite plausible that the next move in Bank Rate would be down rather than up.”

After the comments, sterling GBP= fell by as much as half a cent against the dollar to a three-week low, and short-dated government bond yields dropped 4-5 basis points as investors priced in the increased chance of lower borrowing costs.

Prime Minister Boris Johnson has pledged to take Britain out of the European Union by Oct. 31, without any transition agreement if necessary, but is in a standoff with parliament which has voted to block a no-deal departure next month.

Even if Britain temporarily avoids a no-deal Brexit, uncertainty was likely to remain high, either due to the risk of a no-deal Brexit in 2020 or due to a lack of clarity about longer-term trading relationships with the EU, Saunders said.

“In this case, it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing,” he said.

British economic growth continuing at its current level of 0.1%-0.2% would be sufficient to justify lower rates, due to the risk of slack opening up in the economy and pushing inflation further below its 2% target, Saunders said.

The economy shrank by 0.2% in the second quarter of 2019 and last week the BoE trimmed its third-quarter growth forecast to 0.2% from 0.3%, while inflation dropped more sharply than expected to 1.7% in August.

David Cheetham, chief market analyst at brokers XTB, said the BoE looked increasingly likely to follow the U.S Federal Reserve and European Central Bank and cut rates.

“The economy is still barely keeping its head above water. Throw in the almost universally acknowledged continued levels of heightened uncertainty on the political front … and it is actually pretty shocking that a comment that a rate cut is ‘quite plausible’ has caused such a response.”

NO WAIT AND SEE

Simply waiting to see what happened with Brexit risked leading to inappropriate monetary policy, and the cost of reversing a rate cut if the outlook brightened would be low, Saunders added at the event hosted by the Barnsley and Rotherham Chamber of Commerce and Institute of Chartered Accountants.

“In general, I would prefer to be nimble… accepting that it may be necessary to change course if the outlook changes significantly,” he said.

Saunders still agreed with recent BoE guidance that a limited and gradual increase in interest rates would be needed over the medium term, if Brexit uncertainty reduced significantly and global growth perked up a bit.

In the event of a no-deal Brexit, Saunders repeated the BoE position that all policy options would be open.

Earlier this month, BoE Governor Mark Carney estimated in a worst-case, chaotic scenario that a no-deal Brexit could reduce the size of the economy by 5.5%. The Paris-based OECD has predicted a 2% hit in the case of a more managed no-deal Brexit.

Saunders was clear that a no-deal Brexit – advocated by some Brexit supporters as a way to resolve the uncertainty facing businesses – was not a good solution. “This would probably immediately leave some firms unprofitable. Others might face longer-term questions about their viability, or whether they would be better off relocating.”

Reporting by David Milliken

Source: UK Reuters

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London house price growth remains below UK city average

House prices in London edged up 0.2 per cent in August but inflation remained below the UK average growth rate for cities of 1.9 per cent.

However, mortgages for home purchases in London have been increasing slowly following the lower numbers seen since late 2014, suggesting that the decline in London housing sales has bottomed out.

Data from Zoopla and Hometrack shows that 9.7 per cent of live listings had the price reduced – the lowest level for three years.

“We do not expect house price growth to increase but builders and agents in London will welcome any improvement in market activity,” the House Prince Index report said.

Leicester is the fastest growing city as house prices have increased 4.8 per cent, while Aberdeen has the lowest growth in the country with a rate of minus four, according to research by Zoopla and Hometrack. August was the first time since 2012 that no big city saw annual property growth rise above 5 per cent.

Bentham and Reeves director Marc von Grunderr said: “London continues to act as a house price growth anchor for the time being and this is largely being driven from the inside out as those who have seen the largest decline in property values continue to hold fire for greener pastures on the other side of the Brexit bridge.

“However, to view the capital as down and out when it comes to its property pedigree would be very foolish indeed. London is currently a sleeping giant rather than a crumbling carcass and once stability returns, so too will buoyant house price growth.”

The acceleration in house price inflation since 2013, which reached almost 20 per cent in London in 2014, and the slowdown since 2016 are “part of the unfolding house price cycle”, the research said.

CityCurrent price% year-on-year August 2019
London£483,8000.2 per cent
Leicester£182,9004.8 per cent
Liverpool£124,7004.6 per cent
Manchester£173,0004.5 per cent
Cardiff£211,8004.1 per cent
Edinburgh£235,4004 per cent
Birmingham£168,3003.8 per cent
Belfast£136,4003.6 per cent
Leeds£168,9003.5per cent
Glasgow£127,0003.3 per cent
Nottingham£155,3003.1 per cent
Sheffield£139,6002.8 per cent
Bristol£283,0002.2 per cent
Newcastle£128,9002 per cent
Bournemouth£293,6001.3 per cent
Southampton£228,3000.5 per cent
Cambridge£429,5000.3 per cent
Portsmouth£237,8000.2 per cent
Oxford£409,100-0.4 per cent
Aberdeen£158,800-4 per cent
20 city index£257,9001.9 per cent
UK£220,7002.1 per cent

By Jessica Clark

Source: City AM

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Bank of England could cut interest rates if Brexit uncertainty persists, says MPC member

The Bank of England may need to cut interest rates even if a no-deal Brexit is avoided, according to a member of the monetary policy committee (MPC), which sets the rates.

Michael Saunders has said that the Bank may have to cut rates if the “slow puncture” effect on the economy from Brexit uncertainty persists.

It comes just a week after an MPC meeting in which there was no indication that borrowing costs could be cut.

“The economy could follow very different paths depending on Brexit developments,” Saunders said at a business event in Barnsley.

“But in my view, even assuming that the UK avoids a no-deal Brexit, persistently high Brexit uncertainties seem likely to continue to depress UK growth below potential for some time, especially if global growth remains disappointing.

“In such a scenario – not a no-deal Brexit, but persistently high uncertainty – it probably will be appropriate to maintain an expansionary monetary policy stance and perhaps to loosen further.

“Of course, the monetary policy response to Brexit developments will also take into account other factors including, in particular, changes in the exchange rate and fiscal policy.”

Following his remarks, the sterling has fallen by 0.3 per cent against the dollar to 1.229, although it has recovered slightly from its initial dip to 1.227.

Saunders said that Brexit had meant uncertainty for around 50 per cent of businesses and that while it had only had a modest effect on UK growth in 2017 and 2018, this year there was evidence of weaker growth.

The rate-setter also acknowledged that the appropriate policy response to a no-deal Brexit could go up or down, dependent on how supply, demand and exchange rates are affected.

Similarly, if the UK avoids a no-deal Brexit, he said: “Monetary policy also could go either way and I think it is quite plausible that the next move in Bank rate would be down rather than up.

“One scenario is that Brexit uncertainty falls significantly and global growth recovers a bit. In this case, some further monetary tightening is likely to be needed over time.

“Another scenario, and this is perhaps more likely to me, is of prolonged high Brexit uncertainty,” he said.

Saunders concluded that: “In steering through these uncertainties, the MPC will of course be guided by our remit and the aim of ensuring a sustainable return of inflation to the 2 per cent target in a way that supports output and jobs.”

Bank barking up wrong tree

Chief analyst at Markets.com, Neil Wilson, says the comments show the Bank are “barking up the wrong tree”.

“In making the case for a cut now it conforms to the belief in many in the market that the Bank is barking up the wrong tree with its slight tightening bias in its forward guidance,” he said.

“The comments from Saunders are clearly an added weight on the pound.”

By Michael Searles

Source: City AM

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Brexit and the housing market: prices drop and fewer homes are put up for sale

If you’re considering buying a house at the moment, you might want to know what the current, realtime impact of Brexit on the UK housing market is, and whether local house prices are the main thing you should be worried about.

Well, according to the latest Rightmove House Price Index, there’s more to the effects of the current political situation than the downward trend in house prices that we’ve been seeing. More on that in a minute.

First things first: it is true that Brexit is continuing to drag house prices down, especially in London and the South East, and in particular where it comes to bigger and top-tier properties.

On average, London properties are 2.1 per cent cheaper this September than they were the same time last year. By contrast, asking prices in the first-time buyer sector have actually increased by 0.6 per cent compared to August.

However, the far starker effects can be seen in the supply figures – in other words, how many properties are up for sale. Many people are holding off putting their homes on the market, with the number of newly listed properties down by a huge 7.8 per cent this September compared to a year ago.

This scarce supply is having a knock-on effect on would-be movers, many of whom are now unable to find suitable properties to move on to. The situation is much more severe in London, where the number of newly listed properties has fallen by a massive 20 per cent.

‘All regions are down on their numbers for both sales agreed and properties coming to market,’ comments Rightmove director Miles Shipside. ‘Some regions are just marginally behind the previous year, but they are all seeing less activity in these two key metrics, showing that hesitation is now more widespread rather than being localised to just some parts.

‘However, some of that will be due to difficulty in finding the right property to buy, as activity still remains brisk in some locations, evidenced by continuing upwards pricing pressure in some parts of Great Britain. Uncertainty is clearly not just about the political situation, with finding the right property to buy being a bigger worry for many.’

The takeaway from these stats is that if you’ve found a property you like and are in a position to buy, now is not the time to hesitate. You can read more about why Brexit shouldn’t stop you moving house in the news piece we published earlier this week. Our advice? Use the autumn lull to your advantage and negotiate a good price, if you can find a property you like.

BY ANNA COTTRELL

Source: Real Homes

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UK consumer sentiment falls to six-year low – YouGov/Cebr

UK consumer sentiment has fallen to a six-year low due to increased worries about job security and the impact trade tensions and political uncertainty will have on individuals’ finances, a survey showed on Thursday.

Market research company YouGov said its monthly consumer sentiment indicator, compiled with economic consultancy Cebr, dropped to 103.4 in September from 104.0 in August, its lowest level since May 2013.

“It is clear now that the UK has shifted into a slower growth mode due to a combination of ongoing domestic political uncertainty and global economic headwinds,” said Kay Neufeld, head of macroeconomics at Cebr.

Britain’s economy unexpectedly contracted in the three months to June and the Bank of England and other economists predict only modest growth in the three months to September, with Britain still at risk of a disruptive Brexit on Oct. 31.

Uncertainty about the terms and timing on which Britain will leave the EU has depressed business investment, but consumer demand has proved resilient so far, according to official data.

There are tentative signs this may be starting to crack.

A separate survey by IHS Markit on Monday showed households’ concerns about the outlook for their personal finances was the highest in nearly six years, and on Wednesday the Confederation of British Industry reported a fall in retail sales.

But in the short term British households are benefiting from record-low unemployment, as well as wages that are rising at the fastest rate in more than 10 years.

Figures from pay analysis company XpertHR, also released on Thursday, showed that the average basic pay settlement at large employers remained at a 10-year high of 2.5% in the three months to the end of August, unchanged since the start of the year.

Official measures of wage growth tend to run somewhat higher, as they also factor in pay rises achieved through promotions and job changes.

Reporting by David Milliken

Source: UK Reuters

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Mortgage boom helps drive northern powerhouse

The mortgage market is booming in the North of England with the number of first-time buyers soaring to a pre-financial crisis high.

Figures released today by UK Finance revealed, in 2018, the mortgage industry helped nearly 85,000 households buy their first home in the region – which is made up of the North West, North East and Yorkshire and Humber.

This is an increase of 3% on the previous year and is the highest level since 2006, according to UK Finance which is publishing the data to coincide with its ‘Northern Powerhouse’ dinner to discuss how financial services can support the region’s economy.

These strong figures, it suggested, were down better affordability in regions of the North, where the average deposits and income multiples were lower than anywhere else in England. It said there was an increase of 1.1% in the number of home movers.

Buy-to-let hotspots

It wasn’t just residential mortgages which were helping to drive the boom. Newcastle, Liverpool and Hull bucked the national trend and experienced strong growth in buy-to-let lending, UK Finance revealed.

It said this had been driven by lower house prices and a healthy labour market as well as strong rental demand. This allowed landlords to achieve higher yields than the UK average.

The growth in Hull was particularly strong – with buy-to-let lending soaring by 12.8%.

Jackie Bennett, director of mortgages at UK Finance, said: “These figures show the North of England has a strong and dynamic mortgage market, with lenders helping thousands of first-time buyers onto the housing ladder.

“This has been combined with a steady increase in home movers, making it easier for buyers to find a property that suits their needs.

She added: “The mortgage industry stands ready to work with the UK government and local authorities to capitalise on these strengths and help deliver on the full economic potential of the Northern Powerhouse.”

Strong regional disparities

While the figures were good news for the North of England, they also exposed weaknesses in other parts of the UK, particularly in London.

Shaun Church, director of Private Finance, said they highlighted the strong regional disparities in both housing demand and activity.

“Comparatively low property prices and strong rental demand makes the North an attractive prospect for landlords,” he said.

“After years of being slammed by regulatory changes making it harder to turn a profit, investment location has never been more important. Northern regions are still enjoying decent house price growth, meaning landlords can also enjoy an increase in the value of their asset.”

By Kate Saines

Source: Mortgage Finance Gazette

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Cash buyers fall in 90% of UK cities

Cash buyers have fallen in 90% of UK cities since 2016 according to Zoopla’s August UK Cities House Price Index.

In Zoopla’s view, the decline in cash buyers is largely a result of the 2016 stamp tax changes impacting investors and second homeowners.

Richard Donnell, research and insight director at Zoopla, said: “The housing market is throwing off mixed signals as the headline rate of price growth slows yet demand from home-owners using a mortgage continues to increase.

“This is at a time when Brexit is dominating the headlines again and further complicating the outlook.

“Despite increased uncertainty, demand from mortgaged homeowners appears resilient, with demand supported by low mortgage rates, high levels of employment, and households who want a home.

“A change in the mix of buyers has impacted the demand for housing across cities since 2016.

“The reduction in cash buyers has been marked in southern cities and we believe this is down to a decline in investment-buying across high value cities.

“This has compounded the slowdown in price rises, which we see as a return to a more sustainable pace of price growth rather than an impending re-correction.

“The London market continues to see greater realism in pricing and there are signs of a modest increase in market activity.

“This isn’t a precursor to price rises, but we do expect sales volumes to start rising once again.”

One in four (25%) sales are to cash buyers, down from 29% in 2013, and are a mix of homeowners and investors.

Zoopla analysis shows the number of cash buyers has declined most significantly in cities with the highest capital values and lowest yields.

House price growth has slowed to more sustainable levels with prices 1.9% higher than a year ago.

Leicester is the fastest growing city (4.8%) followed by Liverpool (4.6%).

Whilst the headline rate of growth has slowed, the performance of house prices since the last market peak in 2007 has varied by over 90%.

Steve Seal, managing director at Bluestone Mortgages, added: “While house prices aren’t rising as quickly as they used to, a lack of affordable housing stock is still preventing many buyers from taking their first steps on the property ladder.

“Others, meanwhile, are left feeling defeated and despondent after being rejected for high-street lending.

“Our latest Specialist Lending Tracker revealed that two in 10 consumers who had previously been denied mainstream lending believed there were no alternative options available to them.

“However, this is where the specialist lending market comes in.

“Specialist lenders can provide borrowers who have say, a complex credit history, with affordable and sensible solutions that cater to their exact needs, getting them one step closer to realising their homeownership dreams.”

Despite recent price falls, London house prices are 56% higher than 2007, whilst those in Belfast are 40% lower.

House prices grew in London by 0.2% in the 12 months to August according to the index.

Marc von Grundherr, director of Benham and Reeves, said: “London continues to act as a house price growth anchor for the time being and this is largely being driven from the inside out as those who have seen the largest decline in property values continue to hold fire for greener pastures on the other side of the Brexit bridge.

“However, to view the capital as down and out when it comes to its property pedigree would be very foolish indeed. London is currently a sleeping giant rather than a crumbling carcass and once stability returns, so too will buoyant house price growth.”

By Michael Lloyd

Source: Mortgage Introducer

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Will Brexit affect tax schemes and tax relief?

It is no secret that Brexit is going to have a huge impact on the whole of the UK, especially when it comes to businesses that have some type of trading across the EU. One area that you might not instantly think about being impacted by Brexit are tax schemes and tax relief.

However, just like many things in the world of business, it looks like our imminent departure from the EU is going to have an impact on this too.

What is SEIS?
The first thing to look at is what SEIS actually is. SEIS is a UK based scheme backed by the government. It is there to help those businesses that may be seen as being high risk to raise funds and finance. The way that it does this is by encouraging key investors to invest in these businesses with their own money.

Of course, these business investors are going to know that there could be some risks to investing in another company. So, in order to make it a more tempting consideration, the government offers those investors the chance to claim SEIS relief.

This means that the investor can claim back tax relief on the money that they are investing. EIS relief can be claimed on up to £1m of investments, although this can rise to £2m in some circumstances.

Needless to say EIS has been a hit and since its creation investors have put in more than £10bn, which in turn has made its way to those smaller companies, those companies in financial difficulties or those who need a boost to get their businesses started in the first place.

What does Brexit mean for SEIS?
So, what does Brexit mean for this important form of business finance? The truth is, much like many things about Brexit, we simply don’t know what is going to happen until it actually happens. The amount of uncertainty around the idea of leaving the EU, well that is one of the most frustrating things about the entire situation.

There is a good chance that Brexit will have an impact on SEIS, but we simply don’t know whether this impact will be dramatic and far-reaching.

What we do know is that there is always going to be a need for this form of funding. There are always going to be small and medium enterprises that are looking for financial support, all in the form of SEIS and the investors that are a part of this scheme.

The hope for those in the UK is that Brexit will mean that these possible investors will look closer to home to invest in their money, rather than perhaps putting it abroad. This would be a definite positive. However, there is also a chance that some of these key investors will take their business entirely abroad and they won’t be in the UK to pass on their investments.

Time will tell what is going to happen with SEIS and the effects of Brexit. So, come November and December, it is simply going to be a case of watching this space.

Source: London Loves Business

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New research sheds light on mortgage cashback

Stamp duty, home improvements or immediately starting to pay down their new mortgage are all ways homebuyers would spend cashback from lenders, Leeds Building Society has discovered.

The society carried out national research among 1,224 people into mortgage cashbacks to find out whether borrowers valued this option and how they would spend this cash.

There were four top priorities:

25% would use cashback to cover the costs of removals or storage
24% would pay legal or other professional fees
24% would put the money straight into overpaying their new mortgage
23% would cover maintenance or improvements they were expecting in their new home, such as a boiler service.

There was a difference in behaviour between residential purchasers and buy-to-let landlords.

A third of borrowers buying a residential property (32%) were most likely to settle professional services’ bills with their cashback, whereas 51% of buy-to-let purchasers favoured putting the cashback straight into overpaying their loan.

Matt Bartle, Leeds Building Society’s director of products, said: “Everyone’s requirements will be individual to them, which is why we offer different combinations of fees, features and incentives across our mortgage product range.

“For that reason we offer incentive packages which give borrowers plenty of choice, not only on the rate and term of their mortgage, but also to help with the other costs of moving home or remortgaging.

“Building on our market knowledge and long experience of mortgage lending, we continue to test ideas and ask borrowers what they need, so we can develop the product deals and lending criteria which will help more people to have the home they want.

“Of course, borrowers can choose how to spend their cashback and it’s positive to see that people would use the funds to cover costs associated with moving and in some cases overpay to reduce the size of a loan immediately.”

Leeds Building Society has a variety of no fee cashback mortgages available, including:

3.49% two year fixed rate shared ownership mortgage up to 90% borrower share with £500 cashback
2.49% five year fixed rate buy-to-let mortgage up to 60% loan-to-value with £1,000 cashback

By Joanne Atkin

Source: Mortgage Finance Gazette