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EY: Mortgage lending growth forecast to rise 4.1% in 2020

Whilst mortgage approvals rose in December 2019 to the highest level since 2017, overall mortgage lending growth is only set to rise 4.1% this year according to EY.

In its latest ‘EY ITEM Club Outlook for financial services’, EY predicts subdued growth despite the General Election result and clarity on the first stage of Brexit.

Omar Ali, UK financial services managing partner at EY, said: “2020 began with increased political certainty which is positive for consumer and business confidence, and the growth in lending at the back end of 2019 has given cause for cautious optimism.

“However, it is still too early to tell whether these early green shoots will translate into a full and sustained economic recovery this year which will drive growth for financial services firms.

“It is very early days in the negotiations for the new UK-EU trading relationship, with expectations that any financial services deal will be hard fought.

“On top of that, all businesses are facing additional and significant challenges from wider global geopolitical uncertainty and the yet unknown economic impact of coronavirus.

“The industry will be watching how the next few months play out very carefully.”

Year-on-year unsecured consumer credit growth rose in December to 6.1% from 5.9% in November, however the 3.2% growth forecast for this year is the lowest in six years, down from 3.7% last year and significantly down from the 2017 peak of 8.3%.

On the supply side, there has been some tightening in credit conditions in the unsecured lending market.

Having run at an expected 3.7% last year, the growth in stock of consumer credit is forecast to slow to 3.2% this year, before rising to 4% in 2021.

Overall mortgage lending growth is forecast to rise 4.1% this year and 3.9% in 2021, which is close to the average of the last five years and well down on pre-financial crisis rates.

Despite historically low interest rates and accommodative loan-to-value ratios, affordability remains a key challenge for prospective homebuyers.

In Q3 2019, the average house price was equal to 4.7 times the average borrower’s income.

Dan Cooper, head of UK banking at EY, added: “Whilst there are early signs that consumer confidence might begin to pick-up following the General Election, lending growth is expected to remain pretty uninspiring over the next couple of years and the low interest rates will continue to squeeze net interest margins.

“The structural changes taking place in the car market, combined with a sluggish property market and an increasing trend of firms looking outside of the traditional bank borrowing model for finance, are visibly impacting banks’ profitability.

“It’s vital that the banks assess their business models and strategies to ensure they reflect the reality of low lending growth and can continue to ride out this challenging economic time.”

As for home insurers, prices for home policies rose 2.3% in December, up from a recent low of -1.4% in April 2019.

In Q4 2019 housing transactions, an important driver of big-ticket and insurable household purchases, rose 0.7% on a year earlier.

But this followed drops in the previous two quarters and still left transactions below the level in mid-2017.

The housing market has remained subdued however a pick-up in December following the election result has suggested that improved sentiment could give a boost to homebuying.

Overall, the EY ITEM Club Outlook for financial services shows non-life premium income growing 3.1% this year, up from an estimated 2.7% in 2019, before climbing to 3.9% in 2020.

Ali concludes: “A good Brexit outcome will continue to lay positive foundations for future growth, but there are deeper, structural changes and important emerging trends in both consumer and business finance which the industry needs to tackle.

“In this context, financial services firms need to reconsider the role they will play in helping their customers navigate change.

“They have put the customer first in their response to Brexit and now need to do the same on climate change, trade and geopolitical unrest.”

By Jessica Nangle

Source: Mortgage Introducer

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UK house prices: Buyer boom sets scene for record-breaking spring

UK house prices are expected to break records over the coming months as buyer activity outstrips the number of new sellers, according to new research.

The average price of property coming to market jumped 0.8 per cent – or £2,589 – this month, just £40 short of a new all-time high.

The house price boom is being driven by the release of pent-up pressure following the General Election, and experts said the growth would gain further momentum on the approach to spring.

Online estate agent Rightmove said monthly traffic was up 7.2 per cent on the previous year, and the number of sales agreed nationally was up 12.3 per cent.

In London, the number of agreed sales jumped 26.4 per cent compared to last year, according to data from Rightmove.

Rightmove director and housing market analyst Miles Shipside said: “There is a boom in buyer activity outstripping the rise in the number of new sellers, which we expect to lead to a series of new price records starting next month.

“The average price of newly-marketed property is just £40 below its all-time high from June 2018, with the typically busy spring market still to come.

“This means that spring buyers are likely to be faced with the highest average asking prices ever seen in Britain.

“Buyers who had been hesitating and waiting for the greater political certainty following the election outcome may be paying a higher price, but they can now jump into the spring market with renewed confidence.”

By Jessica Clark

Source: City AM

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Best Current UK Property Investment Locations

New research claims to reveal the best current UK property investment locations for buy to let investors to enjoy the greatest returns.

The research, carried out by peer to peer lending platform Sourced Capital, shows that over the last five years, investment into the real estate, renting and business sector has increased by 48.4 per cent, one of the largest increases in the non-manufacturing industries behind just the ‘construction’ and ‘other service’ sectors in terms of performance.

Despite Brexit uncertainty hitting house price growth, coupled with changes to tax regulations and a hike in stamp duty thresholds for buy to let landlords, the UK property market has stood firm and remains one of the most consistent investment options available in today’s markets.

Nationally and Regionally

The nation offering the best current top-line yields is Scotland at 5.8 per cent, closely followed by Northern Ireland at 5.4 per cent, with England also coming in just above the UK average (4.1 per cent).

Regionally, the North East (4.9 per cent), Yorkshire and the Humber (4.5 per cent) and the North West (4.4 per cent) are home to the most favourable current rental yields.

The best buy to let spots in the UK

Scotland’s current buy to let pedigree is also clear on a local level, with 14 of the top 20 areas for current yields located north of the border. 

Glasgow ranks top at present with yields hitting 7.8 per cent on average, followed by West Dunbartonshire (7.2 per cent) and Inverclyde (7.1 per cent). 

Burnley ranks at number six and the best in England with the average rental yield currently at 6.6 per cent, followed by Belfast (6.4 per cent).

Other areas outside of Scotland to make the top 20 include Blackpool (5.9 per cent), Country Durham (5.8 per cent), Pende (5.8 per cent) and Hyndburn (5.8 per cent).

In London, Tower Hamlets is currently home to the highest yields at 4.7 per cent, followed by neighbouring Newham (4.6 per cent) and Barking and Dagenham (4.6 per cent). 

Founder and Managing Director of Sourced Capital, Stephen Moss, commented: ‘One positive that can be taken from months of stagnant house price growth brought on by Brexit uncertainty is that rental yields have seen a boost due to a fall in property values coupled with consistently high rental demand and rental prices as a result.

‘We’ve already seen a Boris inspired bounce late last year with early signs that the market has ‘bottomed out’ and is once again on the up already in 2020. As a result, we’ve also seen an early flurry of investor activity as they realise now is a great time to get a foot in the door and secure a good deal before prices do regain momentum and the returns available start to tighten.’

Source: Residential Landlord

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Asking prices for marketed properties in the UK increase 0.8% to near a record high

  • Asking prices for marketed properties in the UK increase 0.8% to near a record high.
  • National total sales that were finalized posted a 12.3% annual increase.
  • RIC announced the house prices to have increased at the fastest pace in January in almost 3 years.

Rightmove’s House Price Index (HPI) for the United Kingdom came out on Monday. According to the property website, asking prices for houses in the UK placed on sale in February saw an increase this month that was fueled by the market optimism after Prime Minister Boris Johnson won the general election on December 12th.

Monday’s report offered an insight into the marketed property between January 12th and February 8th. As per the data, asking prices for such properties saw a 0.8% monthly increase. While it was significantly lower than a 2.3% increase that was recorded last month, the jump was sufficient to bring the HPI (House Price Index) close to its record high.

National Total Sales Increased 12.3% Annually

In terms of national total sales that were finalized, Rightmove announced a 12.3% annual increase. The increase in sales agreed in London, on the other hand, was reported at a much higher 26.4% annually.

Rightmove’s director Miles Shipside commented on Monday’s data and highlighted that the seller confidence is starting to show signs of recovery for the first time in many years. Although, it is still distant to the increase reported in early-bird buyers.

Experts also accentuated on Monday that the UK’s housing market has also shown other signs of recovery following Conservative’s victory in the general election of December 12th. According to the Royal Institution of Chartered Surveyors, last week’s data on house prices suggested the fastest rate in January in almost three years.

Macroeconomics Continue To Be Uncertain For UK’s Market

Despite the optimism, however, the macroeconomic scenario continues to be uncertain for the United Kingdom. The UK is currently negotiating with the EU to strike a broader trade deal within the deadline of December 2020. Britain is also interested in defining its trade terms with other countries as an entity outside of the European Union following its departure from the EU on January 31st. Any friction between the EU and the UK regarding trade relations, as per the analysts, can be expected to cast a dramatic impact on financial indices including the HPI.

Rightmove’s House Price Index was unable to stir a significant movement in the forex market with the GBP/USD currency pair continuing to trade between 1.3044 and 1.3051 earlier on Monday. The next significant move in Cable is expected on Tuesday after the Office for National Statistics reveals its average earnings index.

By Michael Harris

Source: Invezz

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UK borrowing costs jump as Johnson hires new finance minister

British government borrowing costs jumped on Thursday to their highest level in more than a month after Prime Minister Boris Johnson installed a new finance minister, who investors think will be more free-spending than his predecessor.

Earlier, Johnson forced the resignation of Sajid Javid as finance minister and replaced him with his deputy Rishi Sunak, a loyal supporter of the prime minister.

The news sent the pound rising past $1.30 for the first time in a week as investors bet that Sunak would readily obey Johnson’s wishes to vastly increase government spending – which by extension would reduce pressure on the Bank of England to cut interest rates.

The overnight index swap market now prices in only a 9% chance of an interest rate cut at the BoE’s next meeting in March, compared with around 17% at the start of the month.

The 10-year gilt yield struck its highest level since Jan. 21 as of 1449 GMT, up 5 basis points on the day.

The two-year gilt yield also hit its highest since Jan. 10 at 0.578%.

“Given his majority and fewer people to challenge him, the PM should be able to make decisions much quicker but it does mean we anticipate more spending than expected,” David Zahn, head of European fixed income at fund manager Franklin Templeton.

“Overall, the direction of travel for the government is clear and this reinforces our view that gilt yields should rise as more is revealed about the upcoming budget.”

Sunak is due to deliver the first budget under Johnson’s administration on March 11.

The yield spread between 10-year British and German government bonds jumped to 103.6 basis points, its widest since Jan. 10 and up 5 bps on the day.

March long gilt future 133.29 (-0.47)

June 2019 short sterling 99.325 (-0.01)

Dec 2020 short sterling 99.36 (-0.02)

10-year gilt yield 0.66 (+4.2 bps)

Source: Yahoo Finance UK

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Arrears down 9% but repossessions rise by 17%

The fourth quarter of 2019 saw a 9% annual decrease in the number of residential mortgage arrears of 2.5% or more of the outstanding balance, according to UK Finance.

In Q4 there were 70,880 cases in arrears and within this total, 21,770 homeowner mortgages had significant arrears (10% or more of the outstanding balance). This was also 9% fewer than in the same quarter of the previous year.

Residential repossessions

The number of homeowner possessions rose by 17% to 1,330 in Q4 2019 but UK Finance points out this is from a very low base, with 59 in every 100,000 homeowner mortgages being taken into possession in 2019.

This increase in possessions has been driven in part by a backlog of historic cases which are being processed in line with the latest regulatory requirements.


There were 4,390 buy-to-let mortgages in arrears of 2.5 per cent or more of the outstanding balance in Q4 2019, which is 0.22 per cent of all buy-to-let mortgages outstanding. This figure is down 7% fewer on the same quarter of the previous year.

Within the total, there were 1,160 buy-to-let mortgages with more significant arrears of 10% or more of the outstanding balance – 3% fewer than in the same quarter of 2018.

There was a 20% rise in buy-to-let mortgaged properties taken into possession in Q4 2019, taking the number to 660. Again, this is from a low base with 137 in every 100,000 buy-to-let mortgages being taken into possession in 2019.

Levels remain well below those seen between 2009 and 2014 and this increase is driven in part by a backlog of historic cases which are being processed on the same basis as the latest regulatory requirements in the residential sector.

By Joanne Atkin

Source: Mortgage Finance Gazette

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RICS: Continued improvement in market activity

The January 2020 RICS Residential Survey results show continued improvement in market activity over the month as demand, sales and fresh listings all move further into positive territory.

In terms of new buyer enquiries, 23% of survey participants reported an increase in demand during January compared to the 195 recorded in December.

Agreed sales rose for a second month in succession at the national level, evidenced by a net balance of 21% of respondents reporting an increase.

New instructions coming into the market also increased during January, with 19% of contributors noting a rise, with 20% of respondents also reporting that the level of market appraisals undertaken over the month was higher than a year ago.

Despite the positive figures, average stock levels on estate agents’ books remain very low when placed in a historical context.

House price inflation gauges moved into positive territory in both London and the South East during January.

Northern Ireland and Scotland currently display the strongest growth in house prices across the UK.

Rob Barnard, director of intermediaries at Masthaven, said: “Industry sentiment seems to have improved as we start the year, with borrowers clearly pushing ahead with their homeownership aspirations now greater clarity around the political climate has been restored.

“Innovation from the mortgage market has helped to maintain credit availability for consumers.

“First-time buyers especially are profiting from the current low-rate environment to secure high loan-to-value products at favourable rates.

“However, we can’t just stop there. We need to capitalise on growing positive consumer sentiment and continue to offer products which cater to the modern-day consumer.

“As we continue into 2020, the industry needs to ensure later life and self-employed borrowers also benefit from increasingly flexible and innovative products and rates.”

The survey suggests that house price inflation will gather pace, with respondents anticipate prices increasing across all parts of the UK during the next 12 months.

Over half of contributors (56%) report that sales prices are still coming in below asking, which is a decline from 67% in October 2019.

Adrian Moloney, sales director of OneSavings Bank, added: “Whilst there are some positive signs that confidence is returning to the market, helped by historically low rates and healthy competition in the 5-year fixed buy to let mortgage arena, there is still plenty of work to be done on all fronts to bring the housing market back to full health.

“With the upcoming budget in March, buyers and sellers will be looking for tangible commitments from the government to address the dwindling levels of housing stock.

“House building must be central to the government’s plans in order to cure the systemic supply/demand issue and enable more people to get onto, and move up and down the property ladder.

“The prospect of a new housing minister in the expected cabinet reshuffle could also add further impetus to fixing the challenges in the market long-term.”

In the lettings market, 24% of respondents cited an increase in tenant demand with landlord instructions reported to have fallen by 13% of contributors.

Rents are expected to increase over the next three months.

By Jessica Nangle

Source: Mortgage Introducer

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2020 criteria searches highlight mortgages as a market of contrasts

The mortgage lending criteria that brokers searched for in January has been released by Knowledge Bank.

In some sectors brokers are searching for completely new criteria on behalf of their clients whereas in others, search topics remained stable and consistent.

Equity release

The top five most popular searches for equity release were all new and this is the first time that has happened in any category for over a year. Early repayment charges were the top search followed closely by brokers searching for lenders who would accept clients with adverse credit.

Making up the rest of the equity release top five most popular searches were for lenders who would accept an application from a married couple in a single name, applications from those in sheltered accommodation and lenders who would offer the maximum loan amount.

The self-build sector was another that started 2020 with a shake up as four of the top five most searched for categories by brokers were new. The search for the maximum LTV retained the top spot while the second most searched for criteria was the maximum loan amount that can be secured.

Residential market

Things remained slightly more consistent in the residential market with the most searched for criteria once again being the maximum age lenders will allow at the end of the mortgage term. This suggests that borrowers in 2020 are continuing to look at extending their mortgages into retirement.

The search for ‘capital raising for debt consolidation’ highlights an area, or time of year, when historically borrowers look to get on top of their finances, especially if they overspent at Christmas. This search also came into the top five in the second charge category, which further indicates a desire by homeowners to get their financial ducks in a row in the new year.

Secured loans and bridging

Criteria searches in the secured loan and bridging markets remained relatively consistent from December 2019 with brokers using the criteria search system to find the maximum loan amount possible for their clients.


Of particular interest in the buy-to-let category was the search for lenders that will lend to expatriates. With Brexit negotiations fully underway, there appears to still be some doubt for expats living in the EU as to their futures.

The fact that these people are looking at BTL properties in the UK shows that some are already hedging their bets by investing in property ‘back home’.

Matthew Corker, lender relationship manager from Knowledge Bank, said: “While some sectors witnessed a radical shake up of client needs some are notably more consistent and predictable.

“What this does highlight is how difficult it continues to be for brokers to balance the changing needs of their clients with lenders ever-changing criteria.”

Criteria Activity Tracker

Top five searches performed by brokers on Knowledge Bank during January 2020

1Maximum Age at End of TermLending to Limited CompaniesMaximum LTV / Loan to ValueEarly Repayment Charges
2Self Employed – 1 Years AccountsFirst Time LandlordMarried Couple Application in One/Single NameAdverse Credit
3Interest OnlyRequirement to be a HomeownerCapital Raising for Debt ConsolidationMarried Couple Application in One/Single Name
4Capital Raising for Debt ConsolidationExpatriatesDebt Management Plan – Ongoing / CurrentSheltered Accommodation
5Defaults – Registered in the last 3 yearsMinimum Income – Interest Only Single ApplicantChild BenefitMaximum Loan Amount
1Maximum LTV / Loan to ValueMaximum LTV for BridgingSemi-Commercial Properties
2Maximum Loan AmountRegulated BridgingMaximum LTV / Loan to Value
3Maximum LTC (Loan to Cost)Minimum Loan AmountMinimum Loan Amount
4Ex Pats Self EmployedCommercial PropertyCommercial Owner Occupier
5Retained Profit in CompanySecond Charge LoanExcluded Commercial Sectors

By Joanne Atkin

Source: Mortgage Finance Gazette

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Higher interest rates expected under new chancellor

Advisers should expect higher inflation and interest rates as a result of Rishi Sanuk’s appointment as chancellor.

Mr Sanuk was appointed to the lead role in the Treasury yesterday (February 13) after Sajid Javid threw in the towel in a show of defiance against the prime minister’s demands.

It was reported that Boris Johnson had asked the chancellor to fire his advisers in a bid to achieve a closer alignment with Number 10.

As a result industry participants believe the new chancellor will work more closely with Number 10, leading to more government spending, higher inflation and higher rates.

Mohammed Kazmi, portfolio manager for UBP’s Fixed Income team, said: “The market reaction of gilts selling off, a steeper rates curve and a stronger sterling clearly indicate that expectations are increasing for fiscal stimulus announcements to be made at the March Budget.

“The incentive for such spending comes from the results of the general election itself, which saw the Conservatives win in some traditional Labour Party strongholds, who most likely voted Conservative due to their Brexit pledge, however would probably require fiscal spending to be persuaded to vote for the party again.”

Since the news of the new chancellor became public sterling has risen to its highest level against the euro for three months, having gained 1.1 per cent ,and gained 0.7 per cent gain against the dollar.

Josh Mahony, market strategist at IG Group, said the rise in sterling since the announcement of the appointment of Mr Sanuk was the result of the market expecting a higher level of government spending than under his predecessor, which would lead to higher inflation.

As the Bank of England’s job is to target inflation at or near 2 per cent, if higher government spending leads to higher inflation, it is likely the central bank would have to put rates up.

The higher level of government spending may also lead to a higher rate of economic growth, which would boost demand in the economy, and also contribute to higher inflation.

Meanwhile investors sold off UK government bonds, leading to gilt yields rising from 0.61 per cent to 0.65 per cent on the 10-year bond.

David Zahn, head of European Fixed Income at Franklin Templeton, said government bonds have sold off because the market anticipates that inflation will rise, and this will make the income from bonds less attractive.

But Anthony Rayner, multi-asset fund manager at Premier Miton, said the general lack of inflation and growth in the world economy over the past decade means central banks are now more focused on maintaining economic growth and so won’t rush to put interest rates up, even if inflation does rise.

At the most recent meeting of the Bank of England’s monetary policy committee (MPC), the group that sets interest rates, the decision was made to leave rates at 0.75 per cent, as inflation was 1.3 per cent, considerably below the bank’s 2 per cent target.

The level of economic growth was also viewed as being likely to rise in the coming months, as other countries around the world have already cut interest rates, and this would boost the level of growth in the UK, so a rate cut is not needed.

By David Thorpe

Source: FT Adviser

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Sales pick up as confidence in housing market translates into activity

Increased optimism from buyers has led to a pick-up in sales activity in the Scottish housing market, according to the January 2020 UK Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS).

Whilst the picture regarding the number of homes being listed for sales was flat during January, the number of people looking to buy rose, according to a net balance of +22% of Scottish respondents.

This resulted in the number of newly agreed sales increasing over the month, with a net balance of +11% of surveyors saying that there were more newly agreed sales in January compared to December.

Prices also continue to rise last month, according to the survey. A net balance of 32% of Scottish respondents said that prices increased, the highest since July 2019, and higher than all UK regions other than Northern Ireland.

Looking ahead, respondents to the survey in Scotland remain confident about the outlook, with sales anticipated to rise both in the near term and for the year to come. A net balance of +70% of Scottish respondents expects prices to be higher in a year’s time. A net balance of 54% expects sales activity to increase over the next 12 months.

Despite the improvement in buyer demand though, instructions to sell have not picked up, with the balance for instructions to sell flat.

This follows a sustained period of falling supply, meaning that stock levels are low. Indeed, anecdotally, a number of respondents in Scotland say that there is an under-supply of good properties available to meet the demand, and that this is the main risk to the market at present.

Grant Robertson, MRICS of Allied Surveyors in Glasgow, said: “Sales remain strong when there is something to sell. The modest post-election surge bodes well for 2020 but stock needs to start releasing or values will surge and kill the market.”

Graeme Lusk MRICS of Walker Fraser Steele based in Glasgow and Renfrewshire, added: “The market is beginning to come out of its winter slumber. But there is still an under-supply of quality properties on the market and buyers waiting. A good time to put your property on the market.”

In the lettings market, demand for rental properties in Scotland rose in the three months to January (seasonally adjusted quarterly series), with a net balance of +29% of respondents citing an increase.

At the same time, the balance for landlord instructions rose for the first time in 16 months, though only very modestly (a net balance of +6%). Despite the slight pick-up in landlord instructions, there is still a mismatch between demand and supply, and rents are therefore expected to rise in the next three months.

Simon Rubinsohn, RICS chief economist, said: “The latest survey results point to a continued improvement in market sentiment over the month, building on a noticeable pick-up in the immediate aftermath of the General Election.

“It remains to be seen how long this newfound market momentum is sustained for, and political uncertainty may resurface towards the end of the year. But, at this point in time, contributors are optimistic regarding the outlook for activity over the next twelve months.”

Source: Scottish Construction Now