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UK house prices: Growth slows again, falling to a six-year low in September as London sees prices plummet

UK house price growth slowed again in September, down to its lowest annual rate in six and a half years at 0.9 per cent.

The south east became the first region to report negative annual growth, with house prices dropping a modest 0.1 per cent year on year, according to Your Move’s House Price Index.

Almost every region saw a significant slowdown in the rate of annual growth, while transactions fell 16 per cent from August, with around 72,500 sales completing last month.

While most regions saw annual price rises, month-on-month growth continued to slow across the UK, falling by 0.1 per cent in September from August.

That left the average house price in England and Wales at £302,626.

In London, Westminster saw prices plunge 9.4 per cent in the last year despite growing 4.9 per cent month to month from August.

Tower Hamlets, whose market Your Move said is comprised predominantly of flats sold to staff working near Canary Wharf, saw September prices plummet by 9.7 per cent year on year.

However, cheaper boroughs sustained the capital’s market, while in greater London prices rose 3.9 per cent year-on-year, and grew 0.4 per cent from August to September.

Oliver Blake, managing director of Your Move and Reeds Rains estate agents, said: “The chancellor will face a difficult balancing act for housing when he comes to do his Budget at the end of this month.

“He’ll probably be keen to tackle the continuing problems with affordability whilst addressing ways to stimulate the market.”

Source: City A.M.

UK economy
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It’s hard to believe, but Britain’s economy doesn’t look too bad right now

Wages are rising. Employment is at record levels. Inflation is relatively tame. The cost of borrowing is low. House prices are flat or barely rising. The economy is growing.

Where is this paradise?

Chances are, you live there.

Yesterday, we learned that inflation in the UK was not as high as expected last month.

Inflation is one of the most politically sensitive national statistics out there. Even the most economically uninterested people get quite engaged when you talk about the cost of living.

You can usually tell how important a statistic is by counting the number of ways there are to measure it. And inflation doesn’t disappoint.

There are many ways to measure inflation. And oddly enough, the measures that the government seems to prefer are the ones that show that prices aren’t rising as fast as you might think they are.

There’s the consumer prices index (CPI). This is the official inflation measure – the one that the Bank of England has to maintain within one percentage point either side of 2%.

CPI in September grew at an annual rate of 2.4%, according to the Office for National Statistics (ONS). That was down from 2.7% in August and also below expectations for 2.6%.

There’s the retail prices index (RPI). This was the basis for the Bank’s old inflation target, although the Bank targeted a version known as RPIX, which excluded mortgage costs from the inflation figures (because if you didn’t exclude mortgage costs, then when the Bank raised interest rates to target inflation, it would in fact drive inflation higher). Under RPIX, the target was 2.5%.

These days, RPI has been cast into the outer darkness as it’s considered to be flawed (if you’re interested in arcane statistical arguments then you can read all the arguments on the Office for National Statistics website).

As a result, it takes a bit of effort (not much, but enough to put off your average newbie journalist with no history of reporting on inflation data) to find it. It also – completely coincidentally, I’m sure – almost always shows inflation to be higher than the CPI does.

RPIX rose at an annual rate of 3.3%, down a bit from 3.4% in August.

There’s another measure that the ONS is currently trying to push very hard. If you look at the inflation data, then before you even get to CPI, you get CPIH. That is, CPI including owner occupiers’ housing costs.

Right now, according to CPIH, inflation is even lower – rocking in at a mere 2.2%.

At the end of the day, we can play around with the statistics all we want. And it’s good to look at these things with a somewhat jaundiced eye. The idea that we need inflation to be rising at a specific level is a very recent conviction and one I suspect that future generations will wonder about.

But we are where we are, and the good news for the Bank of England is that an inflation reading like this gives the central bank all the cover it needs to keep interest rates on hold. That of course, is not great news for savers – but savers are used to that by now, aren’t you?

The UK economy has been in worse condition

So what does all of this point to?

Well, taken as a moment in time, this is all actually rather good news for the UK. First, wages are rising at 2.7% a year (including bonuses) or 3.1% a year without them. You can quibble about why this is (one-off rises for the NHS, for example). But the fact remains that wages are rising more rapidly than they have in quite some time.

If you want to use CPI, this means that wages are rising in “real” terms (after inflation). If you want to use RPI, it means they’re still falling, but less steeply than they were.

If wages are going up, and unemployment is going down, then that means as a whole, consumers are going to have more money to spend. That’s good news.

Secondly, the other big bane of our lives – ridiculously high house prices – shows signs of slowly changing. Using the ONS house prices index, prices went up by 3.2% in August, compared to 3.4% in July (this latter was revised up from 3.1% – not all of the figures are available when the first estimate is released).

So on a national basis, prices are rising a little more rapidly than wages, but nowhere near at the rate they were. And both measures are going in the right direction – wages growth is rising and house price growth is slowing.

It doesn’t mean that any of this will last. It doesn’t mean we’ll get the “beautiful deleveraging” (to steal a Ray Dalio phrase) on UK house prices that we hope for.

But I would suggest that if the national conversation wasn’t being dominated by Brexit, then people would probably be feeling relatively upbeat about the UK economy. And that if the Brexit gloom ever lifts, then having at least some exposure to the UK market might turn out to be a good bet in the longer run.

Source: Money Week

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Does this week’s data impact the GBP and FTSE 100 outlook?

This week has provided markets with a crucial insight into the UK economy with the release of inflation, jobs and retail sales figures. Those numbers are so important because they have an array of signals and consequences. Let’s take a look at how the UK economy is faring and what these data points mean for the Bank of England (BoE) and local markets going forward.

Employment

The UK jobs picture soured somewhat in September, with a rise in claimants coupled with an upward revision to the August number. The figure of 18,500 claimants is the second highest monthly figure since mid-2017. Meanwhile, the August average earnings figure rose to 2.7%, which is not far off the highest level seen over the past three years (2.8%). Put this together and you have a warning sign against the BoE raising rates (rising unemployment claims), alongside a signal that allows the BoE to worry less about the problem of falling real wages seen throughout 2018. The issue of rising inflation is certainly a problem for the BoE, but as long as wages rise by a greater amount, that worry is mitigated to an extent.

Inflation

With wages on the rise, a sharp decline in inflation has provided yet another signal that the BoE can rest easy for the time being, with consumer price index (CPI) declining from 2.7% to 2.4%; the joint lowest level since first quarter (Q1) 2017. Crucially, we also saw a sharp reduction in the core CPI reading, which strips out volatile elements such as food, energy, alcohol and tobacco items. The energy aspect is particularly important as this is an element which the central bank cannot do much about through the use of monetary policy. Thus, if the cost of petrol rises, the BoE would be foolhardy to think that they could mitigate that shift by raising rates. The fact that inflation has been declining with those more volatile aspects stripped out means that the BoE will take greater attention to the shift.

This reduction in inflation coupled with the rise in wages means that real wages are on the rise, taking some of the pressure off the BoE and lesseneing the chances of another rate rise in the near future.

Retail sales

The retail sales figure is often overlooked in terms of its impact on the economy, with the term retail typically associated with the small players in trading rather than institutional whales. However, in the economic sense, consumption is a huge determinant of growth, with household expenditure accounting for 60% of UK gross domestic product (GDP). Retail sales do not account for the total household consumption amount, yet it certainly has a significant impact on the total figure. The volatile monthly figure is less of an interest for us, yet with the yearly number declining to 3%, we are seeing continued stability following the recent recovery. That measure was below 2% for eight months between Q3 2017 and Q2 2018, so anyone worried about the declining monthly figure (-0.8%) today should look at the monthly trend to note that things are actually looking relatively rosy.

Taken in the context of the BoE, the recent recovery in retail sales will bolster the idea that growth could begin to pick up thanks to improving consumption. The rise in retail sales could point towards a strong Q3 GDP number, which could counteract any fears.

Brexit

It is important to note that while the BoE has previously showed intent to normalise rates to some extent, given the threat posed by inflation, the impact of Brexit will always remain a key determinant of whether the Monetary Policy Committee (MPC) can act. Easing real wages reduces the need to raise rates, while improving GDP prospects through the recovery in retail sales will prove that the economy could possibly handle another rate rise. However, the risk of a no-deal Brexit will loom large at the moment, making any action unlikely for the time being. A deal between the UK and EU would likely remove that barrier, and such a deal would make the pound more responsive to shifts in economic data. The decline in the pound this week has been partly due to the diminishing hopes of a deal at this week’s EU summit, but also a reaction to the falling economic data (rising claimant count and retail sales) and an easing on pressure for the BoE to act (rising wages, falling inflation).

Of course, it is obvious to keep an eye out for a Brexit deal as a key driver of price action in the pound, but be aware that a deal could open up the markets to recent economic trends. The BoE does want to raise rates again, but that will only happen if the economy is strong enough and the chance of a no-deal Brexit is negated. With retail sales pointing towards a strong Q3 growth reading, we could see a hawkish BoE soon after an agreement is found (if indeed it is). Such an event would point towards a likely rate rise soon after.

The daily chart below highlights the holding pattern we find ourselves within over the past month, with markets showing some signs of wanting to get into a relief rally in the event that a deal is reached, yet not confident enough to really follow through. Expect an initial boost to the pound if a deal is reached in the coming months, but bear in mind that such a shift could be accentuated when people realise that this would have a significant knock-on effect on the BoE’s monetary policy approach.

Interestingly, traders should remain aware of the potential counter-intuitive nature of the FTSE in all of this. The FTSE 100 has an inverse relationship to the pound, driven by the highly internationalised nature of the index. A higher pound will reduce the value of foreign earnings when they are reported back in sterling. Therefore, while many would expect to see a rise for the FTSE 100 and pound in the event of a breakthrough, there is a strong likeliness that we could see the index fall. Thus, expect to see the pound reflect improvements to the UK economy or a Brexit breakthrough, while the FTSE 100 will likely to do the opposite, as was the case on referendum day.

The weekly chart below sees breakdown from the rising wedge formation, with the price falling back towards the crucial 6841 swing low. This points towards a possible break to the downside in the event that an agreement is found in Brexit negotiations. While the trendline break is worrying for FTSE bulls, we would need to see a break below that 6841 level to signal the beginning of another leg lower for the index from here on in.

Source: IG
housing crisis
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How finance caused today’s housing crisis

A decade of stagnant wage growth means that the gradual house price falls in some parts of the country, including London, over the past year have barely dented the affordability crisis.

The standard argument – repeated ad infinitum by politicians, policymakers and commentators – is that it’s a supply-side problem. The solution is to build more homes.

For those on the left, there is a lack of public housing due to decades of underinvestment by the state. For the right, the problem is excessively restrictive planning preventing the market from doing its job.

There are of course major supply-side housing issues in the UK. But there is an elephant in the room (or, more correctly, “house”) on the demand side: credit.

In the textbook model, banks primarily lend to firms for investment and working capital. But in the 1980 and 1990s, a fundamental “debt shift” occurred in the UK and most other advanced economies.

Banks began lending more to households to buy homes than they did to firms.

Outstanding mortgage loans in the UK has grown from just 20 per cent of GDP in 1980 to 60 per cent today, while outstanding business loans have risenfrom just 10 to 20 per cent, with almost half of the latter for commercial real estate purchase.

Regulation used to mean that commercial banks hardly engaged in domestic mortgage lending, which was confined to mutuals with conservative lending practises.

But in the 1980s, budget pressures, competition with the US, and the desire to spread home ownership saw Margaret Thatcher and the politicians who followed her liberalise the banking system.

Banks rushed into property lending. Mortgage loans have one major advantage over business loans: if they loan goes bad, you have the property as collateral.

For a while, it seemed to work: home ownership rates increased rapidly from about 55 per cent of households in 1980 in the UK to over 70 per cent by 2000.

But since the turn of the century, rates have been falling. More and more loose credit has flowed in to an inherently finite supply of desirable locations, pumping up house prices at a much faster rate than incomes.

As prices are driven up, so more financing is required for home purchase, creating a feedback cycle that eventually leads to a bust, as in the crisis of 2007-2008.

Rather than pushing against this feedback cycle, successive British governments have supported it by repeatedly reducing taxes on property, enabling windfall capital gains for those lucky enough to have bought at the right time, as well as fuelling demand with subsidies on mortgage debt and for first-time buyers.

Post-crisis, central banks have introduced stricter regulation on mortgage lending. But this has been offset by the huge quantitative easing programmes that have driven down not just short-term mortgage loan rates, but equally medium to longer rates on governments bonds.

The latter has made property much more attractive as a “safe” asset for domestic and global investors, meaning non-bank financial institutions have also joined the party. Property – in particular in big cities like London – has become the new gold.

The concerted efforts by central banks to reinvigorate asset-backed securitisation markets – a key cause of the financial crisis – has also helped amplify the housing-finance cycle.

Policymakers and financial regulators must recognise that banks will always be able to create credit at a faster rate than new homes can be built if they are allowed to.

In the lead-up to the financial crisis, there were huge construction booms in Spain and Ireland, but prices kept going up as banks poured more credit in to the system. When it finally came, the bust was actually worse than in the UK.

To break the housing-finance cycle, demand as well as supply side policies need a rethink. Fiscal and financial policy needs to do the heavy lifting here.

First, regressive council tax should be abolished and replaced with a tax on the annual increase in the value of the land underneath a property.

Second, banks need to be gradually weaned off domestic property and return to their traditional model of business lending.

Housing’s main role should be to provide shelter for people and businesses, not a source of speculative rentier profits for banks and financial investors.

Source: City A.M.

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Theresa May offers to extend the Brexit transition period by another year

  • Theresa May tells EU leaders that she would be willing to extend the Brexit transition period by another 12 months.
  • The offer means the UK may not cut its ties with the EU until at least December 2021.
  • May’s offer is reportedly dependent on the EU dropping its demands for the Northern Ireland Brexit “backstop.
  • Prominent Brexiteers condemned the offer as meaning UK may “never leave at all.”
  • EU leaders in Brussels agree there has not been enough progress to hold a summit in November.

BRUSSELS, BELGIUM — Theresa May has told European leaders she is prepared to extend the Brexit transition period by another year, keeping the UK tied to EU rules and regulations until at least December 2021.

The UK prime minister told a meeting of EU leaders in Brussels on Wednesday evening that she would be willing to accept a longer transition period— or “implementation period” — in order to unlock Brexit negotiations.

Under current plans, the UK will stay in the EU’s customs union and single market for 21 months after Brexit day, giving it time to prepare businesses, borders, and many other areas of British life for leaving the EU.

However, May told EU leaders that she’d consider accepting a transition period lasting 33 months, meaning the UK wouldn’t completely depart the EU until at nearly six years after the 2016 referendum.

However, the offer is reportedly dependent on the EU abandoning its plans for the Northern Ireland “backstop” which could keep the province within EU customs and trade rules indefinitely if the UK fails to secure an alternative arrangement before the end of the transition.

Speaking to the BBC on Thursday, May said she was open to extending the transition by a number of months but said that she hoped that doing so wouldn’t be necessary.

The offer was met with an immediate backlash from prominent Brexiteers, with Conservative MP Nadine Dorries calling on May to stand down and make way for David Davis as leader.

“If Theresa May is asking for a longer transition period, she is stalling,” Dorries tweeted.

“It’s time to stand aside and let someone who can negotiate get on with it and deliver. I fully support DD as an interim leader. I’ve done my bit. It’s time for my colleagues to do theirs.”

Her colleague John Redwood MP said that any extension would be ” unacceptable”.

Meanwhile, Leave campaigner and former UKIP leader Nigel Farage tweeted that “Mrs May’s acceptance of an extension to the transition period will take us to the next general election which may mean we never leave at all.”

November Brexit summit off

May addressed leaders of other EU member states on Wednesday evening on the first day of the European Council summit. European leaders paid respect to May’s positive tone but said there had not been enough progress in Brexit talks to schedule another council summit in November.

A provisional deal collapsed on Sunday after the UK refused to accept the EU’s proposal for Northern Ireland to remain in the single market and customs union as part of the “backstop” for preserving the frictionless Irish border.

May said this proposal was unacceptable as it would create an array of new customs and regulatory checks between Northern Ireland and Great Britain, consequently undermining the constitutional integrity of the UK.

Michel Barnier Brexit transition periodMichel Barnier. Getty

Michel Barnier, the EU’s chief Brexit negotiator, reportedly mooted the idea of offering the UK government a longer transition period last week. This, Barnier believes, would reduce the likelihood of the backstop ever being used.

A spokesperson for the prime minister refused to categorically rule out an extended transition period earlier on Wednesday, telling reporters in Westminster: “We’re not calling for an extension to the implementation deal.”

It is doubtful whether pro-Brexit MPs would accept a longer transition period. It would mean an additional 12 months of the UK paying into the EU budget and following EU rules, like the free movement of people. Pro-Leave Conservative MP Peter Bone told ITV on Wednesday night that extending the transition would be a “silly” and “absurd” idea.

May also has to please the Democratic Unionist Party which props up her fragile government. The DUP has said it will not sign up to any backstop clause which would create new checks between Northern Ireland and the rest of the UK.

The prime minister will be in Brussels until Friday in an attempt to make progress in Brexit negotiations.

Barnier told reporters that negotiators needed “much more time” to reach a deal. Officials have said a deal could be struck as late as the European Council’s December summit, with both sides determined to avoid no deal.

European Parliament President Antonio Tajani, who was among a number of EU officials addressed by May on Wednesday, said that while May expressed “goodwill,” she didn’t say “anything substantially new.”

Source: Business Insider UK

BTL
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5 year BTL fixed rates and BTL purchases at record lows

Given the significant changes that have occurred in the buy-to-let (BTL) market in the last few years, not to mention the recent base rate increases, it’s no wonder that many landlords are feeling uncertain about their future. Thankfully, it seems lenders are feeling less nervous, as the average five-year fixed BTL rate has fallen to its lowest level on Moneyfacts.co.uk records this month.

“The BTL market has been on a rollercoaster ride in recent years, with not only two base rate rises to contend with, but multiple regulation and tax changes thrown into the mix,” commented Charlotte Nelson, finance expert at Moneyfacts.co.uk. Considering all of this, it’s rather surprising that rates have fallen, with the long-term fixed rate down by 0.05% on average month-on-month.

Oct-16 Oct-17 Apr-18 Oct-18
Average five-year fixed BTL rate 3.77% 3.43% 3.55% 3.40%

Source: Moneyfacts.co.uk

At the same time, the number of BTL property purchases has been going down, with UK Finance’s latest Mortgage Trends Update showing an 11.1% decrease in July compared to the previous year. This may be why providers are making their deals more attractive, to try and entice borrowers back into the market, as a result of which competition in the BTL market remains high.

“In the aftermath of August’s base rate rise, many BTL borrowers will be looking to remortgage from their standard variable rates (SVRs), with several of these landlords potentially considering longer-term options to act as a buffer against any future rises,” Charlotte said. “It is this extra business providers are likely wanting to attract.”

The focus on five-year fixed mortgage products would allow landlords to secure their repayments and hopefully ride out any overall rate rises likely to happen in the next few years. Additionally, Charlotte pointed out that “savvy borrowers are aware that the strict stress test applied to two-year deals is not applied to five-year fixed rates,” giving even more reason for competition to focus on the five-year BTL market.

“While it is great news for landlords that the long-term deals are cheaper, borrowers know all too well that with the potential for further base rate rises in the future, these low rates are unlikely to last,” Charlotte concluded. “Therefore, any borrower sitting on their SVR or coming to the end of their term would be wise to consider a new deal now before it’s too late.”

Source: Property118

north's commercial property market
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North’s commercial property market to end 2018 in strong position

THE north’s commercial property market is set to finish the year in a strong position, according to a new report.

The latest CBRE Marketview, covering the three months to the end of September, shows solid progress, building upon record levels of take-up in the first half of 2018.

The office market added a further 105,337 sq ft across 17 transactions in the third quarter of the year, bringing the yearly total to date to 643,983 sq ft.

The investment sector has also been busy, with total spend to date this year £122.2m, boosted by the completion of a number of high-profile office buildings, including the likes of Artola House, Moneda House and River House.

CBRE office agency director, David Wright believes refurbished office properties have given a “much-needed lifeline” to the market over the last three years, given the lack of new build activity.

“There are a large number of office deals agreed and currently in ‘legals’, and providing they complete in Q4, Belfast is set to experience one of the most active years ever recorded in this sector,” he said.

Despite the positives, political uncertainties remain a concern, according to CBRE managing director, Brian Lavery.

“Lack of local government and Brexit are impacting upon pricing, but it is clear that investor appetite in Northern Ireland remains encouraging from both locals and new institutional entrants.”

“We expect the final quarter of 2018 to be a particularly busy period, which should lead to investment volumes for the full year mirroring last year’s figures,” he added

The report acknowledges the impact of the August 28 Primark fire on the Belfast retail sector, but state that the market has held up reasonably well, with activity now increasing ahead of the key Christmas trading period.

Source: Irish News

build-to-rent
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Build-to-rent holds promise for long-term investment

The housing crisis is a hot topic not just in the property industry but across society as a whole. A report from the House of Lords Economic Affairs Committee said that the UK government needed to boost its homebuilding target by 50% to create 300,000 new homes each year to tackle the housing crisis.

But while we all agree more homes are needed, what form they should take is less clear.

Market dynamics in particular locations will dictate what is appropriate, but we also need to consider more fundamental shifts in demand. As people live longer, a range of options tailored to older people becomes increasingly important, as does allowing family homes to be freed up.

With more people living alone, options that suit single people’s lifestyles and budgets are vital and as the millennial generation chooses a more transient lifestyle and prioritises experience over ownership, high-quality homes for private rental are also key.

Figures from the English Housing Survey last year found that almost half of 25- to 34-year-olds live in the private rented sector, up from less than a quarter in 2006. The proportion of families living in rented accommodation has also grown. Knight Frank estimates that by 2021, nearly one in four households in England will be renting.

A major contributing factor to the increase in renting is the difficulty of getting on to the property ladder. The Office for National Statistics said in April that the house-price-to-earnings ratio in the UK had hit 7.77, the highest in the official time series going back to 2002. Meanwhile, rising student debt and a preference for living in urban locations make buying a first property even more of a financial struggle.

However, it would be wrong to assume renting has become popular purely because of the difficulty of buying. Knight Frank’s research found that 21% of renters rent to be able to live in a better area; 8% do not want the responsibility of owning a home; 6% need flexibility for work; 6% are downsizers; and 5% do not want to be stuck in one location.

For too long, renting has been seen as a last resort. But renting has moved on and is no longer the murky world of damp-ridden HMOs that many in the baby-boomer generation may have experienced in their 20s.

For many younger people – some of whom will have been used to living in modern purpose-built student accommodation during their time at university – living in a build-to-rent (BTR) property, with a strong amenity offer and a focus on service, is a natural next step that fits their requirements.

“For many younger people living in a BTR property is a natural next step that fits their requirements [after university]”

The millennial generation, after all, is less focused on the long term. Traditional mortgage lenders have not yet adequately recognised the rise in freelancing and the gig economy and the ability to move anywhere around the world at short notice is worth more to many young professionals than the prospect of home ownership.

BTR shifts the focus for the homebuilding industry, which has traditionally concentrated on short-term capital values rather than long-term stable income. Developers need to adapt and recognise that real estate is increasingly about service as much as product: more than ever before, we need to understand the customer and their changing priorities.

Successful BTR schemes will combine a single-operator management structure with high-quality, sustainable, flexible building design to attract and retain tenants while offering them lease lengths to suit varying circumstances.

Source: Property Week

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P2P Lending Investment Returns Outstrip Many Market Competitors

Peer to Peer (P2P) lending may be one of the newest kids on the investment block but according to new research from AltFi, it is paying out handsome returns.

P2P lending arrived in the UK back in 2010 with the launch of Funding Circle. The idea was simple. In the wake of the financial crisis, banks were – and still are – paying abysmally low rates of interest to savers. P2P platforms allowed savers to collectively lend money to businesses and individuals, usually over relatively short periods of time. By cutting out the middleman (or to be more precise, banks and other traditional lenders), P2P lenders were able to offer competitive rates to borrowers and superior returns to investors.

The market has evolved over the years. AltFi – which provides specialist news for the alternative investment industry along with a range of analytics services – says the market is growing rapidly. For instance, in 2015, P2P lending platforms brokered around £1.1bn in loans. In the first half of 2018 alone, the figure was £3bn. Separate figures from the Peer to Peer Finance Association reveal that its members have, to date, originated loans to a value of £9bn.

As P2P lending platforms have proliferated, there has been a considerable amount of specialisation. Many are open to a broad spectrum of investors, ranging from private individuals on relatively modest incomes,  seeking a way to make their money work a bit harder to institutions, such as pension funds. Some platforms focus on wealthier investors or specialise in certain sectors, such as the property market.

Beating the Market

According to AltFi  Data’s  Lending Returns Index,  P2P platforms delivered a return of 18.92% to investors between June 2015 and June 2018. Based on an analysis of data from Funding Circle, Market Invoice, Rate Setter and Zopa, that figure has been calculated after factoring in losses and fees. The average return not only compares more than favourably to the average returns from bank savings accounts that typically offer 1.5% per annum or less (even after the Bank of England’s hike in rates) but also with the more rarified forms of investment favoured by professional investors.

AltFi cites the example of the M&G Optimal Income fund, which returned a premium of 12.6% to investors over the same period. Overall, the report says that P2P returns outperform many large investment funds and bond investment opportunities.

The target interest rates advertised by some of the leading  P2P platforms confirm that the returns from P2P offer attractive returns. For interest Funding Circle currently targets a return of 7-8% per year for its investors. Zopa targets 4.5% per annum for low-risk loans and 5.2% for those who are happy to live with a slightly riskier proposition.

A Lot of Variation

However, the returns enjoyed by investors do depend on the performance of the loans and as Uma Rajah, CEO of prime property focused platform lender CapitalRise observes,  returns vary from 2% to 12% per year, depending on the platform.

“The rate of return depends on a lot of factors – the level of risk, the creditworthiness of the borrower and the purpose of the loan. That’s why annual returns can vary so much from platform to platform.”  

A Safe Investment

But given that high returns are available, should the ordinary saver (aka ‘retail investor’  in the parlance of the financial services industry) be rushing to take money out of his or her easy-access savings account and put it instead into a P2P platform?

Investing via a P2P platform is a relatively simple process. The platforms in question are essentially online marketplaces that bring together prospective borrowers with investors who have cash they are prepared to lend in concert with others. For its part, the platform vets those who are applying for finance – assessing their creditworthiness –  and then presents a range of loan propositions to prospective lenders. Every platform works a little differently but in most cases, the loan opportunities will be rated in terms of the associated risks and an interest rate is set accordingly. Generally,  investors, have the ability to choose a particular loan opportunity but some platforms ask for funds to be pre-committed and the platform itself makes investment choices and funnels that cash to borrowers. In an ideal world, investors lending through a platform can choose a rate of return that aligns with their own appetite for risk.

More Regulation

Despite the success of P2P, there are still some question marks over its suitability for ordinary investors, as highlighted in July by the industry regulator, the Financial Conduct Authority (FCA). While the regulator has been broadly supportive of  ‘alternative finance’  it has expressed concerns that some platforms are not providing sufficiently accurate or transparent information about investment opportunities on offer. So under proposed new rules, all P2P platforms will have to be much more open when it comes to disclosing information on interest rates (real and expected),  default rates and the risks associated with each loan.

The FCA is also calling on platforms to tighten up their approach to marketing, saying that some lenders were being exposed to opportunities that fell outside their stated risk comfort zone. More controversially – at least within the industry – the regulator is also proposing that the marketing of some P2P products be restricted to ‘sophisticated investors’  – or to put it another way, individuals who tend to be wealthy and can demonstrate that they are financially literate.

It would be wrong to suggest that P2P investing is unacceptably risky – as the AltFi research indicates, the returns after losses remain high. But the reforms should provide an added safety net and have been broadly welcomed by the industry as a positive step. As David Bradley Ward, CEO of the P2P platform, Abirate put it:

“For the P2P lending industry to grow further, it needs to be effectively regulated. In short, this means there’s a fair playing field for lenders, borrowers and platforms. FCA regulation has cemented peer-to-peer lending as a mainstream financial service but to reach its full potential the industry must ensure best practice at a time when the FCA is seeking the adoption of good practice.”

Uma Rajah points out that there three different categories of lending – consumer, business and property – and each have their own risks associated.

“Loans to SMEs and consumers are usually unsecured,” she says. “What this means, in a nutshell, is that should the borrower be unable to repay the loan, investor capital is lost. Property loans, on the other hand, are secured against the properties themselves with a legal charge. The easiest way to understand this is to imagine that should the borrower be unable to repay, the lender (or lenders) could seize the property and force its sale in order to recoup their capital.”

P2P Lending is now part of the mainstream. The Altfi report suggests that it is delivering consistently high returns. But the opportunities and risks vary according to the platform and the nature of the loan.

Source: CashLady

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First-time buyer mortgage approvals hit 14-month high

The number of mortgages approved for first-time buyers has hit a record high, but it’s not such good news for home movers.

Data from banking trade body UK Finance shows there were 35,500 new first-time buyer mortgages completed during August, 2% more annually and the highest level since June 2017.

In contrast, the number of mortgage approvals for home movers fell 2.3% year-on-year to 38,000 in August, while buy-to-let lending continue to suffer, down 13% annually to 6,000.

The number of remortgages was also down annually by 0.3% to 37,100.

Jackie Bennett, director of mortgages at UK Finance, said: “Overall house purchase completions remain stable, driven largely by the number of first-time buyers which reached its highest monthly level since June 2017.

“Buy-to-let remortgaging saw relatively strong growth in August, due in part to the number of two-year fixed deals coming to an end. This suggests that while new purchases in the buy-to-let market continue to be impacted by recent tax and regulatory changes, many existing landlords remain committed to the market.

“However, the home-owner remortgaging market has softened slightly, reflecting the many borrowers who had already locked into attractive deals in the months preceding the Bank of England’s base rate rise.”

Commenting on the data, Shaun Church, director at mortgage broker Private Finance, said: “First-time buyers are feeling empowered by the current housing market.

“Easing house price growth, Stamp Duty exemptions, relaxation of lending criteria and near record low mortgage rates are all giving new buyers a much-needed boost on to the property ladder.

“Those in a position to do so have heeded advice to take advantage of favourable market conditions, with mortgage lending to first-time buyers in August reaching levels not seen in more than a year.

“But existing home owners could well feel paralysed. As political and economic uncertainty takes hold, many home-owners are choosing to bide their time and see what 2019 brings.

“This uncertainty – and a lack of incentives for homeowners to move – means the home mover market continues to remain flat. This gives all buyers less choice when it comes to finding a new home.”

Source: Property Industry Eye