First-time buyer product choice improves but rate increases mean mortgage costs go up

A concerted political focus on increasing the number of first-time buyers has resulted in a relatively strong increase in the number of mortgage products catering for such purchases however the growing likelihood of an increase in Bank Base Rate (BBR) has resulted in an increase in costs for this borrower demographic.

The latest findings from the quarterly AmTrust Mortgage Loan to Value (LTV) Tracker show that average interest rates have increased quite significantly for those with either a 5% or 25% deposit, with the former seeing average rates up by 21 basis points and the latter by 12 basis points.

Recent suggestions from the Governor of the Bank of England, Mark Carney, are that the Bank of England’s Monetary Policy Committee (MPC) will vote to increase BBR at its meeting in August, and the AmTrust survey appears to show lenders have already priced in such a rise to their products.

Average fixed-rates for 95% LTV mortgages, according to Bank of England data, have increased throughout this year, up to 3.95%. Average rates for 75% LTV mortgages also increased to 1.74%. While the rate differential between 75% and 95% LTV loans has narrowed slightly to 2.1%, first-timers with only a 5% deposit can expect to pay close to two-thirds more each month and year for their loans.

This means first-time buyers with a 25% deposit will pay on average £20 more each compared to those with just a 5% deposit who will pay £22 more.

AmTrust’s research reveals that the average loan required by first-time buyers has gone up again since the last quarterly tracker in April – up to £125,397 for those with a 25% deposit, and £158,836 for those with a 5% deposit.

The AmTrust Mortgage LTV Tracker reviews the average monthly mortgage payments for first-time buyers on average loan levels, comparing loans for those with a 5% deposit to those with 25%, and looks at the product availability for first-timers.

Given the increase in average rates over the last quarter, AmTrust continues to believe that a BBR increase in August may not immediately feed into lender’s rates as they appear to have made a pre-emptive mood. However, it warns first-time buyers to anticipate a changed environment over the next few years as BBR reaches a ‘new normal’ with further increases likely over the next 12-18 months.

Product numbers continue to fluctuate

The Government’s continued focus on supporting the first-time buyer market has led to an increased interest in the sector, not just from mainstream lenders but also challenger banks and specialist operators.

This has led to the number of product options available to first-time buyers within the last quarter seeing a rise at both 75% and 95% LTV levels, and across both two-year and all product-type options.

The AmTrust LTV survey continues to review the number of actual product options available to first-time buyers with either a 5% or 25% deposit based on the price of an average first-time buyer house from UK Finance figures, the price of an average house as outlined by the June 2018 Halifax House Price Index, and the price of a house at the starting tier of stamp duty land tax, £300k. Below this amount first-time buyers do not need to pay any stamp duty.

In order to do this, AmTrust uses one of the online mortgage search engines which include deals available to both mortgage advisers and direct-only.

The latest research revealed there has been a significant increase in product numbers across both the 75% and 95% LTV options.

Those lucky enough to be able to review 75% LTV options, have access to hundreds if not thousands of products – dependent on type and term – while the options for 5% deposit borrowers have also shown an increase although the choice is unlikely to stray into the hundreds if they want a two-year term.

Lenders continue to aim the vast majority of their first-time buyer product range at borrowers who are able to put down significant deposits on their property. Coupled with the greater costs for 5% deposit borrowers, AmTrust continues to be concerned that only those individuals who can access the Bank of Mum & Dad are able to get on the housing ladder.

It continues to urge lenders to look at options to increase their high LTV mortgage business, for example, by utilising private mortgage insurance to mitigate credit risk and act as a catalyst to drive rates down closer to ‘normal levels’ for lower LTV borrowers.

Pad Bamford, Business Development Director at AmTrust Mortgage & Credit, commented: “This iteration of the AmTrust LTV Tracker is notable for two core reasons – firstly we are clearly seeing lenders getting in their ‘retaliation’ first when it comes to rate increases. The ‘mood music’ around the Bank of England’s MPC suggests that a rate rise is increasingly likely in August and mortgage lenders appear to be jumping before they are pushed.

“In a way this might be viewed as something of a positive as it should not mean a big glut of lenders jumping to raise rates once the announcement is made. However, this is only because rates have been upped over the past few months and there is a strong message to the market here that the days of ultra-low pricing is likely to be behind us.

“There are however clearly positives for first-time buyers – house prices are still high but they do not appear to be moving upwards with any vigour and indeed we’ve seen some falls in certain parts of the UK. With a far greater level of product availability for first-timers added into the mix, and the fact no stamp duty is payable on homes valued at £300k or less, then you could say that prospective new purchasers are in as strong a position as they have been for some time.

“But, and this has remained the case for a number of years, the major obstacle to overcome for most first-timers is still securing the deposit. Even at the 5% level, the average first-time buyer purchasing the average first-time home is still going to need in the region of £9k before they even consider whether such deals are affordable to them.

“Those who want to access the very best rates at the 25% deposit level, and save themselves over two-thirds each month on their mortgage payment, have an even greater challenge on their hands and would need to find over £40k. It is perhaps no wonder that we have real concerns around the ability of would-be homeowners to save this type of money; indeed without the help of family and friends it might seem like an impossible job.

“Clearly £9k is a lot of money but it is far more manageable than £40k, and we do not believe that the price differential between the two should be so high, or that those who can only save a 5% deposit should be having to pay such greater amounts in mortgage payments. This is why we urge lenders to look at other methods in order to increase their supply of products, and appetite to lend, in this market – one of which could be private mortgage insurance.

“Cutting down on the risk is one way to improve the appetite to lend, and while we approve of the increase in product options, this does not always translate into increased lending. The good news is that competition continues to grow, and lenders who might ordinarily not be looking at the first-time buyer market are now much more willing to. If more focus could be trained on high LTV lending then we would go a long way to ensuring far more first-time buyers have a fighting chance of getting on the ladder.”

New research published on supporting business customers in vulnerable circumstances

The Lending Standards Board (LSB) and the Money Advice Trust, the charity that runs Business Debtline, have today published a report that explores the impact of vulnerable circumstances on people who run small businesses.

The report draws on insight gathered from LSB registered firms, as well as interviews with money advisers and clients of Business Debtline, the UK’s only dedicated free debt advice service for small business owners. The research found that there is often a direct link between a business’s financial difficulties and the person running the business experiencing some form of vulnerable circumstance, such as a mental health problem or serious illness.

Given the importance of small businesses to the UK economy, understanding the nature and impact of vulnerability in this context is crucial. The report finds that while progress is being made, there is more that can be done to support business customers in vulnerable circumstances. The findings aim to stimulate discussion in this area and enhance firms’ understanding of how vulnerability affects their business customers.

Firms are being encouraged to undertake a gap analysis to assess potential improvements to their policies and processes in the five key areas of policy, identification, support and management, training and monitoring.

Dave Pickering, chief executive of the Lending Standards Board said: “Identifying and supporting customers in vulnerable circumstances continues to be high on the agenda for financial services. However, much of this work has so far taken place in the personal, rather than business, customer space.

“We hope this report – in conjunction with our Standards for Lending Practice for Business Customers, launched last year – will prove a useful tool for firms looking to improve in this crucial area.

“The LSB will ensure that we keep driving the SME vulnerability agenda forward, working with our registered firms and other industry stakeholders to help bring about positive change for small businesses.”

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs Business Debtline said: “Every day our advisers at Business Debtline help people whose businesses are in financial difficulty, with a range of vulnerable circumstances often contributing to the challenges they are facing.

“Small business owners are no less likely than anyone else to experience vulnerable circumstances – and with small businesses contributing so much to the UK economy, it is crucial they receive the support they need.”

“We have been pleased to partner with the Lending Standards Board to explore how the industry can bring the benefits of its focus on vulnerability to the business customer space. We look forward to working with firms as they consider the report’s findings in the months ahead.”

More than half of Brits are putting their credit score at risk by not checking their eligibility

More than half of Brits have never checked their eligibility when applying for a credit card, loan or mortgage, new research from Experian reveals.
Each time someone makes an application, a “hard search” is recorded on their credit report which could impact their credit score and reduce their chances of getting accepted for the best deals in the future.
Eligibility helps consumers by leaving a “soft search” and showing them which products they are likely to get before they apply without affecting their credit score.
But Experian has found 55% of UK consumers have risked damaging their credit score by applying without first checking how likely they are to be accepted – despite it typically taking less than a minute to do so*.

Why Brits don’t check their eligibility
Nearly a quarter (23%) of those who admitted they haven’t said it was because they don’t know what the benefits are and another 20% incorrectly believe that checking will negatively impact their credit rating.
Other common reasons for not checking include not hearing of an eligibility tool (18%) and not wanting to provide personal information including bank account details (18%). Another 15% said there was no guarantee they’ll be accepted for credit even if they used eligibility.

Interestingly, it appears that older Brits are more reluctant to use eligibility. Three quarters (75%) of those 55 and over have never checked, compared to just 25% of 25 to 34 year olds.

Analysis of the latest data from Experian** also shows how important checking is. Some 15.8% of Brits shopping for personal loans on its comparison website in March had a “0%” eligibility rating for all products.
That means they have no chance of being accepted for a loan and risk damaging their credit score if they were to make an application.
For those that did check their eligibility, nearly half (45%)** had a 70% or better chance of being accepted for at least one credit card or loan and more than one in five (21%) had a 100% chance of being accepted.

Why Brits do check their eligibility

Whilst 55% of Brits don’t check their eligibility before applying for credit card or loan, 45% of Brits do.

The most popular reason why people checked their eligibility (47%) was because they wanted to make sure they weren’t negatively impacting their credit rating by applying for cards and loans they had no chance of being accepted for.

Other popular reasons included:

· To make sure I was only applying for deals I would be accepted for (40%)
· To save time by not applying for cards and loans I had no chance of being accepted for (37%)
· Because checking eligibility is easy to do (33%)
· To make sure I was getting the best rates available to me (30%)

And there are signs that Brits who might not have the best credit history are taking steps to take control of their finances.
A quarter (25%) of all credit card searches on Experian’s comparison services are for credit builder cards, which help people boost their credit scores and gain access to better financial products and rates in the future.

James Jones, Head of Consumer Affairs at Experian, comments: “Using an eligibility-checking service can make a real difference when it comes to getting the best deal and financial products.
“It’s fantastic that many Brits are checking before applying for credit, and not putting their credit score at risk, but there’s still a majority who are missing out.
“More than 1 in 5 customers checking had 100% for eligibility, which means they don’t have to worry about which products they can get, and instead focus on finding the right credit card or loan for their needs.
“At Experian we’re keen to debunk the myths and misconceptions around eligibility to educate and empower people to take control of their finances.”

FSB welcomes supply chain funding move

The Scottish Government today announced some changes to their Flexible Workforce Development Fund, including moves that will allow smaller businesses in big business supply chains to access the funding.

Andrew McRae, the Federation of Small Businesses’ (FSB) Scotland policy chair, said: “In one of his first big decisions as Minister for Business, Jamie Hepburn has made a smart move. By opening this fund up to supply chain businesses, we should see more small Scottish firms taking action to upskill their staff.

“FSB made representations about problems with this fund last year, so we’re pleased to see action to fix it. However, there’s still work to be done to build closer links between enterprise and education if we’re to tackle skills shortages and improve levels of in-work training.”

UK businesses show signs of distress as Brexit uncertainty continues, Creditsafe Watchdog Report finds

The number of failures of UK companies has risen 30.0% to 4,827 in the second quarter of the year, compared to the same period a year ago, according to the latest figures from Creditsafe’s Watchdog Report.

The quarterly Watchdog report, which analyses financial data across 12* UK business sectors, showed that high profile high street retail insolvencies, such as Poundworld and Bargain Booze, have added to the malaise, while 10 of the 12 sectors analysed by Creditsafe showed year-on-year increases in company failures.

This, in turn, had a knock-on effect on the volume of bad debt owed to suppliers of the 12 sectors, which increased by a staggering 307.0% to £2bn, compared to the same period a year ago. Large company failures leaving bad debt behind contributed to this alarming jump; as an example Maplin Electronics left £50m in bad debt to suppliers after becoming insolvent along with Café Pasta and Pandoraexpress both leaving £11m after closing their doors. The number of companies placed in the ‘very high’ and ‘high’ risk bands has also risen significantly by 16.1% and 30.1%, respectively. This is taking place in the context of reduced total sales, which have dropped across the sectors by 6.4% in the last three months to £6.9tn.

While the overall outlook is concerning, there are some positive indicators as the number of active companies across the 12 sectors rose by 14.7% over the last year to a total of 3.3m. Employment is also up by 13.1% across the 12 sectors to approximately 29.2m employees, despite the high business failure rates.

“The company failures we were discussing three months ago seem to have continued and set a worrying trend for the UK economy,” said Chris Robertson, UK CEO at Creditsafe. “Despite a few green shoots of growth in the first quarter of the year, it’s disappointing to see that across our 12 key sectors the UK is moving in the wrong direction yet again and continuing to add to levels of supplier bad debt.

“In the shadow of major collapses like Carillion and the uncertainty of ongoing Brexit negotiations, it seems that these economic traumas are having a significant effect on all corners of British industry. A 30.0% jump in company failures is certainly a cause for concern and companies need to be future-proofing their operations and protecting themselves from potentially damaging business endeavours.”

* Farming and Agriculture, Construction, Banking and Financial, Hospitality, IT, Manufacturing, Professional Services, Retail, Sports & Entertainment, Utilities, Transport and Wholesale.

FSB: Boosting jobs while delivering growth should be national priority

Both Scotland’s employment and unemployment rate rose slightly between March and May 2018, according to new figures published today.

Andrew McRae, the Federation of Small Businesses’ (FSB) Scotland policy chair, said: “A boost in Scottish employment is welcome news, despite the increase in those registered unemployed. Ensuring both of these numbers move in the right direction, while boosting local growth, must be a national priority

“Smaller Scottish firms are now more confident about trading conditions than they have been for some time. Policymakers need to build on this optimism by tackling issues like the scourge of late payment and ensuring smaller firms get a fair share of public contracts. While everyone wants clarity about our future relationship with Europe, there’s action that could be taken at home to boost growth.”

FCA’s decision to retain existing definition of vulnerability is ‘the right approach’

The Financial Conduct Authority (FCA) has today announced it is retaining its existing definition of vulnerable consumers in response to its Consumer Approach consultation, with new guidance on vulnerability set to be published next year.

The consultation, which was launched in November last year, proposed a new definition for vulnerable consumers. A range of organisations including the Money Advice Trust raised concerns that the proposed new definition presented a potential step backwards for the vulnerability agenda, with a shift in focus towards the consumer and away from the actions of financial services firms.

The regulator will also now publish new guidance for firms on identifying and supporting customers in vulnerable circumstances next year.

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, said: “The FCA’s decision to retain its existing definition of vulnerable consumers is the right approach and shows that vulnerability remains an important priority for the regulator. I am pleased that the FCA has listened to the concerns we raised as a sector about the proposed change.

“From our work training creditors in this area we know there is a growing appetite from many organisations to further improve their processes and training of frontline staff to better support vulnerable customers.

“With this continued commitment to vulnerability, the industry is in a strong position to build on the progress already made by many firms in their support for customers in vulnerable circumstances.

“We look forward to continuing to work with the FCA, creditors and partners across the sector to ensure customers receive the right support they need.”

The Money Advice Trust has trained more than 16,000 staff in over 190 creditor organisations on identifying and supporting customers in vulnerable circumstances.

StepChange Debt Charity reaction to FCA consumer approach

Responding to the publication today of the Financial Conduct Authority’s consumer approach, StepChange Debt Charity is pleased to see that the regulator has listened to respondents’ reservations, and will not be changing its definition of vulnerability. The regulator had previously proposed a new definition of ‘vulnerable consumers’, leading to concerns that this could have narrowed the focus of firms’ efforts to support vulnerable customers.

The charity, which helped over 29,000 people with an additional vulnerability on top of their debt last year, welcomes the FCA’s renewed focus on the importance of firms proactively identifying and supporting vulnerable consumers, and the announcement that the regulator intends to develop and consult on new guidance to help firms do this, as well as on the concept of a duty of care for firms to their customers.

Peter Tutton, head of policy at StepChange Debt Charity, said: “Through our work we see the crucial importance of financial service firms putting the needs of their customers at the heart of everything they do; whether this is giving people in financial difficulty the right help at the right time, or making sure people who need more support get the products and a service that match their circumstances. So clear guidance and direction from the Financial Conduct Authority is both welcome and necessary.

“We know that people with additional vulnerabilities are more likely to be on lower incomes, to be behind on their household bills, and to not have enough money to make ends meet. There is a pressing need for Government to look for ways to improve the financial health and resilience of households and people with additional vulnerabilities.”

Tinubu Square and Gestion Credit Expert: strategic partnership on debt collection services

Tinubu Square, a leading provider of trade credit, bonding & surety and receivables finance solutions, has sealed a strategic partnership with GESTION CREDIT EXPERT, to ensure customers of Recovery Square, a subsidiary of Tinubu Square, receive seamless continuity of its debt collection services.

As a result of the investment of 53M€ made by Long Arc Capital and Bpifrance at the end of 2017, Tinubu Square is pursuing its international expansion and will concentrate its efforts on its core activity, software publishing, and focus its services offering on risk analysis services. In this context, the activities of its subsidiary Recovery Square, dedicated to debt collection services in France and internationally, are taken over by GESTION CREDIT EXPERT, a leading French credit management solutions provider, specialised in trade credit risk management and debt collections services.

It is critical for Tinubu Square to ensure a seamless continuity of services to its long-term customers, both in France and internationally, as well as to offer, in particular to its credit insurance customers, the benefits and the high-quality services of this partnership. GESTION CREDIT EXPERT is a key player in the debt collection services market worldwide and its expertise has been recognized and respected for many years.

“We want to guarantee our customers continue to get robust debt collection services which are critical for them and specific to their activities. We are confident that our customers will benefit from seamless continuation of high-quality service provision from such an internationally-minded and experienced partner as GESTION CREDIT EXPERT which is expanding rapidly worldwide in this market. Moreover, we will work closely with GESTION CREDIT EXPERT to share its expertise with our international customer network”, said Jérôme Pezé, CEO and founder, Tinubu Square.

“We are delighted to engage in this strategic alliance with Jérôme Pezé and his team. We are committed to bringing Recovery Square’s and Tinubu Square’s customers the best possible service. Through this partnership, we reinforce our position in the market and move further forward to contribute to two of the main challenges faced by our economy: increasing corporate cash flow and reducing corporate trade credit risk worldwide”, said Christophe Nobilet, CEO, GESTION CREDIT EXPERT.

Arrow Global Selects Xactium to Transform Risk Management Processes Organisation-Wide

Established in 2005, Arrow Global Group specialises in the purchase, collection and servicing of non-performing loans. It identifies, acquires and manages secured and unsecured defaulted loan portfolios from financial institutions, such as banks and credit card companies, as well as retail chains, student loans, motor credit, telecommunication firms and utility companies.

With almost £48 billion of Assets Under Management and around 10 million customer accounts across multiple European countries, the effective management of its risk profile and associated processes is critical. Having expanded rapidly, Arrow Global identified the need to implement an enterprise risk management system which would make it easier for the whole business to assess and report risk and control information, while moving away from a spreadsheet model which led to risk data being stored across multiple documents and locations.

Arrow Global took advantage of the opportunity to trial the Xactium software, deciding that it was the right system to take the organisation into a new era of risk management. By adopting Xactium, the Group will soon be working with just one central platform to store, track and report on the organisation’s risk information. With offices in countries including the UK, Ireland, Italy, Portugal, Belgium and the Netherlands, Arrow Global will have greater transparency over risk exposures and how they are being managed across the Group, as well as the ability to automate many of the manual processes involved.

Paul Woods, Enterprise and Operational Risk Director at Arrow Global Group, said: “Establishing a ‘real-time’ and flexible assessment and reporting system which we can use consistently across our expanding Group, became a priority. Xactium’s platform addresses this need and will support us as we further enhance our risk management approach across all of our businesses. We look forward to working with them through this exciting phase of our growth.”

Managing Director, Andy Evans says, “Arrow Global expands Xactium’s rapidly growing portfolio of organisations working in the financial services sector. It’s fantastic to have been selected by such a rapidly growing organisation – Xactium’s flexible, modern, cloud based risk solution will be able to adapt easily to changes in their organisation, whilst ensuring Group-wide risk visibility.”