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.”

Consumer car finance market up by 9% in May

New figures released today by the Finance & Leasing Association (FLA) show that new business in the point of sale (POS) consumer new car finance market grew 15% by value and 10% by volume in May, compared with the same month in 2017.

The percentage of private new car sales financed by FLA members through the POS was 89.3% in the twelve months to May 2018, unchanged compared with the same period to April 2018.

The POS consumer used car finance market also reported new business growth in May 2018 of 12% by value and 9% by volume.

Geraldine Kilkelly, Head of Research and Chief Economist, said: “Monthly falls in new business volumes reported by the consumer new car finance market in the first three months of 2018 have been followed by a recovery in April and May, in line with demand for new car purchases.

“The POS consumer car finance market reported new business volumes overall up by 4% in the first five months of 2018, consistent with expectations for the year as a whole.”

Asset finance market reports further growth in May

New figures released today by the Finance & Leasing Association (FLA) show that asset finance new business (primarily leasing and hire purchase) grew by 10% in May, compared with the same month in 2017.

New finance for plant and machinery grew in May by 4% compared with the same month in 2017, while the commercial vehicle finance sector reported new business up by 13% over the same period.

Geraldine Kilkelly, Head of Research and Chief Economist, said: “The asset finance market continued to improve in May after a relatively quiet first quarter. The industry provided further support to the construction, manufacturing and agricultural sectors, with new finance for equipment in these sectors up by 6%, 11% and 22% respectively, compared with May 2017.”

Speed of B2B payments in the Americas declines

The latest results of annual B2B payment practices reserach conducted by global credit insurer Atradius show an increasing level of deterioration in payment practices in the Americas.

  • Average payment duration increased from 61 days in 2017 to 63 days in 2018.
  • On average, 90.3% of respondents frequently experience late payments (the average is highest in Mexico (94.4%) and the U.S. (90.9%).
  • On average 50% of invoices are unpaid by the due date.

David Huey, Atradius President and Regional Director of U.S., Canada and Mexico stated, “It is interesting that in a healthy, growing economy, bad debt continues to plague the B2B markets. To think that 51% of respondents have had a customer suffer bankruptcy or simply close their doors is eye opening. Any business that provides customer credit, domestically or internationally, will benefit from the data reported in the Payment Practices Barometer.”

The average proportion of uncollectable B2B receivables in the Americas declined, though slightly, from 2.1% in 2017 to 1.8% this year. At 2.5%, Brazil is the country with the highest percentage of uncollectable receivables in 2018, mainly because customers filed bankrupty as reported by 54.7% of respondents in Brazil.

The level of intra-regional exports seems to be stable, particularly among the NAFTA countries. This, despite the threat of a protectionist turn by the U.S. and pending the revision of the free trade agreement. Nearly half of the suppliers interviewed in NAFTA countries say that more than 50% of their commercial activities occur within the region, with 16.5% trading exclusively within the current free trade area. Trade with the U.S. either increased or remained stable for 81.5% of the suppliers interviewed in Mexico. In Canada the positive trade picture is even more pronounced with total of 90.3% maintaining the same or better trade levels with the US.

The Conveyancing Association and friends aim to raise £25k for Tŷ Hafan Children’s Hospice

Four members of the Conveyancing Association (CA) Secretariat at Convey 365 – Spencer Cawley, Joel Grant, Morgan Paley and Will Smith – will be aiming to summit the Welsh Three Peaks on the 30th June and, CA Operations Director, Lloyd Davies, will undertake the 5in55 Challenge from the 4th-7th July, summiting five of the highest mountains in the UK in just 55 hours.

The real challenge for the CA is to help raise over £25k for the Tŷ Hafan Children’s Hospice.

Tŷ Hafan is one of the UK’s leading paediatric palliative care charities and provides care for terminally ill children and their families. The hospice needs to raise over £3 million a year from private funding to survive. Tŷ Hafan aims to do everything in its power to make sure that a short life is a full life, as well as caring for the families involved, it aims to create special memories that last a lifetime.

With Tŷ Hafan in mind, the CA Secretariat will attempt to climb the three Welsh peaks of Mount Snowdon, Cadair Idris and Penyfan all within 15 hours. They will join travellers from all around the world to walk a distance of 20.35 miles.

Between the 4th-7th July, CA Operations Director and Chairman of the Conveyancing Foundation, Lloyd Davies, will join a group of Tŷ Hafan Dad’s, supported by uncles, brothers and staff to climb the five highest mountains in the UK in 55 hours. They will be tackling Ben Nevis in Scotland, Scafell Pike in England, and Snowdon, Cadair Idris and Penyfan in Wales.

So far the fundraising which has been achieved this year, in conjunction with the Conveyancing Foundation, Convey Law and Monmouth Rugby Football Club, as well as the local schools and youth clubs involved in the Monmouth Snowdogs Challenge, is just over £23k for Tŷ Hafan.

The fundraising team are aiming to smash the £25k target – to make a donation please visit: https://www.justgiving.com/fundraising/monmouthrfcsnowdogs

The Foundation recently received praise for its charitable work and ingenuity from HRH Prince Charles earlier this year as the prince is the Patron for the Ty Hafan Children’s Hospice.

Lloyd Davies, Chairman of the Conveyancing Foundation and Operations Director at the CA, commented: “We are looking to raise awareness of how conveyancers can raise considerable funds for their chosen charities while engaging with their local communities. The Conveyancing Foundation Free Legal Fee Competition has allowed Convey Law clients to raise over £300k for the Tŷ Hafan Children’s Hospice over the last 10 years.

“Conveyancers who use the competition can choose the charity that they wish to support. We are a zero profit organisation and we are fully committed to helping conveyancers ‘Convey for Charity’. I would like to say a massive thank you to our sponsors at Groundsure, Conveyancing Data Services and Convey Law for helping to support our trekking challenges this year. Thank you all for your generous donations and support.”

Low productivity jobs driving employment growth in many OECD countries

Weak labour productivity growth continues to mark the world’s advanced economies and risks compromising improvements in living standards, says a new OECD report.

In its latest Compendium of Productivity Indicators, the OECD says that the slowdown in labour productivity growth (measured as gross value added per hour worked) has especially affected manufacturing – both high tech activities such as computers and electronics, as well as industries requiring lower skill levels – and that gaps in labour productivity levels between large and smaller firms remain high.

And although economic growth in many countries has led to rising employment, particularly in Italy, Mexico, Spain, the United Kingdom and the US, the majority of new jobs are in activities with relatively low productivity.

The greater number of low productivity jobs has also weighed down on average wages across the economy as a whole. Real wages (adjusted for inflation) fell between 2010 and 2016 in Portugal, Spain and the United Kingdom. Although in some countries, such as Germany and the US, real wages have begun to rise in line with, albeit still slow, labour productivity growth in recent years, in many sectors wages continued to lag labour productivity growth. This was the case in one third of all sectors in Germany and the US.

“The long-term decoupling in wage and productivity growth we see in many OECD countries may also be driving inequalities in income and wealth,” the OECD’s Chief Statistician Martine Durand said. “Slowing productivity growth and the large number of low productivity jobs being created both limit the scope for improvements in material well-being.”

The share of income from economic activity going to labour through wages has declined in most countries in recent years, but most markedly in Hungary, Ireland, Israel, Mexico, Poland and Portugal.

The Compendium shows that by 2016, the latest year for which comparable international data is available, investment, an important driver of productivity growth, was beginning to pick up. However, investment rates, particularly on machinery and equipment and other tangible assets, were still below pre-crisis levels in many OECD countries.

Investment in intellectual property products, such as software and R&D, has been increasing since before the crisis, often at a faster pace than investment in physical capital but significant differences remain across countries. The share of total investment going to intellectual property in 2016 ranged from 1.1% in Colombia to 30% in Switzerland and 56% in Ireland.

The Compendium says the relatively robust investment in intellectual property, where the benefits to business may take time to feed through, may act as a catalyst for stronger economic growth in the future.

The OECD says productivity is ultimately a question of “working smarter” rather than “working harder”. This reflects firms’ ability to produce more output by better combining inputs through new ideas, technological innovations, as well as by way of process and organisational innovations.

Debt growth slows in the UK

New statistics show that, having reached a peak in April the growth of debt per adult is now beginning to slow. The June 2018’s Money Statistics – produced by The Money Charity finds that growth over the previous 12 months has slipped to £949.30 per adult.

Whilst this is still a growth, it has been a year since the statistics reported a growth under the £1,000 mark, reaching its highest in April at £1,169.92. Since then growth has slipped in the past 2 months by £143.18 in May, and then a further £77.44 this month.

This drop in debt growth is backed by a similar reduction in outstanding consumer credit lending to individuals which fell in March for the first time since September 2015. Further falls have occurred in total net lending to individuals by UK banks and building societies, falling by £0.04bn – £0.99m every day in April according to the Money Statistics. Again, this is a figure which hasn’t fallen for over 5 years. Net lending to individuals overall fell by £362m, the amount approved for house purchases to individuals by £347m and secured lending by £1.598bn in April, according to the Bank of England.

This may be seen as a positive sign for many in the industry who have been concerned about a debt bubble continuing to swell in the UK. However, the cost of credit continues to rise with the average interest rate on credit card lending rising to 18.26% meaning the impact may not yet be being felt in household budgets.

Michelle Highman, Chief Executive of The Money Charity says: “It is good to see signs of a reducing debt burden on people in the UK, as well as evidence against a swelling debt bubble. However, growing credit card interest rates and faltering or stagnating savings rates indicate that this fall in debt may not yet have had much impact on the real lives of those struggling to make ends meet.  If your debt burden feels overwhelming there is help out there so don’t put off making that first step.”

Other key points from the May Money Statistics:

  • 4.1p increase in unleaded and diesel petrol per litre on last month.
  • £29m fall in Public Sector Net Debt per day in 2018.
  • 21% increase in debt issues reported by Citizens Advice on last year.

The Money Statistics June 2018

Striking numbers
£0.99m: The decrease in net lending to individuals in the UK.
20: The amount in properties repossessed every day.
£77.44: The fall on last month in UK debt increases for each adult.
21%: The increase in debt issues reported by Citizens Advice on last year.
£29m: The fall in Public Sector Net Debt per day in 2018.
4.1p: The increase in unleaded and diesel petrol per litre on last month.
18.26%: The increase in the average interest rate on a credit card bearing interest.
34: The number of mortgage repossessions every day in Q1 2018.
0.2%: The decrease on house prices on last month according to Nationwide.

Everyday in the UK
Net lending to individuals in the UK decreased by £0.99m a day in April 2018.
Government debt fell by £29m a day during 2018.
LINK Cash machines were used an average of 90 a second across the UK.
304 people a day are declared insolvent or bankrupt. This is equivalent to one person every 4 minutes and 44 seconds.

Personal debt in the UK
People in the UK owed £1.539 trillion at the end of April 2018. This is up from £1.535 trillion at the end of April 2017– an extra £949.30 per UK adult.
Per adult in the UK that’s an average debt of £30,597 in April – around 113.9% of average earnings. This is slightly down from a revised £30,604 a month earlier.
Outstanding consumer credit lending was £210.6 billion at the end of April 2018.
Citizens Advice Bureaux across England and Wales dealt with 505,512 issues in April 2017.
Debt was the second largest advice category (behind benefits and tax credits) with 126,429 issues. This is up 21% on the same month last year. Debt issues represented 25.5% of all problems dealt with over the period.

Mortgages, rent and housing
The average mortgage interest rate was 2.49% at the end of April. This stood at 2.05% for new loans. Based on this, households with mortgages would pay an average of £3,081 in mortgage interest over the year. New loans would attract an average of £2,860 in interest.
Halifax estimate that house prices rose by %.5% compared to last months estimate, up by 0.2% over the quarter and 1.9% annually. Nationwide estimate house prices fell by 0.2% in May, up 2.4% on 12 months ago.
According to UK Finance, the typical first-time buyer deposit in November was 16.6% (around £27,955) – 104% of an average salary.

Savings and Pensions
9.614 million employees had joined a pension scheme under auto-enrolment by the end of April 2018.
The average interest rate for an instant access savings account – not including bonus interest payments – was 0.19% in February. For a cash ISA, this was 0.68%.

Spending and Loans
Data from LINK shows that, on average, 90 cash machine transactions (including balance enquiries and rejected transactions) were made every second in April 2018.
In total, cash machine transactions were worth an average of £3,793 in April 2018.
The average APR for a £5,000 personal loan is 8.14%, according to the Bank of England. For a £10,000 loan it’s 3.81%, while the average rate for an overdraft is 18.26%.
It cost an average of £23.61 a day for a couple family to raise a child to the age of 18.
It cost an average of £28.48 a day for a lone parent family.

The bigger picture
The UK economy grew by 0.1% between January and March 2018, according to latest estimates from the ONS, the lowest growth since Q4 2012.
Public Sector Net Debt fell by £29 million during 2018.
97,000 people (1,054 a day) reported they had become redundant over the three months, a decrease of 5,000 on the previous quarter.

 

The Money Charity is the UK’s financial capability (financial education) charity. Our vision is that everyone has the ability to be on top of their money as a part of everyday life. We empower people across the UK to build the skills, knowledge, attitudes and behaviours to make the most of their money throughout their lives.

Consumer finance new business recovers in April after quiet March

New figures released today by the Finance & Leasing Association (FLA) show that consumer finance new business in April grew by 22%, compared with the same month last year.

Credit card and personal loan new business together grew by 21% compared with April 2017, while retail store and online credit new business increased by 11%. Second charge mortgage new business increased 2% by value and 8% by volume over the same period.

Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said:

“The recovery in consumer finance new business in April follows a quiet end to the first quarter of 2018 and is consistent with recent improvements in consumer confidence and retail sales.

“Changes to Vehicle Excise Duty in April 2017 have affected the pattern of demand for consumer new car finance. In the first four months of 2018, the point of sale consumer car finance market overall reported new business volumes up by 4% compared with the same period in 2017.”

Asset finance market rebounds in April

New figures released today by the Finance & Leasing Association (FLA) show that asset finance new business (primarily leasing and hire purchase) grew by 7% in April, compared with the same month in 2017.

New business in the plant and machinery finance and business equipment finance sectors was up by 13% and 18% respectively, while commercial vehicle finance new business increased by 13% over the same period.

Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: “The recovery in asset finance new business in April was broad-based. The manufacturing, agricultural and construction equipment finance sectors each reported strong growth, with new business up by 61%, 35% and 27% respectively, compared with April 2017.”