LTV Tracker reveals six times as many products available for 75% LTV borrowers compared to 95%

Mortgage insurer AmTrust’s latest Mortgage Loan to Value (LTV) Tracker has today revealed that first-time buyers with a 25% deposit have access to over six times as many mortgage products as those who are only able to put a 5% deposit down.

The Quarterly Tracker, which looks at the current real product availability for first-timers as well as the average monthly mortgage payments they would pay on average loan levels for those with both a 5% and 25% deposit, shows that higher LTV borrowers are benefiting from an increase in product choice but that compared to their lower LTV counterparts are offered far fewer options.

Also, the monthly mortgage cost disparity for average first-time buyers seeking averagely-priced homes continues to be high, with 95% LTV borrowers continuing to pay close to 50% more for their mortgages than those at the 75% LTV level.

Those with smaller deposits pay (on average) £780 per month/£9,360 each year, while those with 25% deposits pay (on average) £521 per month/£6,252 per year.

The cost of mortgages has however fallen for both 75% and 95% LTV first-time buyers with the Tracker revealing that borrowers continue to benefit from increased competition amongst lenders in this mortgage space. The average mortgage rate for a high LTV mortgage product dropped from 3.61% in Quarter three last year to 3.23%, while there was a very slight drop in average rates for 75% LTV borrowers, with a quarterly fall from 1.75% to 1.74%.

The rate differential between 75% and 95% LTV loans has continued to narrow, down to 1.49% from 1.86% in Quarter 3 and 2.21% in Quarter 2 last year.

AmTrust puts this down to more lenders willing to look at high LTV borrowers, and an increase in interest in more niche mortgage product sectors in order to make up for falling purchase activity and an anticipated drop in overall activity as more borrowers opt for longer-term fixed-rate remortgage options.

AmTrust believes that, with ongoing political and economic uncertainty generated by ‘Brexit’ meaning more potential purchasers are adopting a ‘wait and see’ approach, lenders will continue to look for more first-time buyer business and will maintain competitive rates at all LTV levels in order to secure this.

It believes many more lenders are likely to be willing to lend to higher LTV borrowers in order to secure first-time buyer business which can potentially ‘stick’ on their mortgage books for many years

Product numbers continue to fluctuate

Greater appetite to lend to first-time buyers with small deposits continues to translate into greater product choice for 95% LTV borrowers, with the latest iteration of the Tracker showing an increase in mortgage options across both two-year and all-term 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 December 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 includes deals available to both mortgage advisers and direct-only.

The latest research shows an increase in product numbers across the entire 95% LTV product sector, but a fall for all 75% LTV options.

Two-year product options for 95% LTV top 100 for the first time across all three scenarios, while those looking at all mortgage terms and options, have more than 240 products to choose from.

But, while the differential between 95% LTV and 75% LTV products has been narrowed, the Tracker shows that those lucky enough to have a bigger deposit have access to over six times as many products as their lower deposit counterparts.

Over 700 products are available to those wanting a two-year deal, while this number more than doubles to over 1,500 products for those reviewing all terms and all product options.

AmTrust believes this ongoing and significant product choice disparity can be closed even further if more lenders reviewed their lending activity in this area, and used a credit-risk mitigant such as private mortgage insurance to boost product options and cut rates far closer to the level for lower LTV products.

Patrick Bamford, Business Development Director at AmTrust Mortgage & Credit, commented: “Clearly, over the last year we have seen a renewed interest in the high LTV first-time buyer mortgage market from a number of lenders, and this increased competition has led too far greater product choice plus more competitive rates.

“To see the average 95% LTV mortgage rate not too far away from 3% is most pleasing, and the differential between higher and lower LTV products has narrowed significantly, especially in the second half of 2018.

“It should however not be forgotten that the average rate for a 75% LTV first-time buyer is 1.74% and product choice for this group of potential borrowers numbers many hundreds, if not, thousands, compared to (at best) 200-plus for those with just a 5% deposit.

“Indeed, there are six times as many products available for 75% LTV borrowers and this disparity is far too great. We have seen more lenders launching products in this marketplace, and we suspect that as the ongoing uncertainty of Brexit impacts further on the housing and mortgage markets, that we’ll see many more lenders looking to diversify into this area. But, at best, this might add tens of products to the choice available, rather than the hundreds which might signal a real resurgence in the first-time buyer/high LTV mortgage market.

“Lenders do have the tools at their disposal to mitigate their risk in this area and to continue to help bring rates down and product numbers up, and we would urge them to follow the lead of many building societies that utilise private mortgage insurance in order to improve their activity in this vitally important part of the market.”

Knowledge Bank launches Knowledge Insights – real time MI

Knowledge Bank today launches Knowledge Insights. It means for the very first time, the mortgage industry has instant data regarding what mortgages brokers are searching for.

Knowledge Insights will provide lenders with a realistic overview of what areas of lending criteria are the most popular and the most required. Currently, the only data available to lenders is product based and is historical, based on completions that may have happened two to three months prior to a report becoming available.

Knowledge Bank is now able to provide up-to-date search criteria in customisable data sets. This means that lenders can interrogate the data collated by Knowledge Bank to better understand what brokers are being asked for at this exact point in time and what kind of cases they are looking to place.

This could transform the mortgage market as nimble lenders will, for the first time, be able to design products that the market needs, when they need them.

Knowledge Insights will enable the whole of the mortgage market to better understand trends both as they are occurring and retrospectively, based not just on product or lending amount but the actual needs of borrowers as shown up by brokers’ searches for criteria. It will provide a unique level of understanding that just has not been available to the market until today.
It will enable lenders to develop product and policy where they can see that there is a proven demand for it. Knowledge Insights will enable lenders to understand their own propositions better and see where they may be missing out on business. Lenders will also be able to see where there is demand for policy or criteria that may well be a unique selling point for them and quickly tap into that market where they have funds available.

For example, where a lender may know that its big USP is to lend to people on ‘zero hours contracts’ and ‘ex-council houses’ say, they may well feel that there is a demand for this, so they would not understand if they were then not receiving this type of business. Knowledge Insights will now be able to demonstrate that, in this example, the reason the lender was not receiving the business was because brokers were also searching on ‘child benefit’ for this type of enquiry and the lender didn’t accept this, so was missing out on the business.

Following meetings and discussions, Knowledge Bank has also agreed to share all of its Insights data with the FCA, which is delighted to receive such an in-depth view of the market as it is at any given time, for the first time ever. The data will also be made available to other trade bodies requesting it.

Nicola Firth, CEO of Knowledge Bank said, “Data analysis is vitally important to mortgage lenders to enable them to constantly review their product offering and the criteria that sits behind their lending decisions. As most often now, criteria is the key driver now as opposed to the rate in terms of which lender the case will be placed with.

“We believe that Knowledge Insights will transform the market and the way that lenders develop products and policy, providing a level of insight that has never before been available.”

Second charge mortgage market reports volumes up by 21% in November

Commenting on the November 2018 new business figures for the second charge mortgage market, Fiona Hoyle, Head of Consumer and Mortgage Finance at the Finance & Leasing Association (FLA), said: “The market has reported a relatively strong performance in recent months following a steady first half of 2018. The second charge mortgage market is likely to report solid single-digit new business volumes growth in 2018 overall.”

Bank Economists Forecast Moderating Economic Growth Amid Heightened Uncertainty

WASHINGTON — According to a new forecast released today from the Economic Advisory Committee of the American Bankers Association, the pace of growth will moderate through 2019 and 2020, reflecting fading policy support in the U.S. and a slowing global economy.

The median forecast of 15 chief economists from major North American banks surveyed the first week in January is that economic growth will ease to 2.1 percent in 2019 and 1.7 percent in 2020 (on a Q4/Q4 basis). This means that the current expansion will become the longest in U.S. history.

“A strong consumer sector and moderate business investment, along with full employment and rising wage growth, should sustain the expansion,” said Robert Dye, EAC chairman and chief economist at Comerica Bank.

With ongoing hiring, the group expects the national unemployment rate to decline to a 60-year low of 3.5 percent by year-end, with average monthly job growth abating from over 200,000 last year to a still-robust 160,000 in 2019. The group expects private average hourly earnings to be up 3.4 percent this year.

“Given the tight labor market, firms will be forced to pay up to hire,” said Dye. “More jobs and rising pay should keep confidence elevated and consumer spending healthy.”

The committee forecasts that household spending growth will hold above 2 percent this year. Purchases of durable goods, including automobiles, are predicted to remain strong but diminish further from the 2017 peak. Moreover, the group sees higher mortgage interest rates impacting the demand for housing, with growth in home prices sliding down to 4.4 percent nationally this year followed by 3.3 percent next year.

While the committee does not forecast a recession in 2019 or 2020, it recognizes the heightened uncertainty and increasing downside risk for the U.S. and global economy. The committee sees a 20 percent chance of a U.S. recession this year and 35 percent in 2020.

“A range of developments pose threats, particularly cooling global growth, recent financial market volatility, ongoing trade tensions and political uncertainty,” said Dye. “However, if tariff tensions can be resolved it will boost business sentiment.”

Still, the group noted that the economy has been resilient against shocks over the past decade. “The strength of households and the banking sector will promote stability in the U.S. economy, despite the headwinds,” said Dye.

“The Federal Reserve is likely to achieve a soft landing for this economy with healthy labor markets and inflation holding near 2 percent,” said Dye. “Therefore, the Fed is likely to slow the cadence of rate hikes this year, and we expect no more than two 25-basis point increases.”

The committee expects rates on three-month, two-year and ten-year Treasuries to rise about half a percent from present levels to finish the year at 2.9 percent, 3.0 percent, and 3.2 percent, respectively. Similarly, 30-year fixed rate mortgage rates are predicted to close the year at 4.9 percent.

The committee expects consumer credit to grow at 4.0 percent and business credit to grow at 3.2 percent in 2019.

“The strength of the banking industry will continue to support growth in the economy,” said Dye.

Communications specialist becomes first firm to use new fraud-protection technology

Core Retail, the leading supplier of pre-paid SIMs and mobile accessories, has become the first organisation to deploy a brand-new payments tool that automatically flags and rejects counterfeit, forged and fraudulently altered cheques. UCN Plus ® – patents pending – was officially launched last month by The TALL Group of Companies, the UK’s leading provider of secure electronic and paper payments solutions, and DIA Europe, providers of the Kappa cheque fraud prevention platform.

The communications specialist has a long-standing relationship with Checkprint (a member of the TALL Group of Companies) to securely print, personalise, infill and mail their cheques through the Checkprint Bureau Service. As part of the updated agreement, Checkprint will now incorporate UCN Plus ® as part of its service offering to Core Retail.

UCN Plus ® enables the variable payment data – payee name, amount, date, etc – to be encrypted and hidden within a QR code printed on the face of all cheques issued by the TALL Group on behalf of its cheque bureau customers. Once the recipient has deposited the cheque, Kappa’s profiling and matching tool alerts the issuing bank to any mismatch, and customers can review the item before committing to pay, and still remain within the new two-day clearing cycle. This reduced clearing cycle forms part of the Image Clearing System (ICS), which was officially introduced across the UK last October. As part of ICS, cheques are now digitised at the point of deposit, and are no longer be transported during the clearing process.

Jonathan Lovell, Chief Financial Officer at Core Retail, said: “We are delighted to be working with Checkprint and the inclusion of the UCN Plus® on our cheques adds an extra level of security. We have always put innovation and serving our customers at the heart of what we do. We believe this will continue to ensure Core’s expansion well into the future. By embracing this innovative approach to cheque security, we are matching our own future ideals.”

Martin Ruda, Group Managing Director at the TALL Group of Companies, said: “As an organisation committed to the safety, security and integrity of the cheque payments system, the collaboration with Kappa has enabled us to deliver a further and critical layer of fraud prevention to the UK’s corporate cheque users. The benefits of the new Image Clearing System will underpin the continuing effectiveness of the cheque as a payment tool, and the TALL Group will strive to ensure the UK payments systems stay one step ahead of the fraudster.”

Shield FC Launches Enhanced Version of its Financial Compliance Data Management Platform

Shield Financial Compliance (Shield FC), a cross-regulation compliance platform that provides a 360 view on electronics communications (eComms) and trades to make compliance more efficient and ROI driven, is proud to announce the launch of its latest version. New features include powerful AI for the reduction of false positives, and the proprietary technology of Financial Context Recognition (FCR).

Ofir Shabtai, Co-Founder and CTO at Shield FC commented, “The new features address and resolve important issues facing modern financial firms. False positives have become a highly worrying statistic – one Tier-One European Bank we have spoken to even admitted it had reached an incredible 98% false positive rate on their day-to-day work.”

Ofir continued, “Another major challenge is automatically recognizing the context of trade information from vast amounts of recorded eComms (such as email, chat and voice), so it can be correlated to the relevant trade. Our new functionality is designed to address both these needs in an intelligent and highly useable way.”

Being resource-intensive to investigate and often hindering the smooth investigation of real issues, false positives are a big issue for compliance monitoring systems. The Shield FC platform utilizes a highly specialized AI engine to investigate and evaluate all alerts, accurately eliminating a high percentage of these and saves wasting resources and time of the compliance team.

Shield FC’s platform also employs a new unique proprietary engine developed by the company to accurately and reliably deliver powerful FCR across all eComms – including emails, chats, Fin-chats and voice recordings. Using NLP (Natural Language Processing) and an AI-based component, the technology delivers levels of accuracy and speed that would be impossible for a human team to achieve.

Ofir added, “FCR is a huge step toward accurate automatic trade reconstruction and finding the right related eComms amongst often seemingly unfathomable amounts of unstructured data. The FCR algorithms will extract any chosen information from conversations, FCR is trained to understand the context of conversation especially the challenge of understanding the traders lingo.

The latest enhancements build upon Shield FC’s already highly powerful, yet cost-effective and easy to use data platform. It transforms siloed eComms platforms into a single end-to-end solution to reconstruct, report and interact with complete trade timelines via an intuitive point-and-click user interface. A highly secure out-of-the-box solution, it also provides a wide spectrum of bespoke options to fit the requirements of any financial firm, whilst Shield FC ensures it evolves to meet all future needs.

The Shield FC platform is also a finalist in both the ‘Best Trade Reconstruction Solution for Best Execution’ and special ‘BSO Award for Fintech Innovation’ categories of the TradingTech Awards Europe 2019.

From Profit Police to Strategic Imperative: the Changing Face of Credit Compliance

For any FCA regulated firm, the risk and compliance function is an essential and integral part of the business – but it wasn’t always that way. Martin Kisby, Head of Compliance at Equiniti Credit Services, explores the motivations behind the evolution of compliance functions in consumer credit firms.

Risk and compliance departments, once held in low esteem by other business units, have evolved into a crucial function for protecting profitability. This is still a controversial statement in the consumer credit industry, but it’s easily justifiable. To do so, let’s take a look back.

It’s 2008. The consumer credit market is regulated by the Office of Fair Trading (OFT). Firms have a set of guidelines they are required to adhere to, but in reality can interpret or even circumvent them entirely. Business objectives are often, if not always, placed ahead of consumer needs.

So what was the role of the compliance function back then? Well, it provided some assurance to the OFT that firms were not ignoring its guidelines in their pursuit of profits.

This often led to compliance functions being derided as the ‘Business Prevention Unit’ or ‘Profit Police’ and being allocated minimal resource.

Fast forward to 2014: the financial crash has altered the consumer credit landscape dramatically. Trends in mis-selling, together with poor consumer outcomes, have highlighted the need for fundamental change. The creation of the Financial Conduct Authority (FCA), by merging the OFT and Financial Services Association (FSA), is intended to add more stability and oversight to the sector, ensuring better service delivery for consumers.

Big changes ensued.

The FCA developed a more robust and detailed handbook, which not only provided guidance on how firms across the sector should be operating, but also changed what was previously ‘advice’ into hard and fast rules.

Firms were given only interim permissions and needed to complete an approval process to gain full FCA authorisation. This required firms to demonstrate strict adherence to the new and updated rules and guidelines.

From this point onwards, the role of compliance was transformed. Firms began to allocate significant resource to this function to ensure they could provide continued assurance to the FCA that its rules and guidelines were being followed. It became imperative to demonstrate that mis-selling, unreasonable collections practices, affordability issues and poor customer service were being eliminated.

The compliance department evolved from the ‘Profit Police’ into a pivotal function in every FCA regulated firm.

Risk management also became more prevalent under the new regulatory body, as the System and Controls section of the FCA’s handbook requires firms to assess and manage their risks, and have a Chief Risk Officer as one of their Approved Persons – individuals the FCA has approved to undertake one or more controlled functions[1].

These complimentary objectives meant that compliance and risk departments were consolidated. Compliance plans were established to monitor specific elements of the FCA handbook and verify adherence to them. Any identified control inadequacies could be migrated onto a firm’s risk register for monitoring and remediation.

Back to the present. Four years on from the introduction of the FCA, firms have, overall, implemented the necessary oversight to demonstrate that they are meeting their regulatory requirements and treating customers fairly.

But let’s be honest – there are selfish motivations too. A strong compliance department, empowered to change processes as best practice dictates, reduces the risk of both regulatory fines and exposure to defaults. This increases revenue and protects profit margins.

In a sector competing on cost at a scale never seen before, and where consumer brand loyalty is decreasing by the day, protecting a firm’s margins is crucial.

As compliance has increased in importance, technology has kept pace and evolved to reduce the time and cost burden regulation could otherwise have imposed. Now, best-of-breed credit management solutions seamlessly integrate compliance monitoring and reporting into their sourcing, approval and collections processes.

Happily, this combination of motivations and technological developments has created a win-win for lenders and borrowers alike: an established and proactive risk and compliance function that not only protects consumers but also contributes to the strategic objectives of the lender’s business.

FICO Awarded Five New Patents for Fraud, AI and Decision Science

Silicon Valley analytic software firm FICO has been awarded five new patents related to fraud, artificial intelligence (AI) and advanced analytics. In total, FICO currently holds 192 US and foreign patents, and 93 pending patent applications.

Two of the patents are for groundbreaking analytic technology used by FICO’s industry-leading FICO® Falcon® Platform for fraud management: “Detection of Compromise of Merchants, ATMs, And Networks” relates to the generation of compromise profiles for financial accounts based on reported fraud data of a payment account and merchant device. These compromise profiles accelerate detection of fraud.

“Card Fraud Detection Utilising Real-Time Identification Of Merchant Test Sites” covers a system and method for detecting when criminals are “testing” compromised cards, by using real-time merchant profiles and specialised scoring models.

FICO inventors also received three patents related to analytics and decision management:

“Efficiently Representing Complex Score Models” transforms predictive models into a software program for deployment in a rules engine, helping IT departments solve the problem of operationalising analytics. This technology is integrated in FICO® Blaze Advisor® decision rules management system, part of the FICO® Decision Management Suite.

“Automatic Modeling Farmer” covers an AI system that automatically develops and evaluates a large number of possible predictive models in order to produce optimal models. This is a streamlined modelling process to enable quick development of large-scale models using Big Data, and is used by FICO data scientists to identify candidate data sources with the most predictive promise.

“Systems and Methods to Improve Decision Management Project Testing” is an invention that visualises the validation status of components of an executable decision management project, which improves project testing. This technology is integrated in FICO® Origination Manager.

“This is an exciting time for analytics and decision management, and FICO’s inventions are propelling change in this field,” said Dr. Stuart Wells, FICO’s chief product and technology officer. “Our data scientists continue to be at the forefront of the AI revolution and the progress in intelligent decision automation.”

Banks’ plans to introduce gambling spending blocks a ‘welcome step forward’

The Money Advice Trust has welcomed Lloyds, Santander and RBS’ plans to introduce controls for their customers over where they can spend their money, including allowing the blocking of gambling payments.

The announcement follows on from the launch of similar controls by Barclays last month and work from Monzo and Starling in this same area last year.

Jane Tully, director of external affairs at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “The fact that a growing number of banks are giving customers greater control over their spending by allowing them to block payments on gambling is a welcome step forward.

“It is positive to see technology being used to meet the needs of customers, particularly those in vulnerable circumstances and I am pleased to see more banks following the lead set by Monzo, Starling and Barclays in this area.

“It will be important for banks to review the impact of these controls and how much ‘friction’ is required to ensure they meet their intended purpose. We look forward to continuing to work with the credit industry on supporting customers in vulnerable circumstances.”

The Money Advice Trust has worked with over 200 creditor organisations and trained nearly 19,000 staff to help them identify and support customers in vulnerable circumstances.

Britain set for worst decade of housebuilding on record

The Prime Minister has described solving the housing crisis as ‘the biggest domestic policy challenge of our generation’. Yet new CPS analysis shows the full scale of that challenge.

With one year to go, the 2010s will see housebuilding figures in England come in below any decade since the Second World War – part of a 50-year pattern in which each decade has seen fewer new homes built than the last. (See charts below.)

The findings have been widely reported today, including in the Telegraph, Times and Sun. Robert Colvile, Director of the Centre for Policy Studies, explains in today’s Telegraph that this is not a problem that can be blamed on any one decision or policy, minister or government. It is the result of decades in which building new homes moved steadily down the national priority list.

There have been encouraging signs recently – but despite the Government’s recent efforts to boost construction, new-build housing completions in England between 2010 and 2019 are set to be approximately 130,000 per year. That is well below the 147,000 of the 2000s or 150,000 of the 1990s, and half of the level in the 1960s and 1970s.

The picture becomes even worse when you factor in population size. In the 1960s, the new-build construction rate in England was roughly the equivalent of one home for every 14 people over the decade. In the 2010s, that ratio was one to 43, more than three times higher.

The figures are improved somewhat when you factor in conversions of existing properties, which push the total up – but even then, the total of net additional dwellings (the yardstick for overall housing supply) is likely to be lower this decade than last.

Across the United Kingdom as a whole, the pattern is broadly similar, with housebuilding falling from a peak of 3.6 million new units in the 1960s to 1.9 million in the 1990s and 2000s, with the 2010s set to come in lower still.

This is one reason why the Centre for Policy Studies has put housing and home ownership at the heart of its work, publishing work by MPs such as Chris Philp, Matt Warman and Bim Afolami, as well as polling with ComRes on NIMBYism and reports such as From Rent to Own by CPS head of policy Alex Morton.

Robert Colvile, Director of the Centre for Policy Studies, said:
“The housing crisis is blighting the lives of a generation, and robbing them of the dream of home ownership.

“But as this analysis shows, this is not just the consequence of the financial crisis – it is part of a pattern stretching back half a century, in which we have steadily built fewer and fewer new homes.

“The Government has rightly promised to focus on this issue, and there are encouraging signs that housebuilding is picking up. But ministers need to take bold action in 2019 to ensure that the 2020s become the decade in which we break this hugely damaging cycle.”