Remortgage nightmare lying in wait

Two in five people with a mortgage say their payments haven’t gone up since interest rates started rising – because so many are on fixed rate deals. One in five say their monthly payments have already risen more than £200 in the past 18 months.

16% of people are already struggling with their mortgage payments – rising to 21% of those aged 55 and over.

Almost half of those with a mortgage (48%) say they’d struggle if their monthly repayments rose as little as £150.

Figures from a survey of 2,000 people by Opinium for Hargreaves Lansdown in May 2023

Sarah Coles, head of personal finance, Hargreaves Lansdown says: “There’s a remortgage nightmare lying in wait for more than 3 million people. They’ve been shielded from the horror of rate hikes so far by a fixed mortgage, and when their deal runs out, they face the full force of the rises in one single hit

Anyone whose deal comes to an end in the coming year is set to see their monthly payments increase by an average of £192*, but almost two thirds of people said this would cause them financial problems**.

The nightmare

After 12 consecutive Bank of England rate rises, we’re sitting on a cumulative increase of 4.4%. Anyone on their lender’s standard variable rate, or a tracker, will have felt the pain immediately and often. However, the vast majority of people with mortgages have a fixed deal. As a result, around half of them haven’t yet borne the brunt of the hikes*.

The ONS calculated that 1.3 million fixed deals would come to an end in 2023, most of which were under 2%. At the moment, the average two-year fixed mortgage costs around 5.5%. If rates don’t fall back before they have to remortgage, it could spell catastrophe for hundreds of thousands of people.

Most vulnerable

Those with large mortgages will see their payments increase the most. This doesn’t just include those on higher incomes who bought more expensive properties; it will also bring real pain for younger people, who bought more recently when prices were higher. We can see this in the rises that have already hit those aged 18-34. One in four say their monthly repayment has gone up more than £200 (24%).

Anyone who bought after the rate hikes of the late 1980s won’t have had to deal with rises at this kind of speed before, so there’s a risk they won’t have factored it into their plans at all. However, on the plus side, there’s every chance their mortgage company has. Affordability calculators forced banks to assess whether people could afford their mortgages if rates were to rise. If their circumstances haven’t become significantly worse in the interim, there’s a decent chance they can stretch to bigger payments. The trouble is that their circumstances may well have deteriorated, as wages have fallen so far behind inflation. In March, they were a full 2% behind. Any spare cash may have been eaten up by energy bills and food shopping, so there’s little left for a mortgage shock.

In March, the HL Savings & Resilience Barometer dug into just how bad financial problems could get after a remortgage. It looked at the critical moment when mortgage costs hit 25% of household income after tax, when people are considered to be at risk of defaulting on mortgage payments. It revealed that by the end of 2023, 2 million households would be at risk. It also found that 650,000 of these people won’t have enough savings to fall back on, and 347,000 of them not only won’t have enough savings, but will already be spending more than they have coming in – putting them at critical risk.

The hope

There is always the hope that rates will fall back by the time you come to remortgage, sparing you the worst of the pain. Before the inflation figures were released this month, this seemed to be on the cards, as the market was pricing in one more rise, and fixed rate mortgages looked set to drop. Now the market is pricing in more hikes and mortgage rates have surged.

There is still a chance that the market is overreacting, and rates could fall back again. However, large reductions in mortgage costs may require expectations of a Bank of England cut – and at the moment, that’s not on the cards until 2024. Even then, they’re expected to come down far more slowly than they increased, so it could take quite some time for mortgage costs to drift significantly lower.”

*Estimate from the Resolution Foundation

** HL’s Opinium research

Aldermore increases business savings rate

Aldermore today increases the rate on its Easy Access business savings account, helping UK SMEs get one step closer to realising their savings goals.

The following increases to business savings products are available immediately:

  • Easy Access (all issues) to increase from 2.30% to 2.75% (new monthly rate is 2.72% and new AER is 2.75%)

Ewan Edwards, director of savings, Aldermore comments: “We want to help British businesses prosper and we’re delighted to offer an increased rate on our Easy Access account. We know not everyone will want to lock their money away in fixed rate accounts, so our easy access account offers businesses greater flexibility when it comes to their short-term savings goals. Both our savers and our borrowers are the driving force of everything we do here at Aldermore. We’re passionate about finding ways to support all our customers to go for it in life and in business.”

Money Advice Trust welcomes FCA’s ban on debt packager referral fees

The Money Advice Trust has welcomed today’s decision by the FCA to ban referral fees for debt packager firms. The ban applies to all new debt packager firms from today, and will come into play for existing firms in October 2023, and follows a review that found “evidence of debt packagers appearing to manipulate customers’ details so that they meet the criteria for IVAs/PTDs and using persuasive language to promote products without explaining the risks involved”. Some of the worst cases identified by the FCA included:

  • One consumer, who was homeless, was recommended an IVA costing them £6,000 when they could have been debt free in one year via a DRO for £90.
  • Another consumer was recommended an IVA by a debt packager when a different solution would have been more suitable. This cost them an extra £4,710 compared to a DRO and meant it would take five years longer to become debt free.

Responding to the decision, Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline said: “The FCA’s ban on referral fees for debt packager firms is welcome and marks an important step in tackling the harm caused by this practice.

“Our advisers have seen the impact of this activity, with people saddled with high fees and a debt solution that simply isn’t right for them – all of which can set back their route out of debt by many years.

“With budgets under ever increasing strain, ensuring anyone in financial difficulty can access free, and independent debt advice is more important than ever.

“The Insolvency Service need to now match this action, by ending the practice of Insolvency Practitioners paying lead generator firms to direct people in financial difficulty toward potentially unsuitable debt solutions.

“You should never have to pay for debt advice.  I would urge anyone worried about their finances to contact a free debt service like National Debtline as soon as possible.”

StepChange responds to FCA’s Debt Packager referral fee ban

StepChange Debt Charity strongly supports the Financial Conduct Authority’s (FCA) announcement today that it is banning debt packaging firms from receiving referral fees.

The ban will help to prevent financially vulnerable consumers in need of debt advice from being preyed upon by unscrupulous firms driven by financial incentives rather than the best interests of the client. Too often, people are routed towards an IVA due to the high referral fees paid by the provider, when in many instances this is inappropriate and potentially harmful to the individual.

Richard Lane, Director of External Affairs at StepChange Debt Charity, said: “After campaigning for several years to raise the alarm about these poor debt advice practices, we’re pleased to see the FCA take firm action in this area. With more people falling into financial difficulty amidst high inflation and interest rates, it’s essential that consumers receive free and independent debt advice to determine the most appropriate solution for their needs. We expect this move to benefit thousands of consumers and reduce much of the misleading advertising for debt services online.”

Cooling market clear as transactions drop -58% year on year

Research by Nested, the modern estate agent, has revealed that while there have been almost 77,500 homes sold across England and Wales so far this year, this is 58% fewer than the 171,000 sold during the same time period last year.

Nested analysed sold price data from the Land Registry looking at the number of homes to have sold so far this year (Jan to Mar 2023 – latest available), where across the nation the most homes have sold and how this differs to the same period last year.

The research shows that across England and Wales as a whole, 76,489 property sales have completed during the first quarter of this year. This is 104,450 fewer when compared to Q1 of last year, marking a year on year dip of 58% in market activity.

Regionally, the South East has seen the most homes sold so far in 2023 at 12,822, albeit this is again some 58% fewer versus last year. However, it’s the East Midlands and Wales that have seen the largest reductions in market activity, with a drop of 60% in homes sold during Q1 of this year versus Q1, 2022.

At local authority level, it’s Birmingham where the most homes have sold this year, with 1,070 transactions completing between January and March. Leeds (1,043), North Yorkshire (938), Cornwall (920) and Somerset (876) also make the top five.

However, regardless of total homes sold, every single area of the market across England and Wales has seen a decline in market activity when compared to the same period last year.

North West Leicestershire has seen the largest reduction. Between January and March of last year, 430 homes sold across the area. This year, just 118 transactions completed, a 73% annual drop.

Harborough (-70%), Anglesey (-70%), North Warwickshire (-69%) and Melton (-69%) also rank amongst the worst hit pockets of the property market to have seen the largest decline in homes sold.

At the other end of the table, Gloucester has seen the smallest reduction in transaction levels, although the number of homes sold has still fallen by -44% year on year.

Alice Bullard, Managing Director at Nested, the modern estate agent, commented: “The higher cost of living, increasing interest rates, a disastrous mini budget and the resulting turbulence seen across the mortgage sector all had a significant impact on buyer demand levels during the closing stages of last year.

“While 2022 may seem a long way away now, what we’re currently seeing is the knock on effect from this reduction in market activity, with the lower level of sales agreed now reaching completion.

“The good news is that the industry has widely reported an uplift in activity almost immediately in 2023 and so while we’re yet to see this materialise in terms of actual homes sold, we can expect to see an uplift over the coming months as these sales finally reach the finish line.”

Lenovo partners with Demica on distributor finance

Demica, one of the world’s largest providers of supply chain finance SaaS solutions, has partnered with Lenovo’s channel solution and service team to co-develop and enhance the distributor finance platform, allowing Lenovo to provide extended services to its distributors.

Lenovo’s channel solution and service team has a longstanding and successful track record of extending credit to its strategic channel partners with flexibility to extend terms as required to fund working capital and drive sales. Moving forward, the Demica platform will allow Lenovo to retire its existing technology platform and extend its range of services to its distributors.

Demica and Lenovo’s channel solution and service team have worked together since 2019 after Lenovo brought the activity in-house and launched a trade receivables securitisation, one of the largest launches that has ever signed. Lenovo appointed Demica to report on the transaction covering 31 markets globally and in 14 currencies.

Maurice Benisty, Demica’s COO comments: “We are delighted to extend our relationship with Lenovo’s channel solution and service team and add this important supply chain finance product to the Demica platform. The product has tremendous application across the banking and captive finance market and we are excited to drive its commercialisation with the Lenovo channel solution and service team.”

Christoph Heitjans, Executive Director and GM of Lenovo’s Channel Solution and Service Team comments: “The decision to appoint Demica as a platform provider to Lenovo’s channel solution and service team reaffirms the importance of distributor finance as a tool to drive growth and optimise terms for Lenovo and its channel partners. The Demica platform represents the future of supply chain finance for banks and fintech as the market transitions from legacy technology to flexible, modern cloud-based solutions.”

The changing face of financial vulnerability revealed

TDX Group, an Equifax company, and leading provider of debt management solutions, urges lenders and those who serve customers facing financial difficulty, to take a proactive approach to the cost-of-living crisis to help prevent unmanageable debt and a deepening of stress-induced mental health crises, before they occur. TDX and Equifax’s recommendations, supported by partners including the Centre for Social Justice (CSJ) and Money Wellness, are focused on lessening the damning impact upon Millennials (those currently aged between 25 and 40) – those under 30 are spending more than any other age bracket on housing costs and food alone at 41% of their income.

The Financial Health report was recently launched to financial services industry leaders at the annual Credit Summit. Over 400 representatives from the credit industry, including regulatory bodies.

Alarming trends and statistics revealed gave cause for TDX and Equifax to launch a call for greater consumer protection in the form of early intervention. Recommendations include implementing early warning systems and effective communication channels, so that organisations can offer support before individuals reach a crisis point.

The report reveals that Millennials are among the most vulnerable to the ongoing cost of living crisis, facing significant challenges in managing their finances.

The study anticipates a further shift in the demographics of vulnerable individuals to include not just Millennials, under 30’s in particular, but previously comfortable households who are turning to Buy Now Pay Later (BNPL) and conventional credit to pay for essentials. The recent exposure of these groups to further financial difficulty means that creditors must address a broader range of factors contributing to vulnerability beyond supporting consumers who face challenges accessing digital services, individuals who are victims of coercive and controlling partners, and critically, addressing the impact of mental health struggles on individuals’ daily lives.

The data indicates a significant shift in the demographic of consumers utilising Individual Voluntary Arrangements (IVAs) in 2022. A notable increase in the number of IVAs was observed among individuals earning over £4,000 per month. In 2019, this relatively high-earning group constituted approximately 1% of IVAs, which rose to around 3% by late 2022 and further surged to over 4% in February 2023.Additionally, the report reveals that in 2022, adults accumulated 4% more debt compared to the previous year, resulting in an additional £1,367 per adult. The financial strain on disposable income cannot be solely attributed to rising energy costs and the increasing price of essential goods. Starting from April 2023, households across the UK will face significantly higher council tax bills than in the previous year. The CSJ reports that a record number of UK councils (75%) are planning to raise bills to the maximum limit of 4.99%.

However, Policy in Practice estimates that the total amount of unclaimed income-related benefits and social tariffs is now almost £19 billion a year.  During the cost-of-living crisis, a time when the real value of benefits is 7.5% lower than a decade ago, it is vital that vulnerable people and families receive all the support they are eligible for.

Alarming statistics from the report highlight the concerning impact of financial difficulties on mental health. According to findings from Christians Against Poverty, a staggering 50% of individuals in debt have contemplated suicide. This revelation underscores the urgent need for the debt industry to step up efforts in safeguarding consumers’ financial and emotional wellbeing.

Phil McGilvray, Managing Director at TDX Group, said: “While our report revolves around unique data insights and statistics, it places consumers and their experiences at its core. Already, this report is influencing our approach, shaping our working methods, and guiding our recommendations for the industry. Working with our clients and partners to get consumers access to appropriate and personalised forbearance solutions. We’re already working with benefits calculator providers alongside our own technology to help consumers assess and access the £18 billion in unclaimed benefits they are eligible for.”

Helen Lord, Chief Executive Officer, at Vulnerability Registration Service, said: “Our database suggests that younger people are far more likely to identify as vulnerable. A hangover from the pandemic, and now the cost-of-living crisis, means that people are unexpectedly stumbling into debt with no excess resources to call upon. A significant minority of those who register with the Vulnerability Registration Service would previously have been considered comfortably well off, albeit with income already accounted in areas such as childcare, mortgage, or rent.

“The financial pressures of today are unsurprisingly impacting people’s mental health, this is particularly prominent in young people. We need adapted support to address a different demographic of people facing financial difficulties and ensure that the number of people affected by the debt cycle and unregulated credit, doesn’t increase.”

Comment on Bank of England consumer credit data

Net borrowing of consumer credit in April remained broadly unchanged when compared to March, at £1.6 billion. The additional consumer credit borrowing in April was split between £0.7 billion of borrowing on credit cards and £0.9 billion of borrowing through other forms of consumer credit (such as car dealership finance and personal loans).

The annual growth rate for all consumer credit and for other forms of consumer credit stayed constant in April at 7.7% and 5.5%. The effective rate on new personal loans to individuals increased by 50 basis points to 8.29%.

Andrew Fisher, Chief Growth Officer at Freedom Finance, one of the UK’s leading digital lending marketplaces, commented: “Improving consumer confidence drove further high levels of borrowing in April despite persistently high prices of food and energy continuing to squeeze household budgets.

“We have been witnessing increasing demand for credit with a 50% increase in visitors to our platform looking for loans compared to the same point last year. We are now starting to see a demographic change in those looking for credit as more wealthier customers with higher average salaries look for products as the hunt to consolidate household debt trends up.

“Sticky inflation means that the cost of borrowing is likely to remain at the current elevated levels with average quoted rates on credit cards at their highest level since 1997. It emphasises the importance of shopping around and consumers using all the technology at their disposal like soft searches to protect their credit rating and filter out the products they are not eligible for.”

Money Advice Trust responds to latest Bank of England borrowing figures

Today’s Bank of England Money and Credit figures show consumer credit growth remained at 7.7 percent in April 2023 with outstanding balances for consumer credit now standing at £213.3 billion.

New findings from a survey of callers to National Debtline show that:

  • A third (32 percent) said they had used credit to cover essential costs, including energy and council tax bills.
  • Four in five (79 percent) callers said they were worried about being able to pay for essentials due to rising costs.

Joanna Elson CBE, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “Consumer credit borrowing continues to grow significantly, which partly reflects the impact that sustained high costs are having on household finances.  With many incomes struggling to cope, there is a risk that more people are left using credit to plug gaps in their budgets.

“A third of surveyed callers to our National Debtline service say they have already had to use credit to cover essential costs, including for energy and council tax bills.  As ever, it’s those on the lowest incomes who face the hardest choices and are most at risk of difficulty as debts can quickly build up.

“I would encourage anyone worried about their finances to contact a free debt advice service as soon as possible.”

Remortgage approvals up, but is now the time to fix? – comment

Following the BoE figures this morning, Adam Oldfield, chief revenue officer at Phoebus Software, says “In amongst the news of rising interest rates and high inflation we find an increase in the number of remortgage approvals in April.  This is as expected with so many people coming off fixed rate deals this year. However, with the ‘effective’ interest rate paid now standing at 4.46%, the option of fixing for a further two or five years is unlikely to be something borrowers will be willing to do.  Perhaps that might change this month with many predictions saying the Bank of England is likely to raise rates again and by as much as one per cent.

“Lenders are caught between a rock and a hard place, increasing base rates inevitably mean mortgage rates will creep up but that puts pressure on existing borrowers’ affordability.  This places more borrowers in a vulnerable position when the burden from the rising cost of living is at the highest level we have known for a very long time.  Although there appear to be many properties coming to market, the prospect of a larger than expected rate rise later this month could dent confidence, which in turn might mean we see house prices start to fall.”