Inflation hits eyewatering nine per cent but worse is yet to come
The Consumer Prices Index (CPI) measure of inflation jumped from seven per cent in March to nine per cent in the year to April.
According to the Office for National Statistics (ONS), the largest upward contributors were from gas, electricity and fuel, followed by transport, namely the rising cost of second-hand cars.
This time last year, inflation stood at 1.5 per cent, and the nine per cent April figure is the highest level in 40-years.
However, it came in a touch under the economic consensus of 9.1 per cent.
Nonetheless, this “heaps more misery on households” and highlights the pressure on the Bank of England to keep raising interest rates, according to economic consultancy Capital Economics.
Chief UK economist, Paul Dales, said it expects the base rate to rise from one per cent now to three per cent next year.
Dales added: “The bulk of the increase in April was driven by the 54 per cent jump in Ofgem’s price cap on 1 April, which translated into a 47.5 per cent month-on-month rise in overall utilities prices and raised utilities price inflation from 24.8 per cent to 69.6 per cent.
“The rise in petrol prices to a recent record high of £1.75 per litre also contributed, with fuel price inflation rising from 30.7% to 31.4%. And the increases in commodity prices also pushed up food price inflation, from 5.9% to an 11-year high of 6.7%. A lot of these moves are due to global factors that have further to run.”
As such, many suggest things will get worse before they get better, particularly as the Ofgem energy price cap is set to be hiked in October, and further in January 2023 if wholesale energy prices fail to stabilise.
Dales added it expects inflation to reach 10% in October.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Household budgets are crumbling under the pressure of spiralling inflation, driving many to breaking point. There is nowhere to hide for consumers as inflation has been most acute on unavoidable household costs like food, energy, housing and transportation.
“Runaway inflation means that many households are being forced to make tough decisions on their spending on a daily basis.”
However he added that inflation doesn’t impact everyone equally as we don’t all spend money on the same things.
“We all have a personal inflation number that is unique to us and could be far higher than the catch-all headline figure. Escalating inflation means that we are all spending more on the same things. Keep tabs on your spending to get a better idea of how exposed your back pocket is to inflation is crucial,” he said.
Commenting on the inflation figure which comes in way above the two per cent target, chancellor of the exchequer Rishi Sunak admitted the government can’t fully protect people from the global challenges.
It comes just days after the Bank of England governor, Andrew Bailey, was grilled by MPs on the soaring inflation figure where he said people face apocalyptic food prices, adding that he felt helpless against the rise in the cost of living.
Mortgage guarantee scheme supported £2.2bn of property purchases last year
As the scheme gathered momentum, it gained more traction in the South East, North West and Scotland than other areas around the UK.
According to the HM Treasury’s statistics, in Q4 there were 5,863 completions, totalling £1.009bn in mortgage loans, with the MGS contributing £147m.
Under the scheme, the government offers lenders the option to purchase a guarantee on mortgage loans where the borrower has a deposit of less than 10 per cent. The scheme can be used for mortgages on both new build and existing homes, and by first-time buyers, home movers and those remortgaging up to £600,000. It cannot be used for second homes or buy to let.
The scheme has supported 12,388 mortgage completions since its 19 April inception last year where 86 per cent of those were first-time buyers.
The average value of loans for purchase or remortgages through the scheme was £189,804, compared to the national average house price of £274,712.
Between April and September 2021, the scheme had supported around 6,535 mortgages, with the total value of loans coming to £1.2bn.
BTL2022: Almost a third of active BTLs in limited companies
Matt McCullough (pictured), national sales manager at Aldermore Bank said 29 per cent of active buy-to-lets are sat in limited companies, a three per cent uplift from last year.
UK buy to let companies hold a total of 583,000 mortgaged properties, or almost a third of all outstanding buy-to-let mortgages.
As the percentage of financing costs reduced to 0 per cent in the tax year ended 2021, one out of every two buy-to-let mortgages were taken out by landlords with a company.
McCullough outlined the substantial benefits of using these tax efficient wrappers, although he warned against adding children’s names as shareholders, however well-intended, because it is illegal.
He said the Aldermore limited company product allows up to six shareholders or directors, day one trading within a Special Purpose Vehicle (SPV) wrapper, fees assisted legals, and product switches among other benefits including capital raising.
Tough Talk: Bluestone CEO Steve Seal on consumer duty and the fairness of specialist mortgage pricing
This regulation places customers at the heart of all product design and embeds duty of care at every operational level in the mortgage advice market at a never before seen level.
The final guidance will be out in the Summer, but Seal said it’s important that the industry has begun embracing the draft guidance now rather than waiting for the final version.
“No-one can argue with the fact we would expect product pricing to be clear and transparent to the end consumer,” he said.
Next, Seal takes on the questions of whether all mortgages are fairly priced alongside the justification for borrower’s fees in this unflinching interview.
Watch the video in full [12.55] below.
Inflation hits 30-year high of seven per cent in March
Inflation rose to seven per cent in March, the highest rate in 30 years and beats February’s rise of 6.2% per cent.
The Office for National Statistics (ONS) said fuel and food prices helped push up the Consumer Prices Index (CPI) measure of inflation.
Transport, including petrol prices, was the biggest contributor to rising prices in March. The average cost of petrol rose 12.6p between February and March. This compares with a rise of 3.5p per litre between the same months of 2021.
Diesel prices rose by 18.8p per litre this year, compared with a rise of 3.5p per litre a year ago.
Prices are expected to continue rising, as today’s increase does not take into account the hike to energy bills which was applied to millions of households two weeks ago.
Utility bill spike
Energy bills rose by an average of 54 per cent for around 22m households on their energy provider’s standard variable tariff.
Wages are not keeping up with soaring inflation, and the cost of living is set to rise further as the Bank of England has predicted inflation could reach eight per cent by April.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Most worrying is the fact that so many of the most painful price rises have hit life’s essentials. The bare necessities of heating and eating are absorbing more and more of our income.
“The soaring cost of energy is just one of many pain points, alongside record fuel prices, runaway prices of supermarket staples like margarine and milk, and the highest rise in clothing prices since it was first modelled in 1989.”
It comes as figures yesterday show wages were already falling behind inflation in February.
Average salaries jumped four per cent between December and February but real wages fell by one per cent after taking inflation into account, according to the ONS.
There were vast differences in growth between the public sector, where total pay was up just 1.9 per cent, compared to the private sector where pay soared by 6.2 per cent.
On Monday state benefits, including the state pension, rose by an average of 3.1 per cent.
Joanna Elson CBE, chief executive of the Money Advice Trust, said: “Today’s inflation figures will only add to the mounting pressure on households, with many already buckling under the strain of rising costs.
“Urgent action is needed to prevent more people facing impossible choices trying to meet basic needs, and at risk of an increasing burden of debt.
“Raising benefits above Monday’s 3.1 per cent increase, would be a good start, along with more targeted support for people struggling with household bills.”
An A-Z of development finance
Development finance has a suite of lending product types designed for a variety of different projects. Those might include large-scale conversion projects of an existing building plus the renovation and splitting of a residential building into separate units. Another might be the conversion of other property types such as commercial buildings being turned into residential buildings. Permitted development right changes have also led to more traditional building of property from the ground up.
Development finance enables the developer projects to fund up to 100 per cent of cost.
The most common development finance product is senior finance development lending, which is when a lender looks to assist the developer with funding up to 85 per cent of the total project cost subject to no more than 65 per cent of Gross Development Value (GDV). This includes the cost for the purchase of the land added to the combined build costs for the scheme.
For this level of lending the lender will take a first legal charge over the development itself, which is not to be confused with the lender taking a profit share which they do not take on this type of funding. This type of finance also has a slight variant, which many lenders call ‘stretched senior finance’. Such lenders will allow the finance product to stretch a bit further to 90 per cent of total cost subject to this being no more than 70 per cent of GDV.
If a developer is looking at making its own cash input into a project (lower than just using the senior finance funding), they utilise another product in the development finance suite, which is mezzanine finance. Mezzanine finance is a top up of funding that sits behind the first legal charge of the senior lender. The funder usually holds a second legal charge on the development site. A legal document named the ‘deed of priority’ is arranged, outlining the first and second charge order. The benefit is this allows a developer to top up to 90 per cent of total cost without the use of a stretched senior lender.
The final type of finance that a developer can use to get them up to 100 per cent of their project’s costs is equity finance. Some development projects therefore have three lenders. This type of lending and the cost of which is renowned for taking large profits splits from the developer. This is not always the case, although most equity lenders can sometimes take up to 50 per cent of the developer’s profits once the senior and mezzanine finance costs are repaid. There can be flexibility with funders allowing a higher interest rate being offered and the developer still retaining all profits once the total finance costs are deducted.
To summarise, there are numerous types of funding available for developers when looking to finance a project. All schemes are reviewed on a deal-by-deal basis. We work with the developer to help them structure the most cost efficient and suitable solution.
Rising cost of living outstrips UK pay growth
Pay jumped by four per cent but real wages fell by one per cent after taking inflation into account, according to the Office for National Statistics (ONS) figures out today.
Total pay including bonuses grew by 5.4 per cent in the same period to beat inflation by 0.4 per cent.
There were vast differences in growth between the public sector, where total pay was up just 1.9 per cent, compared to the private sector where pay soared by 6.2 per cent.
Private sector pay is now increasing at its fastest level since the financial crisis.
The most recent inflation figures for February showed a 6.2 per cent rise and it is expected to have risen further in March.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Unfortunately, the worst is yet to come.
“The Bank of England is now expecting inflation to remain higher for the rest of the year, as the crisis in Ukraine puts pressure on everything from food and fuel to energy. The peak is expected to come in October, when it hits 8.7 per cent, but it will do an awful lot of damage well before that.”
The UK unemployment rate fell to 3.8 per cent from 3.9 per cent a month earlier, according to data also released by the ONS today.
And job vacancies are at a record high of 1.29m, as the number of people unemployed for up to 12 months fell to lows not seen before.
In the Spring Statement on 23 March, the government announced a range of cost of living support measures from a 5p cut in fuel duty for 12 months, to a rise in the national insurance threshold to £12,500 from July and help with energy bills for 28m people, although critics suggest this will not go far enough to bridge the affordability gap.
Bilgrami on the Mortgage Engine acquisition: ‘It’s about efficiencies, it’s not about driving distribution’
In a video interview with Mortgage Solutions group editor Victoria Hartley, Bilgrami said: “In terms of market dominance, in the past perhaps, people have talked about this kind of infrastructure bringing distribution. This is absolutely not about distribution.”
He added: “Let’s be clear, the lenders are going to get their distribution, regardless of whether or not this infrastructure exists. The point of this is about efficiencies. Therefore, the way we go about charging for it is not a distribution price. We’re not going to price this based on the level of traffic or throughput or value of mortgages. There is a flat fee, dependent on size of lender and, at least to begin with, it is free for brokers or technology providers to connect through this. There may be a small de minimis fee in the longer term in order to use this,” he added.
The buyout deal confirmed on 2 March brought Santander-owned Mortgage Engine and its application integrations with top lenders NatWest and Santander under Mortgage Brain ownership, with Submissions Brain users expected to be able to access these new lenders by Q2-end.
The deal hands Submissions Brain ‘about three-quarters’ of the mortgage lending market and Mortgage Engine users will potentially also be able to access some of the nine Submissions Brain lenders, including Nationwide, Halifax and Coventry BS within the same timescale.
Managing director of Mortgage Engine, Cloe Atkinson, said Santander and Natwest are already using a common question set on the Mortgage Engine software which has no front-end user interface and was asked how soon this could be extended to other lenders through Submissions Brain.
Atkinson said: “Neil (Wyatt) and I have been having really positive lender conversations.”
She said: “Six of the lender owners of Mortgage Brain are really onboard with the principals.
“How we capture that data is really important, that standardisation. What I’m not asking lenders to do is ask exactly the same question but if we capture data at this lowest form then we can transform that data and give it to a lender in the way they want to receive it.”
Mortgage Brain is owned by Barclays, Lloyds, Nationwide, RBS, Santander and Virgin Money.
Industry usage fees
On usage fees for other technology providers, Bilgrami said: “Not necessarily the tech providers but perhaps the end users in order to benefit from the efficiencies. There may be a small charge but this is longer term if it’s a success.”
“What makes this unique is that it drives not just our own front-end screens but also others. We’re willing to open this up to anyone who wants to use it on an equal usage basis. When you talk about stifling competition, quite the converse. It increases the options available to those wanting to connect up to lenders. I’d argue that this is a more efficient way in order for them to do so in the future.”
Watch the interview [19.35] in full below.
OSB Group appoints three specialist account managers
Newcomer Mo Parmar, joins Kevin Beale and Ross Williams bringing the specialist finance team to a total of seven, headed up by Emily Hollands, head of specialist finance, OSB Group.
The team will work in partnership with brokers to shape bespoke lending solutions across specialist buy to let including houses of multiple occupation (HMOs) commercial, semi-commercial, bridging finance and holiday let propositions.
Emily Hollands, head of specialist finance of OSB Group (pictured), said: “This area of business has seen sustained growth this year and is clearly a strong development area hence the team expansion. Broker feedback clearly shows there is a high demand for the in-depth market expertise that this team offers and the added value they bring to the table with their relationship-led approach.”
Jo Breedon, managing director at Crystal Specialist Finance, added: “This is such welcome news and acknowledgment that the OSB Group really does have its finger on the pulse when it comes to understanding broker’s needs. We rely heavily on this particular team’s skillset which includes commercial acumen, acute underwriting knowledge and bridging specialism to name a few.
“Under the strong leadership of Emily Hollands, this team bring together the skills and experience that really helps brokers and their clients shape complex deals. As subject matter experts, they become an extension of the broker/client team, which allows them to build individual deals which really align to the lending needs of our clients.”
Pressure on government to combat spiralling costs of living in Spring Statement
Financial adviser Hargreaves Lansdowne joined the voices calling on the government to delay the projected 1.25 per cent national insurance (NI) hike scheduled for April this year.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “We need some flexibility from the Spring Statement, because there’s a serious risk in sticking to business as usual while millions face the biggest cost of living crisis in a generation.”
She added that barring catastrophes, very little is meant to happen in a Spring Statement aside from updated forecasts and a handful of consultations, but added: “We need decisive action to address the cost-of-living crisis.”
“We’ve had reports that the Office for Budget (OBR) could upgrade its forecasts, giving the chancellor room for manoeuvre. We’ve also had reports that the chancellor has ruled out a number of measures that would ease pressure on spending. We’ll have to wait until closer to the announcement itself before the full picture emerges.”
Alongside shelving the NI hike, HL also advocated a bigger rise in Universal Credit up from the 3.1 per cent already earmarked and a cut to fuel duty and/or VAT which constitutes almost 86p of the cost of a litre of fuel, among other measures.
Helen Morrissey, senior pensions analyst, Hargreaves Lansdown noted there are “other pressing problems in the world right now” but said the limit on Lifetime ISAs should be raised up from £4,000, which has been held for five years. The property price limit has also been held at £450,000, while house prices have risen 25 per cent.
“Setting a fixed limit and then walking away to leave buyers to wrestle with rising prices isn’t good enough. Overall limits need to be linked to house price inflation, so buyers know they won’t be getting into a scheme they could be forced out of by a hot property market.”
She added: “We also want to see consultation on the LISA penalty. If you take cash out of the LISA before the age of 60 – for any reason other than to buy your first property – you face a penalty of 25 per cent. While it may look like you are just giving up the government bonus, it also takes a chunk of the money you have invested.”
The government temporarily reduced the LISA penalty to 20 per cent in response to the pandemic, and it should consult on cutting it permanently, she added.
Elsewhere, Chancellor Rishi Sunak is expected to provide an update on jobs and the post-pandemic bounce back.
In February the Chancellor announced a package of support measures to counter inflation including a £150 council tax rebate for homes in bands A to D, as well as a £200 credit on energy bills to be repaid over the next five years.
With public borrowing expected to come in under previous forecasts for the year, there is hope of further handouts or other benefits such as child benefit being increased to keep up with rising bills.