Home repossessions rise for the first time since 2014 – UKFI
Overall, the amount of repossessions increased by more than 5% in the third quarter of 2017, compared to the three months prior, according to trade body UK Finance (UKFI).
Buy-to-let repossessions fell over the period, but this was on balance cancelled out by the increase in owner-occupied properties taken over by lenders.
The number of possessions overall remains at historically low levels.
However, it’s feared the recent interest rate rise and further hikes in the coming year could push the number even higher.
Mortgage arrears increased among those who owe 10% or more of the outstanding balance, the UKFI data showed, but fell across all bands in the three months to the end of September.
There was also a 2% increase in the number of buy-to-let mortgages in arrears, but overall the number of loans in arrears is at record lows.
‘Possessions on the rise’
Jonathan Harris, director of mortgage broker Anderson Harris, said: “Worryingly, possessions are on the rise, albeit from an historically low level.
“These numbers do not reflect the recent interest rate hike either and with more rate rises a possibility, home repossessions may well increase further.
“We suspect that when it comes to their finances there are many people who don’t have a buffer to tide them over should they get into difficulty.
“It is also vital that borrowers keep their lender in the loop if they are struggling to pay their mortgage.
“Lenders are being flexible and showing forbearance but it is much easier and less stressful to come up with solutions early on than further down the line when options may be much more limited.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “Looking forward, upward pressure on interest rates is likely to increase arrears as borrowers ‘on the margins’ always tend to be most vulnerable.”
Remortgaging up 3% as purchases and overall lending plateau
However overall transactions were largely flat, with those for purchases slipping back slightly.
September saw 127,565 lending approvals against a dwelling, worth a total of £21.2bn – both slightly up from August totals of 127,471 for £21.0bn. (Click graph below to expand.)
Remortgaging grew to £8.4bn in 47,598 transactions (up 2.8%) from August and up 6.4% compared to the previous six months average of 44,721 transactions for £7.8bn.
However, purchase activity remained subdued at 66,232 approvals worth £12bn.
This was below the August total (67,232 transactions for £12.2bn) and previous six-month average (66,867 approvals worth £12.1bn).
Anderson Harris director Jonathan Harris was not overly concerned despite mortgage approvals falling slightly in September as they remained close to their recent average.
“The resilience of the market is impressive given the uncertainty flying around about the economy – despite higher-than-expected growth in the third quarter – and the ongoing Brexit negotiations,” he said.
“Mortgage rates have started edging up on the back of higher funding costs but lenders are still competitive and keen to lend so it is not too late for those looking for a cheap fixed rate. The remortgaging market should continue to thrive this autumn.”
Legal & General Mortgage Club director Jeremy Duncombe echoed these comments, adding: “Despite it being a slower month for lending, the mortgage market remains in a strong and robust position, even amid talk of a potential rate rise.
“Thousands of borrowers are still securing their rates now, before the Bank of England raises the base rate.”
Mortgage lending stable as market ‘ticks along’
The figure was £600m higher than May 2016, when lending secured on homes was £2.9bn.
Mortgage approvals for house purchase remain broadly stable at 65,202, totalling £11.7bn, said the bank. This was the same value as in the previous month, which saw approvals of 65,051. In May 2016, approvals reached 66,722, however value was similar – £11.6bn.
Meanwhile approvals for remortgaging increased slightly to 42,955 with a value of £7.4bn, slightly down on the previous six-month average of £7.7bn. In May 2016 approvals for remortgaging were 42,855 – and £7.5bn.
Annual growth in consumer credit remained strong at 10.3% in May, below its November 2016 peak of 10.8%, but £1.7bn higher than in April.
Jonathan Harris, director of mortgage broker Anderson Harris, said the figures are signs that the mortgage market is proving resilient. “While there is likely to be considerable uncertainty ahead as a result of the ongoing Brexit negotiations, the mortgage market appears to be shrugging these off and steadily ticking along,” he said.
“Approvals for house purchase are broadly stable although remortgaging continues to rise as borrowers take advantage of cheap fixed-rate mortgages in particular.
“However, with a reported third of all borrowers sat on their lender’s standard variable rate, there are still too many borrowers paying more than they need to. As speculation continues regarding the possibility of an interest rate rise, it may be that more borrowers are persuaded to take the plunge and secure a cheap deal before they miss out.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, added that the figures tally with other reports of the market being fairly stable.
“However, we would have hoped for higher numbers compared with this time last year, considering that the market then was still suffering following the introduction of the Stamp Duty surcharge,” he said.
“Over the next few months, we expect the situation to remain fairly similar as buyers and sellers come to terms with the ‘new normal’ – longer transaction times and softening prices underpinned by a shortage of supply and insufficient housebuilding.”
CML downgrades 2017 mortgage lending prediction
The CML said economic uncertainty surrounding the UK’s exit from the European Union and tax and regulatory changes in the housing and mortgage markets had forced it to forecast a more “pessimistic” figure for lending next year.
However, the CML added that the housing market was generally well protected from the risks surrounding Brexit, with most activity driven domestically.
“We expect property transactions to remain subdued going forward but, given strong demand for housing, we still do not expect to see national house price falls over the next two years,” it said.
Gross lending is forecast to reach £252bn in 2018, with net lending of £30bn in 2017 and 2018.
Despite lower expectations for the coming years, lending in 2016 is predicted to reach £246bn, £9bn higher than the CML’s forecast for the year in December 2015.
Last month, gross lending totalled £21bn, up by an estimated 3% on October and 3% a year earlier, the CML’s figures showed.
Jonathan Harris, director of mortgage broker Anderson Harris, said the CML’s revised forecast was “no surprise”.
“2016 has been a tricky year with challenges presented by high stamp duty costs and the referendum outcome, and uncertainty will continue into next year, coupled with the impending changes to mortgage interest tax relief for landlords which will have a negative impact on buy-to-let.
“It is hard to see any movement in interest rates and mortgage rates are likely to be fairly settled as well, [so] we do not expect them to rise significantly next year. While economic news will impact Swap Rate movements from time to time pushing up the cost of borrowing, overall, we expect the mortgage market to tick along much as it has,” he said.
Unsurprisingly, the CML anticipates limited or slower growth in the buy-to-let sector over the coming years, as the industry prepares for tighter underwriting standards imposed by the Prudential Regulation Authority, combined with a more unfavourable tax landscape for landlords. As a result, the CML said it expects first-time buyers entering the market to make up a large portion of net lending.
CML director general Paul Smee added: “Property transactions look set to drift down slightly, although we do not expect house prices to fall, and net lending seems unlikely to get above £30bn next year.
“And we expect any modest strengthening in home-owner lending to be rather offset by a less active house purchase market in buy-to-let, as both tax and regulatory changes bite on landlords.”
Broker fury over Santander’s move to attract clients to switch six months early
Brokers discovered the letters had gone out when loyal customers contacted them querying why they were being encouraged to take up a new product.
The letter, signed by Miguel Sard, managing director, mortgages, leads with two prominently placed statements, “Apply before 21 November 2016” and “Reduce your mortgage payments now, with no Early Repayment Charge”.
Michael Tickner, principal at KT Partnership, said: “My business is underpinned by loyal customers. I had three clients call me bemused as to why they were receiving this letter from Santander.”
The letter goes on to state that customers have a number of options; do nothing and move onto the bank’s Standard Variable Rate, choose another lender when the deal ends, or pick a new deal with Santander, guaranteeing lower monthly payments.
Customers are told that if they act before 21 November, they will not pay early repayment charges for exiting their existing deal.
Click to enlarge
Tickner said the letter was a ‘stab in the back’ from a lender he had been a staunch supporter of for many years.
He said the bank was attempting to steal clients which it would be otherwise unaware of, if they had not been introduced by the broker. He added: “Santander for Intermediaries? There is nothing ‘for intermediaries’ about this strategy.
Within the letter, a section headed ‘What do I need to do next’, emphasises the exclusivity of the offer and states it is only available through the bank’s mortgage advisers. The option to contact your Independent Financial Adviser, left out of this section, is placed at the bottom of the letter.
In the 12 months to October 2016, Tickner said KT Partnership, has written 588 mortgage cases valued at almost £152m. Of these, 139 cases worth just under £40m went to Santander.
“I’ve been a strong advocate of this lender. It has received around 25% of my business because it is quick to offer and has a slick service and we know its policies.” He added: “I will no longer be looking for reasons to place with Santander, I will never disadvantage my clients but I’m not looking for reasons to do business with them, as this stinks.”
Santander receives 75% of its mortgage business through the intermediary channel.
Brad Fordham (pictured), managing director at Santander for Intermediaries, said the reason behind the letters was to maintain its service levels during 2017 in anticipation of ‘peak demand’ and a larger than usual number of maturities. He said it was the first time Santander had done this, and it involved a relatively small number of customers. He described the strategy as ‘clear and transparent’ and in line with other lenders in the industry.
Concerned broker John Crabtree, owner and director of Crabtree Consulting, since learning of the letter started to contact his clients to discuss their options. He described the campaign as ‘totally unacceptable’ and has told his team of seven advisers not to use Santander unless there was an ‘absolute compelling reason to do so’.
Crabtree said he was concerned that the bank’s campaign would damage the high-level advice given by his firm, which may be in conjunction with the client’s accountant or financial adviser, by putting in place a specific mortgage strategy.
“For example, the client could be receiving a large cash sum in two years’ time and would be paying a lump sum off the mortgage balance,” he said. “If the client takes up the offer from Santander, six months earlier and locks in for another two years, it could unravel the advice and be detrimental to the client.”
He added: “Obviously the client should contact us before doing anything, but it may not always be the case when presented with an attractive new rate and a simplified process.”
Fordham said Santander recognised brokers would be contacting their clients to discuss whole-of-market advice and remortgage options. If brokers decided remaining with Santander was best for the customer, they can transact on their behalf using the online retention tool.
Crabtree said he has been told by Santander that if the broker were to arrange the rate switch six months early, ERCs would apply.
Adrian Anderson, director of Anderson Harris property finance specialists, described the strategy as ‘not broker-friendly’ and aggressive. “This is cutting out the broker completely. We can’t say to our clients let’s start the process now, because mortgage offers expire in three months.”
Fordham said the bank valued its relationship with the intermediary market and wanted to continue the positive work it had done for many years.
Santander would not promise to avoid running this campaign again in the future and would not comment on whether it had ended the campaign, although it is believed letters are no longer being sent.
Equity release industry warns of consumer risk with separate qualification
Over half of the 157 respondents to a Mortgage Solutions disagreed with the concept of a standalone exam, with concerns raised that this may not necessarily produce the best outcome for consumers.
Some 41% were in favour of the FCA’s proposals, while a further 3% had not made up their mind.
The findings echo views held by delegates at the Financial Services Expo London last week, where two-thirds of attendees voted against relaxing access to equity release qualifications.
Vanessa Owen, head of equity release at LV, said she was concerned that the proposals would restrict choice for customers.
“We would certainly prefer to see a situation where if you were to take a mortgage advice exam it would by definition cover equity release as well. Likewise, if you are taking exams in the IFA space which is focusing on investments, then thinking about borrowing at the same time is a good thing.”
Owen added that consumers were not necessarily getting bad advice at the moment, but the overall advice journey needed improvement.
“I think it is quite challenging for consumers to access one conversation around retirement income planning, and of course multiple conversations equals multiple costs. One conversation would be better from a cost perspective as well as ensuring that people end up with the suitable product, not just the one the advisers has taken a particular qualification for.”
Adrian Anderson, director of mortgage broker Anderson Harris, which advises on equity release, added: “Equity release is a highly specialist area. Ideally advisers should be able to consider conventional mortgages and equity release as the latter is not always the best option and tends to be more expensive than a conventional mortgage.
“Financial advisers should be aware of equity release and have a qualification that enables them to advise in this area. The qualification would have to be robust to ensure that if equity release is recommended it is the most appropriate solution for the client.”
Keener products and fees make specialist products more viable, brokers say
New entrants to the market and regulatory changes, such as the Mortgage Credit Directive, have also pushed providers and master brokers to price their products and services more competitively, advisers said.
A shift in broker attitudes were apparent in a recent online poll carried out among Mortgage Solutions readers showing that 70% of brokers agree that specialist products have played a bigger part in the advice process over the last 10 months. Just 12% of brokers do not consider these products for their customer base, while 18% are less focused on specialist lending than they were a year ago.
Adrian Anderson, director of Anderson Harris, explained that while the broker has considered specialist lending since the business launched in 2012, regulation and improved innovation have encouraged it to look at the sector in more detail.
“Bridging has been the biggest growth area for our business in the past 12 months. Rates for this have come down significantly with private banks offering bridging rates at their standard pricing,” he said.
Anderson added that as client cases grow in complexity, the products required to suit their needs can be trickier to get hold of.
“Specialist lenders are particularly good for this,” he added. “We have always been keen to advise clients with complex needs so the only barrier has only been the lack of demand for certain types of lending. Adding value is the best way to preserve your client bank and so being able to advise on a large number of products and an extensive suite of lenders is key. Pricing and fees have been a barrier with clients looking for the product but the prohibitively high fees putting them off. This is now changing.”
The Loans Engine and Complete FS are just some of the master brokers that have reviewed their fee structure in recent months, with the latter introducing a £199 flat fee while abolishing any master broker fee and allowing the intermediary to set the advice fee.
Mortgage clubs and networks have also changed their attitudes to specialist lending, with some introducing dedicated master broker panels, while others such as Legal and General Mortgage Club have launched a direct to broker panel of specialist lenders.
Stuart Gregory, managing director at Lentune Mortgage Consultancy, agreed that most networks have adjusted their perspective.
“A lot of mortgage networks have changed their viewpoint since the EU Credit Directive came into force. Regulation has made secured lending more of a structured process in that the focus on master brokers has boosted the level of competition between firms. We’ve seen so many of them this year reducing their upfront fees that a client has to pay out and sometimes in the past that would be enough to put a client off a secured loan,” he said.
“The same can be said for bridging. It’s been the newer entrants to the market who have really shaken things up and encouraged the other providers to act in order to remain competitive and not price themselves out of the market. It’s a much better market than it was 12 months ago.”
Halifax hikes tracker rates in ‘unwarranted’ move following base rate cut
Customers taking out a tracker mortgage with the lender will now see their rates rise by 0.25%, with immediate effect, in a move which has been slammed as “cynical and unwarranted”.
The changes come as Halifax passes on the rate cut to its current variable rate customers, with effect from 1 October. Customers with Halifax and Lloyds on either a homeowner or standard variable rate will see a reduction of 0.25% in line with the base rate.
A spokeswoman for Lloyds Banking Group, said: “The Bank of England base rate is only one of a number of factors that we take into account when reviewing interest rates. We continually review our rates in line with the market and competitors, and these changes form part of our ongoing rate reviews across our product ranges.”
However, Jonathan Harris, director of Anderson Harris, criticised the lender’s decision to increase rates for new borrowers.
“Halifax’s move is cynical and unwarranted. More than ever, banks should be looking to make lending as attractive to potential borrowers as they can. If the market continues at a slow pace, banks will be caught short of hitting their lending targets at the end of the year. Other lenders may follow suit but there is an opportunity for those who want to attract customers by not taking such a cynical step.”
In the run up to the Bank of England’s announcement, a number of mortgage lenders also appeared to pre-empt a reduction to the base rate, with Natwest, Halifax, TSB, Coventry Building Society, Santander, RBS and Scottish Widows Bank all increasing rates on their variable tracker deals, according to Moneyfacts data.
The majority of lenders have reduced their rates for SVR and tracker customers in line with the Base Rate since it fell on 4 August, but just last week Nationwide increased selected variable tracker rates by 0.10% at the same time as reducing others by 0.25%.
Alex Smith, senior mortgage and insurance adviser at Capricorn Financial, said he has seen an approximate 0.2% increase in tracker margins since the referendum result, as lenders speculated about if and when the base rate would be reduced.
“With lenders such as Halifax and Nationwide increasing margins again, some tracker rates are around 0.3 – 0.5% more expensive than they were before the referendum. This cost is picked up by the customer, and other lenders may follow if they find they are too far out of line with the wider market.”
He added: “Nationwide did this last week as well via a masterclass in spin. By this I mean via a headline grabbing announcement of reducing fixed rates but only ‘changing trackers’, which were in fact increased.”
Andrew Montlake, director at Coreco, said that borrowers looking to move onto or take out a tracker mortgage should act now, with more lenders likely to follow Halifax’s lead.
“It is not unexpected for lenders to increase tracker rate products at a time when the Bank Base Rate is rising in order to continue to protect their margins. No lender wants to get into a position where rates reduce down to zero or even negative so I expect other lenders to follow suit.”
June mortgage borrowing jumps by 4% – BBA
Borrowing in the first half of 2016 also increased to £79.9bn, compared with £63.6bn in the same period last year.
House purchase approval numbers were 11% lower than in June 2015, but in the first half of this year, the figures were 5.5% higher than in the same period of 2015.
The BBA also reported that consumer credit continues to increase, showing annual growth of over 6%.
Dr. Rebecca Harding, chief economist at the BBA said: “This month’s high street banking data reflects the uncertainty that was felt ahead of the EU referendum.
“Business borrowing in June dropped for the first time in 2016, signalling that investment decisions were being delayed until after the vote.
“Mortgage lending and approvals also fell back in June, but remain above the low levels seen in April following the introduction of the stamp duty surcharge.
“Overall, business confidence was clearly fragile in anticipation of the outcome of the vote, but these results are not a verdict on the health of the economy post-Brexit. We won’t start to see that data come through until the autumn and any trends before then should not be over-interpreted.”
Jonathan Harris, director of mortgage broker Anderson Harris, agreed that June’s lending figures are too close to the vote to be truly conclusive, but said they already indicate a weaker mortgage lending outlook.
“However, gross and net mortgage borrowing were still both higher than a year ago. Approval numbers also picked up from April, where numbers were lower following a surge in the first quarter, as landlords brought forward buying decisions.
He added: “Remortgaging is on the rise, a trend we expect to see continue over coming months. This is not so much because borrowers fear a rate rise – on the contrary it looks as though the next move in base rate will be downwards – but because fixed rates in particular are just so cheap.”
Case study: Why we chose to enter the equity release advice market
A rise in property values, coinciding with the low interest rate environment, has made equity release a more viable and popular solution for an ageing population, which is ‘asset rich, cash poor’.
We were increasingly approached by older clients who found themselves in a predicament; lenders unwilling to lend because they didn’t have much in the way of income, while they didn’t want to downsize and leave the home they had lived in for many years to free up cash. We decided to enter the equity release market to specialise in arranging mortgages for high-net-worth clients as we were coming across many elderly clients in London with high-value equity release requirements.
To enable us to offer equity release, I took the Certificate in Equity Release (ER1) examination with the Chartered Insurance Institute. The certificate is a practical solution that develops the understanding of the equity release regulation, products and advice process.
Specialist training is required because advising a lifetime mortgage solution is usually a far more time-consuming process than advising on a regular mortgage. The client would usually be classed as ‘vulnerable’ due to their age so in order to recommend a lifetime mortgage a great deal of fact finding is required. The decision to apply for a lifetime mortgage is often a ‘family decision’ and the borrower’s children or family members may often be involved in the advice process so that all potential solutions can be considered. The borrower should also take independent legal advice before proceeding with an equity release mortgage.
The equity release requests that have landed on my desk include a couple in their seventies who required the funds to extend the lease on their Mayfair apartment. Another elderly couple needed to remortgage as they no longer ticked the Mortgage Market Review boxes when their mortgage with a private bank came up for renewal. Another couple in their eighties wanted to explore releasing money to gift to children for their grandchildren’s school fees.
Demand for equity release is increasing and providers are becoming more competitive. An equity release mortgage is a big decision for any potential borrower and even though it isn’t a cheap solution it can still be the right one for certain borrowers.