Shawbrook and Prospero Finance help client raise £527k on complex BTL deal
The investors wanted to refinance the freehold on the block of six recently converted flats in Gillingham, Kent which generate £45,000 of rental income per annum.
The client’s aim for the capital raise was to help with the expansion of their portfolio through the development and refurbishment of additional properties.
Shawbrook’s underwriters worked closely with Prospero Finance – which specialises in residential investment – from application to completion.
The process was said to be “largely seamless”, except for one challenge where the client requested that the aggregate value was taken into consideration, rather than the block value.
Taking this into account, the underwriting team navigated it with buy-in from both broker and client to deliver the completion.
Shawbrook financed the £527,000 capital raise on a 10-year interest-only term at 75 per cent loan to value (LTV).
Martin Smedley, director at Prospero Finance, said: “Our client has significant plans for their portfolio and I’m really pleased we were able to help them along their property journey.
“Shawbrook dealt with the case smoothly, even when there were a couple of small issues to navigate along the way, but their flexibility was a factor in getting this deal across the line.”
Richard Winston, business development manager at Shawbrook, added: “With specialist brokers like Prospero working alongside our experienced underwriting team, we ensured that we could support the client on their property journey.”
London to stay depressed as regional house prices rise – PwC
According to data from consultant PwC, the UK average house price will grow by around 3% per year between 2018 and 2022.
However, in the capital prices are expected to fall by 1.7% this year, by 0.2% in 2019 before returning to around 2.6% growth from 2020-2022.
PwC’s research found that only around 11% of UK households would be immediately affected by an increase in mortgage interest rates, compared to around 24% in 2012.
This is due to the proliferation of fixed-rate mortgages now being taken out and by more people either owning their home outright or renting.
Analysis by the consultant also confirmed that house price rises were often linked to a lack of new housing supply compared to population growth in the area.
For example, it believes around 110,000 more homes would need to have been built in London in 2011-16 to keep up with population growth.
Stable house price to earnings
The house price research echoes similar findings from property group Savills in November which suggested a dip in London prices compared to sustained growth around the rest of the country.
PwC estimates the average UK house price will rise from £221,000 in 2017 to around £285,000 by 2025 which it believes will mean the ratio of house prices to earnings is likely to remain broadly stable, but still at high levels by historical standards.
However, London house price growth should pick up again from 2020 with the average price of a London home in 2022 projected to be £509,000, compared to £141,000 in the North East.
This, PwC said, means the large affordability gap between the capital and other UK regions is set to remain.
Not concerned about small rate rises
PwC senior economist Richard Snook said: “UK house price growth remained resilient in 2017 despite a weakening economic backdrop, but has shown signs of moderating during the first half of 2018, particularly in London.
“Affordability in the capital has been stretched due to three factors: a high deposit saving hurdle, increased economic uncertainty relating to Brexit acting as a drag on international investment, and reduced numbers of housing transactions due to stamp duty changes.”
And the consultant was bullish on how much regard for mortgage-holders the Bank of England’s Monetary Policy Committee (MPC) should take when considering increasing its base rate.
John Hawksworth, chief economist at PwC, added: “The MPC has a finely balanced decision to make on interest rates in August.
“But they should not be overly concerned about small rate rises causing significant short-term economic damage, given our estimate that only around 11% of UK households would be immediately affected by any rise in mortgage rates.”
Affordable homes boost for London: Khan lays out vision for capital
The investment will come from the £3.15bn Sadiq Khan (pictured) secured from the government to create an affordable homes fund.
Of the total, 17,500 homes will be for rents around social levels, and just under 32,000 will be for a combination of the Mayor’s new London Living Rent and Shared Ownership. London Living Rent is a new type of tenancy Khan introduced last year to help middle-income earners in the capital save for a deposit to move into shared ownership property by offering them rents based on one-third of average local gross household incomes.
Khan said: “I want to see everyone playing their part in tackling the housing crisis in London, because it is simply unacceptable that Londoners continue to be priced out of a city they call home.
“We know that solving the housing crisis is not going to happen overnight, but I very much welcome so many housing associations and councils matching my ambition by committing to build the new and genuinely affordable homes Londoners so desperately need.
“I am delighted that we have set a City Hall record for the number of homes allocated funding – but I am clear that we have got much more to do to secure the land we need to build homes and ensure we have sufficient capacity in the construction industry.”
Paul Hackett, chair of the G15 – representing London’s largest housing associations – said: “The commitment from London’s housing associations is an unprecedented level of ambition to build the homes the capital needs. The partnership with the Mayor is the biggest London’s housing associations have ever committed to, reflecting the urgency of the housing crisis and our strong relationship with City Hall.”
Earlier this week Khan launched his Good Growth by Design programme in a speech at the London School of Economics. Through the initiative the Mayor is calling on London’s architectural, design and built environment professions to “help realise his vision of London as a city that is socially and economically inclusive as well as environmentally sustainable”.
Property sales in central London hit all-time low as soaring values bite
This was a substantial 29% fall on the previous year, and the lowest number of annual sales on record in the area.
Despite the slump, average prices reached a new high of £1,818,262, due to a rally in the last quarter, which saw prices increase 14% over the previous quarter and an additional 118 sales.
Overall, prices increased 3.75% over the previous year.
“Having taken a big knock following last April’s new Additional Rate Stamp Duty and the shock of Brexit, evidence of a recovery in Prime Central London in Q4 is positive news. As an international buying market, the weakness in sterling, combined with the Trump-effect and increasing instability in Europe, appears to have drawn investors back to central London as a safe haven asset class,” said Naomi Heaton, CEO of London Central Portfolio
“The uptick has been led, in particular, by Kensington and Chelsea which saw a 24% quarterly increase in prices,” she added.
The bigger picture
In Greater London transactions were down by 21%, compared to an 8% drop in England and Wales as a whole.
The average property price across the country is £278,167, up 2% on 2015.
Heaton added: “Despite Government initiatives to support buyers with reductions in basic rate Stamp Duty and their flagship Help to Buy scheme, it appears the domestic market is still struggling.
“Salary caps on mortgage lending, which do not reflect the ratio between house prices and earnings, are hampering buyers to get on the housing ladder and their ability to trade up. This has been exacerbated by the failure to meet affordable housing targets, a trend which shows little sign of reversing.”
Atom Bank completes primary stage of capital funding
The new shareholder which operates across the Americas, Europe and Asia, is known for its innovative use of technology and will join existing core investors Woodford and Toscafund which have maintained their positions as leading shareholders.
Institutional investors Marathon and Polar Capital will also be maintaining their funding commitments to Atom as part of the final raise before launch.
Atom, which is the UK’s first digital bank, secured its banking licence in June this year. The bank has appointed former chief executive of First Direct Mark Mullen as its chief executive, and former chairman Anthony Thomson as chairman.
Ex-Lloyds head of national accounts Maria Harris is leading the bank’s intermediary mortgage sales division.
Chairman Thomson said: “Atom has now raised over £135m in the 18 months since the founding team came together. This is a great response from investors to the compelling business case that the team has put together, and is a powerful signal to the regulators and most importantly for UK consumers.
“We have kept our app to ourselves so far to protect the innovation and Intellectual Property that it is built on. Having seen it in operation I believe it will transform banking in the UK and beyond and with BBVA as our strategic partner we really do feel that the sky is the limit for Atom.”
Repayment fear for three-quarters of interest-only borrowers
Research by Ocean Finance found 69% of borrowers with interest-only mortgages don’t have a repayment policy in place. A further 22% believe they were not given adequate mortgage advice.
Just 31% of those interest-only borrowers questioned said they have a separate investment policy in place, such as an endowment or an ISA, to repay the capital.
While 16% said they plan to switch to a repayment mortgage before their current loan ends, 31% said they expect to have to sell their home to settle the outstanding debt.
Ocean spokesperson Gareth Shilton said: “Interest-only has become a time bomb because so many people took out the products to cut the cost of their mortgage, with no view of how they would repay the capital element. Borrowers who have an interest-only mortgage with no repayment plan need to take action.
“It’s advisable to seek advice on whether they can overpay on their current interest-only deal, switch to a repayment mortgage, or use an ISA or pension to settle the capital payment.”
Shilton added: “Interest-only mortgages are now typically only being approved for borrowers who can demonstrate they have a repayment vehicle or pension pot that is forecast to repay the capital element. Usually, borrowers also need to have a significant deposit that gives them a big equity gap.”
Banks’ stress test to include global economic slowdown
Setting out its scenario for the 2015 stress test, the BoE said the UK banking system will be forced to ensure a slowing economy in China and weak growth in the Eurozone is included in its ability to withstand a severe shock to the UK economy.
Additional considerations include severe financial market stress with a reduction in global risk appetite, particularly in heavily indebted countries.
Banks will be required to ensure the risk-weighted capital is maintained above 4.5% of overall assets with tier 1 leverage ratio at 3%.
Banks and building societies participating in the 2015 stress test include Barclays, HSBC, Lloyds, Nationwide, RBS, Santander UK and Standard Chartered.
Last year RBS and Lloyds both failed stress tests, with the Co-operative Bank ordered to submit a new capital plan. The Bank of England adjusted its framework in 2014 to stress-test banks’ balance sheets to measure their ability to cope with a housing market shock.
The Co-operative Bank will be not be participating in this year’s stress test as it has a smaller balance sheet than in 2014 and is significantly smaller than the banks included, meaning it is unlikely to have a material impact on the resilience of the system, the BoE said.
Mark Carney, Governor of the Bank of England, said: “Last year’s stress tests demonstrated how much stronger the core of the UK financial system has become since the financial crisis. The results showed that the post crisis reforms have put the UK banking system on a stronger footing and made it better able to support the real economy even in the face of a major domestic shock. This year’s test will have a different focus and is equally important.
“By assessing the resilience of the UK banking system against a major external shock, we will improve further our ability to identify vulnerabilities and we will ensure that banks have plans in place to address a wider range of possible stresses,” he added.
The Bank of England said the results of the 2015 stress test would be published in December alongside its Financial Stability Report.
Fall in firm liquidations is ‘double-edged sword’
Figures released by the Insolvency Service show the number of insolvency cases in the last quarter of 2013 was 3,552, 7.4% lower than the same period the previous year.
However Melanie Giles, a licensed insolvency practitioner at PJG Recovery, said the number of firms trading with large amounts of debt could be denying capital to more worthy firms.
“The sharp drop in compulsory liquidations is a double-edged sword,” she said.
“The banks and other creditors have accepted that compulsory liquidation can be a cumbersome and costly process that rarely achieves a material return.
“Instead, they are playing the long game and letting the zombies operate for as long as possible in order to get what money back they can.
“But not calling in their debts is tying up the banks’ liquidity and so is depriving other companies of the capital they need to grow.
“It’s not the zombies that are rotting but the companies of tomorrow through under-capitalisation.”
In the calendar year 2013, there were 14,982 compulsory liquidations and creditors’ voluntary liquidations in total. This was made up of 3,624 compulsory liquidations and 11,358 creditors’ voluntary liquidations.
Co-op drugs scandal triggers chair’s resignation; group to investigate allegations
The Co-op has also launched an investigation after footage emerged of Flowers (pictured), counting out cash in response to a request for “money for the coke”.
In a statement, Len Wardle said: “The recent revelations about the behaviour of Paul Flowers, the former chair of The Co-op Bank, have raised a number of serious questions for both the bank and the group.
“I led the board that appointed Paul Flowers to lead the Bank board and under those circumstances I feel that it is right that I step down now, ahead of my planned retirement in May next year.”
Wardle added the Co-op needed to change its operations and governance: “I hope that the Group now takes the chance to put in place a new democratic structure so we can modernise in the interests of all our members.”
In a second statement, the Co-op Group said: “Given the serious and wide-ranging nature of recent allegations, the new executive management team has started a fact-finding process to look into any inappropriate behaviour at the Co-op Group or The Co-op Bank and to take action as necessary.”
The group board was also conducting a root and branch review of the structure of the organisation, it added.
As well as chairing the Co-op Bank in the run up to its capital troubles, Flowers was an ex-Methodist minister and chair of the anti-drugs charity Lifeline.
The scandal came to light after a friend recorded and sent a video of his drug deal to the Daily Mirror.
In a statement, Flowers said: “This year has been incredibly difficult, with a death in the family and the pressures of my role with the Co-operative Bank,” he said. “At the lowest point in this terrible period, I did things that were stupid and wrong. I am sorry for this and I am seeking professional help and apologise to all I have hurt or failed by my actions.”
Flowers was summoned in front of the Treasury Select Committee earlier this month in order to answer questions about the failed bid for Lloyds’ TSB branches and the emergence of a £1.5bn capital hole.
A text message sent from Flowers to his friend Stuart Davies said: “I was ‘grilled’ by the Treasury select committee yesterday and afterwards came to Manchester to get wasted with friends.”
In others he said he was on “ket” or ketamine and had the club drug GHB. Davies also said he smoked cannabis with Flowers and witnessed him smoking crack cocaine.
Questions are already emerging about the Financial Services Authority’s decision to approve Flowers as the bank’s chair.
The Co-operative Bank said it had no comment, while the Methodist church said it had suspended Flowers as a result of the allegations.
US hedge fund-run Co-op Bank ‘a tragedy’ – ex-Co-op chief
Peter Marks, who retired from his position in August 2012, gave evidence to the Treasury Select Committee one day after his successor announced the mutual’s stake in the troubled Co-op Bank would be reduced to 30%.
Marks argued the merger with Britannia Building Society in 2009 did not feel like an error at the time. The Co-op Bank’s current financial difficulties were due in part to the mutual’s inability to raise capital as quickly as other high street lenders, he said.
He told MPs the Co-op Bank was an “innocent victim” of the financial crisis: “Loans that were made by Britannia have gone to some extent sour and that is because of the economy.”
Regulators had “shifted the goalposts” in terms of capital requirements, he said, and this created a major problem for mutuals, as they could not turn to the markets to raise capital.
Marks said: “It is going to be very difficult for a mutual to compete in the banking market the Co-op was trying to compete in, which is high-volume, low-margin business.”
On Monday, it was reported that 70% of the Co-op Bank was likely to end up in the hands of US hedge funds and other institutional investors. The group’s stake has shrunk to 30%.
Marks said hedge funds could not be ethical: “Hedge funds are there to maximise profit. That is what their sole purpose in life is. To be truly ethical you cannot do that.”
The Co-op Group’s 30% stake did not represent control, he said, and the bank’s fate was tragic: “However I think there is a degree of inevitability because it was trying to stretch its capital across too many businesses.”
Marks, who began working for what became the Co-op in 1967, added: “It’s a tragedy what’s happened for the group, for the movement and for me personally. But the group still has a good future.”
Treasury Select Committee chair Andrew Tyrie said: “Being owned by a mutual, the Co-op Bank differed from most of its competitors. But on today’s evidence, its shortcomings did not.
“A lack of personal accountability at senior levels, ineffective corporate governance and insufficient experience and expertise among those taking the decisions; this has become a familiar story.”
In terms of mortgage lending, the Co-op Bank is unable to comment on future lending plans. However John Charcol senior technical manager Ray Boulger told Mortgage Solutions the Co-op Bank was unlikely to gear up mortgage lending again until 2014.