Principality BS sees gross mortgage lending hit £728m in H1

Principality BS sees gross mortgage lending hit £728m in H1

Its retail mortgage balances rose slightly to £8.13bn against the six months ending 31 December 2021, which closed the period with a balance of £8.03bn. 

The mutual helped 1,936 first-time buyers purchase a home and since launching its mortgage and originations platform in March last year, has processed more than £2.5bn in applications through the system. It said this meant applications could be processed faster.  

Net retail mortgage lending amounted to £99.3m, compared to £24.7m in June 2020. 

Principality said it was committed to supporting its customers through the cost-of-living crisis and commended itself for passing just a quarter of the one per cent rise to the base rate on to variable rate mortgage borrowers. Despite this, its net interest margin widened from 1.14 per cent to 1.32 per cent.

The lender saw its profit before tax fall from £33.1m to £31m.

It said previous profits had been impacted by releases of impairment provisions for loan losses, however the current period was more consistent with the six months to 31 December 2021. For the first half of 2022, Principality held £17.6m in impairment provisions, broadly flat on the £17.8m it held in the six months to December 2021. This was down, however, on the £25m it held in the first half of 2021. The lender released £200,000 in impairment provisions compared to a release of £9.1m during the same period last year.

It said: “The group takes a conservative approach to lending and has robust affordability, credit quality and underwriting standards. The performance of the group’s loan portfolios continues to be strong with low levels of arrears, while rising house prices have led to lower potential losses.”

Some 0.51 per cent of its retail mortgage book is in arrears greater than three months.

Julie-Ann Haines (pictured), CEO at Principality Building Society, said: “Our financial performance was strong in the first six months, with £99m net growth in our mortgage book as we helped almost 2,000 first-time buyers get a home.  

“So, members can be assured we have a strong balance sheet and profitability to reinvest in the business for their benefit, to help us create better homes for members, help members to financially secure their futures, as well as trying to create a fairer society for our communities.”

Third of mortgage holders cut back on food and essentials as living costs surge – ONS

Third of mortgage holders cut back on food and essentials as living costs surge – ONS

Data from the Office for National Statistics (ONS) on how people were coping with increased costs showed the proportion of people cutting back on food and essentials rose to 46 per cent for renters. 

Some 42 per cent of those in shared ownership schemes, paying part mortgage part rent, had reduced their spend on essentials. 

The ONS said this was likely because those in rented housing tended to see cost increases in other areas. Although renters are no more likely than mortgage holders to report a rise in living expenses in general, they were twice as likely to attribute housing costs as a reason for increased spending. 

This is because mortgage holders on fixed rates are protected from rising housing costs while renters are exposed to higher rents. 

Some 16 per cent of mortgage holders said they were using more credit than usual to cope, such as credit cards and loans, while a quarter relied on savings. 

For renters, 19 per cent turned to sources of credit while 23 per cent used their savings. 

Overall, the figures showed that the cost of living had risen for 89 per cent of adults, which the ONS equated to 46 million people in Britain. This was up from the 62 per cent who reported rising costs when first asked in November 2021. 

Some 94 per cent said the price of their food shop had increased, 82 per cent said this was down to rising gas and electricity bills and 77 per cent attributed this to hiked up fuel prices. 

House prices fall for first time in a year – Halifax

House prices fall for first time in a year – Halifax

Halifax’s house price index for July put the typical property price at £293,221. This was 11.8 per cent up on prices last year, a slower yearly growth rate than June’s 12.5 per cent increase. 

The strongest annual growth was seen in Wales, where house prices surged by 14.7 per cent to £222,639. 

This was followed by the South West of England, where a 14.3 per cent uplift put the average house price at £310,846. 

Although London continued to have a slower rate of growth than other regions and nations, it reported a 7.9 per cent increase in July which was the highest in nearly five years. The average price of a property in the capital now sits at £551,777 making it the most expensive place in the UK to buy a home. 

For first-time buyers, annual inflation dropped to 10.7 per cent from 12.4 per cent in June. Yearly house price increases for home movers continued to be stronger at 12 per cent in July, compared to 12.5 per cent in June. 

Russell Galley, managing director at Halifax, said: “Following a year of exceptionally strong growth, UK house prices fell last month for the first time since June 2021, albeit marginally. This left the average house price at £293,221, down £365 from the previous month’s record high. The rate of annual inflation eased slightly, although it’s important to note that house prices remain more than £30,000 higher than this time last year.  

“While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time. Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets against a backdrop of exceptionally high house price-to-income ratios.” 

 

Slower annual growth ahead 

Galley said the main drivers of the buoyant market remained, such as extra savings during the pandemic, supply issues and a change in what people want from their homes. However, he said house prices would come under more pressure as rates and living costs rise making slower annual growth most likely. 

Karen Noye, mortgage spokesperson at Quilter, said the “much-anticipated reversal of house prices may have just begun to materialise” albeit with a small decline. 

Iain McKenzie, CEO of The Guild of Property Professionals, added: “When we’ve become so accustomed to seeing house prices rocket every month it would be easy to get over excited about this unfamiliar dip. 

“The truth is that the housing market has shown itself to be resilient to the wider struggles of the economy, and this decrease is likely to herald a slight cooling off in prices rather than anything more dramatic.” 

 

Recession warning to dampen market 

Nicholas Finn, managing director of Garrington Property Finders, said the property market had been resistant to the cost-of-living crisis but suggested it may not withstand the threat of a recession. 

He added: “At some point, buyers come to the conclusion that chasing the market isn’t worth it. It’s incredibly difficult to predict when that moment comes but, with Andrew Bailey not mincing his words and disposable incomes collapsing thanks to the energy and cost of living crisis, it may well have arrived. 

“The end of the year tends to be a time when economic realities come home to roost. It also happens to be when the governor of the Bank of England predicts the UK could enter recession. Something has to give, and this could be the moment buyers realise they can give a little less.” 

 

Repossessions and downsizing to increase stock 

It was suggested that the rising cost of living may result in repossessions or people selling up, which would bring more stock to the housing market and calm house price rises. 

Noye said: “Repossessions may increase as people struggle to pay for the increased cost of living and mortgage payments and therefore more stock may find its way onto the market. A lack of demand and an increase of stock will have the natural effect of pushing down prices.  

“The autumn and winter could prove to be the tipping point for many as they struggle with increased bills and opt to move to smaller accommodation.” 

Gindy Mathoon, founder of Derby-based mortgage broker, Create Finance added: “With the base rate rising by 0.5 per cent this week, we may soon start to see people downsize or sell their properties so that they can cope with the cost-of-living crisis.  

“This could result in a wave of properties coming onto the market, which would see property prices decrease.” 

He said: “What we are also likely to see is people extending their mortgage terms just to cope with the increased cost of their mortgage payments. If the bleak economic predictions of the Bank of England prove true, the property market is going to be tested like never before.” 

Stuart Law, CEO of the Assetz Group, urged for more to be done to improve the supply of homes. 

He said: “Meeting the nation’s housing demand is an issue that can no longer be ignored, and the recent two years of strong growth show that housing supply is far too weak to satisfy periods of strong demand.  

“The government must turn its attention to lowering costs placed on UK housebuilders, reducing barriers to planning and increasing access to funding. This is essential to support a fair housing market where people can afford housing and we do not see periods like this one, where prices have been forced upwards and out of reach of many buyers, due to low supply and now rising household costs.” 

Equity release lending hits fresh high of £1.6bn in Q2

Equity release lending hits fresh high of £1.6bn in Q2

This is the fourth consecutive quarterly period to close with record lending, and according to the Equity Release Council (ERC) the total amount released in the first six months of 2022 has surpassed £3.1bn. This is 36 per cent more than the previous half-year record of £2.3bn in 2021. 

The number of new plans agreed between April and June also rose by 26 per cent on last year to 12,485, which the ERC said averaged at over 200 plans being taken out by borrowers each day. 

However, this was down on a peak seen in Q4 2018 when 12,891 new plans were agreed. 

David Burrowes, chair of the Equity Release Council, said: “The fact that hundreds of homeowners are now choosing to release equity each day, based on detailed financial and legal advice, is significant progress from the days when the market was considered an under-developed niche rather than the mainstream option it has become.” 

In total, the equity release sector served 23,910 new and returning borrowers, up two per cent on the previous quarter and a 17 per cent rise on the same period the year before. 

Average loan sizes for new borrowers remained fairly stable at £132,331 compared with £129,558 in 2021. The average new drawdown plan resulted in a first withdrawal of £90,646 compared with £86,349 in 2021.  

New drawdown customers also opted to hold more money in reserve. In Q2, this rose to £46,833 compared to £34,310 the year before, which was a rise of 37 per cent. The ERC said this was likely due to house price rises which have added an average of £32,000 to the value of the average home over the past year. 

 

Lump sum preference 

For the first time since 2009, new borrowers were more likely to chose lump sum lifetime mortgages over drawdown deals. Lump sum deals accounted for 54 per cent of new plans, compared to a share of 46 per cent of plans in Q1 and 45 per cent of plans in Q2 last year. 

Alice Watson, head of marketing, insurance at Canada Life, said: “It is interesting to see the rising popularity of lump sum products, leapfrogging drawdown to become the most popular option among new customers. This could be the result of people looking to clear their existing mortgage at a time of maturity or seeking to support a loved one’s deposit for their first home.  

“All this further highlights the real world applications of equity release and how property wealth can be used flexibly and effectively.” 

The last time equity release borrowers chose lump sum plans over drawdown, the Bank of England’s base rate was 0.5 per cent. 

Steve Wilkie, executive chairman of Responsible Life, said: “The cost-of-living crisis is now ricocheting through the equity release market. Rising interest rates have sparked a surge in the proportion of borrowers opting for lump sum mortgages over those with drawdown facilities. This is the first time a majority have opted for this type of loan since Gordon Brown was Prime Minister, which also happens to be the last time interest rates were this high. That can’t be a coincidence. 

“The bottom line is that, in an inflationary environment, most retirees again feel they need all of their money on day one. This wasn’t the case over the past 13 years, when the majority felt able to defer some of their borrowing in a bid to reduce their overall interest payments.  

“Drawdown allows homeowners to access money when they need it, and not pay interest on that borrowing until they do.” 

 

Returning borrower trends 

The number of returning drawdown customers dropped from 9,450 in Q1 to 9,305 in Q2. Compared to the same period last year, this was also slightly down on the 9,382 customers seen. 

However, this was the first time more than 9,000 borrowers had been served by the sector for two consecutive quarters since the pandemic. 

Returning drawdown customers accessed an average of £13,506, a small rise on £13,056 in Q1. This was a third higher than the average £10,174 accessed in Q2 last year. 

Some 2,120 borrowers agreed further advances on existing plans, with 1,019 extending their borrowing on drawdown plans 1,099 adding additional borrowing to lump sum plans. 

Borrowers agreed an average further advance of £31,367 to their lump sum plan, roughly equivalent to the average rise in house prices over the year. Further advances for drawdowns stood at £29,843 with an average £22,754 taken upfront and £7,089 held in reserve. 

Dave Harris, CEO of More2Life, said: “What a difference two years can make. In Q2 2020, the Equity Release Council figures suggested that lending to new and existing customers was nudging £700m million and today, we are pleased to see that it has more than doubled in Q2 2022 to £1.6bn. 

“While there is no doubt this is driven by increasing numbers of customers who are taking the proactive choice to include their largest single asset in their later life planning, advisers and the wider later life lending community has certainly played a role. Speaking to networks, platforms and IFA firms, there is real interest in the role that property can play in helping people to enjoy a better standard of living in retirement. 

“There is much for the industry still to do and we need to continue to focus on how we can best meet customers needs but the Q2 figures suggest that we are on the right track.” 

Nottingham BS sees gross mortgage lending dip to £250m in H1

Nottingham BS sees gross mortgage lending dip to £250m in H1

The mutual said it had a strong pipeline of mortgage offers, however, standing at £189m as of 30 June 2022. 

It also streamlined some of its application requirements to make it easier for applicants.  

During the period, the mutual helps almost 2,000 people buy a home and more than 1,000 remortgage. 

Noting its recent launch into the holiday let market, the mutual said: “Our traditional mortgage markets remain extremely competitive, and we have started to evaluate other more niche areas of lending where we believe better risk adjusted returns exist.”

Nottingham Building Society said arrears remained low with a ratio of 0.21 per cent.

Sue Hayes (pictured), chief executive, said while some 90 per cent of its borrowers were on fixed rate deals and protected from rate rises, increasing inflation could “create affordability pressures” in the short to medium-term. 

She added: “Our level of arrears has remained very low across 2022 but we continue to monitor this closely and will continue to support members experiencing difficulties.”

The mutual reported a pre-tax profit of £11.3m, more than double the £5.5m it saw during the same period last year. Compared to the second half of last year, this was down on a pre-tax profit of £14.9m. 

Hayes said: “This marks my first set of results as chief executive since joining the society earlier in the year and, as I settle into my new role, the warm welcome I have received from everyone highlights the strength of the team at The Nottingham. As outlined in the 2021 Annual Report and Accounts, we entered 2022 financially strong. However extreme uncertainty remains in the economy, and it is against this backdrop that these results are reported. 

“The first half of 2022 has been dominated by the challenging external economic picture. The conflict in Ukraine, supply chain issues and soaring energy costs have led to an extreme inflationary environment. We are very mindful of the impact that the cost-of-living crisis will have on our members and our colleagues.”

She added: “The remainder of 2022 is expected to be dominated by the challenging external economic environment. Whilst the risks from the pandemic seem to be abating, the uncertainty from the conflict in Ukraine and pressures on individuals and businesses of high inflation and energy costs will persist. 

“Further bank rate rises are expected to counteract inflation, and this will put further pressure on our borrowers. The Society remains well placed to support its members and we continue to move forward with our strategy with a strong sense of confidence and sound financial base.”

Bank of England set to follow Fed’s aggressive rate hike

Bank of England set to follow Fed’s aggressive rate hike

It comes after the US Federal Reserve hiked its central bank interest rate by a whopping 0.75 per cent yesterday – the fourth hike this year – taking rates to between 2.25 per cent and 2.5 per cent.

Both central banks are under huge pressure to rein in inflation, currently running at 9.4 per cent in the UK and 9.1 per cent in the States.

Federal Reserve chairman Jerome Powell said further rate hikes are likely, adding: “Nothing works in the economy without price stability. We need to see inflation coming down…That’s not something we can avoid doing.”

In the UK, most analysts expect the Bank of England will follow suit, taking the base rate from 1.25 per cent to 1.75 per cent initially, with another two hikes this year already priced in by markets. This would see the biggest increase in interest rates since 1995 and at 1.75 per cent, this would take it back to levels not seen since 2008.

According to calculations by AJ Bell, the rate increase would add £752m a year to the nation’s mortgage bills.

Laura Suter, head of personal finance at AJ Bell, said: “The move by the Bank will pile more misery on the 1.9 million people with variable rate mortgages as they battle the rising cost of living. Likewise, anyone in debt will see their costs rise.

“And while an interest rise is ostensibly good for savers, inflation is still taking your lunch and coming back for seconds.”

Economists at research house Capital Economics said the MPC would “step up its fight against high inflation” at next week’s meeting.

A statement from the firm read: “The MPC may imply that it is willing to raise rates by 50bps at future meetings if there are no signs that domestic price pressures are easing. That would support our view that interest rates will peak at three per cent rather than the analyst consensus of two per cent.”

Not all economists agree however. Pantheon Macroeconomics’ Samuel Tombs, said: “Investors remain convinced that the MPC will hike Bank Rate by 50bps at its next three meetings in August, September and November, and then by a further 25bps in December, leaving rates at three per cent by the end of this year.

“We continue to doubt, however, that the committee will accelerate its rate hiking cycle. The August meeting is a close call, but we expect the Committee to stick to a 25bps increase, and then to hike once more in September before stopping.”

Edge of recession

Earlier this week the International Monetary Fund warned central governments around the world that the global economy is “teetering on the edge” of recession, revising down its growth forecasts for the UK to just 0.5 per cent in 2023.

Though it acknowledged the pain tightening monetary policy would inflict on households, it was clear that delaying further interest rate rises would only feed inflation further, causing much worse pain later on.

The Bank of England is forecasting inflation to rise to more than 11 per cent in the autumn, however analysts at Pantheon said they are now expecting it to be closer to 12 per cent.

“We have revised up our forecast following a further surge in wholesale natural gas and electricity prices,” Tombs said.

“Those suggest that Ofgem will increase its price cap by about 65 per cent, rather than the 50 per cent we had expected.”

He added that Pantheon’s house view is that core inflation already has peaked.

“The MPC won’t be able to focus solely on fading momentum in month-to-month prints in the core consumer price inflation index if the high headline rate lifts wage growth and inflation expectations,” he said.

“But private sector pay settlements have plateaued at four per cent, and YouGov’s measure of medium-term inflation expectations has dropped back to four per cent in June, from a peak of 4.4 per cent in March.

“In addition, businesses expect wages to rise by 0.6 percentage points less over the next 12 months than over the past year, according to June’s Decision Maker Panel survey. Accordingly, the MPC probably will not conclude next week that it needs to act forcefully.”

Bank of England governor Andrew Bailey will announce the MPC’s decision at 12 noon on Thursday 4 August.

Brokers urged to sell protection to hedge against rising cost of living – poll results

Brokers urged to sell protection to hedge against rising cost of living – poll results

In a Mortgage Solutions poll, 60 per cent of brokers said they had seen a fall in the number of clients taking out protection this year.

This is despite broker’s insistence that protection policies are now more important than ever, pointing to income protection if someone is able to work due to illness or injury. 

Lewis Shaw, founder and mortgage adviser at Shaw Financial Services Life, said insurance, critical illness cover and income protection sales were down due to a “double whammy of reduced disposable income and rising mortgage rates”. 

Shaw said selling protection to borrowers had been a struggle even before the current cost-of-living crisis. Not because it cost too much, rather that borrowers saw it as a “waste of money”.

He added: “Unfortunately, far too many people don’t get their financial priorities sorted properly, instead citing cost as the factor when it’s not cost; they think it’s a waste of money.

“We know that psychologically people always overestimate good things happening and underestimate bad things happening. We even have the stats from Cancer Research UK that tells us anyone born in the UK after 1960 has a 50 per cent chance of being affected by cancer at some point in their lives.”

Shaw pointed out that even with this data to hand people still wrongly believed it would not happen to them, “yet they insure their pets, phones, laptops, cars, all of which are worth less than their lives and health”.

This perception of protection as an unnecessary expense makes it a hard sell for brokers, as Rob Peters, principal at Simple Fast Mortgage, pointed out.  He urged other brokers are being urged to try and allocate more time to selling protection cover as the cost of living bites.

He said: “People will inevitably look to cut out insurances they deem as unnecessary.”

Protection as insurance against the rising cost of living 

Living costs are set to rise even further, this month consultancy firm BFY Group warned that the average annual energy price cap will rise to £3,840 by January next year.

Peters said an adviser’s role is to ensure informed decisions are being made which meant brokers needed to be insisting that “the importance of having affordable insurance cover to cover the unknown is not swept aside without understanding the risks”.

“The economy is in shambles and finances are tight for most people, but imagine how much more difficult it would be in the event of a death, critical illness, serious accident or injury. When budgets are tight making sure the recommendation presented is truly affordable is key to it being sustainable. If not, the client will just cancel the policy a few months later to save money,” he added.

The cost-of-living crisis could even present brokers with the necessary flashpoint with which to sell protection, as a hedge against rising expenses.

Alan Richardson, head of business protection and group protection adviser at LifeSearch, said when borrowers were looking to cut costs, “the value of an adviser comes to the fore”.

Richardson said advisers must engage in “brave conversations” with their clients to help them understand possible disastrous repercussions of ill health. 

He added: “This may mean allocating more time within the sales process to developing this understanding. It may require delving outside of comfort zones and asking some questions that are a little uncomfortable. A client will always thank you for helping them understand a potential problem, but never will you get gratitude for ignoring an issue. If some advisers are uncomfortable talking about protection, it is possible to build a partnership with a protection specialist.”

 

Brokers shying away

Robyn Allen, at Robyn Allen Solutions, believes brokers’ own unconscious bias mean they themselves are part of the problem.

He said the real question was whether people were cutting back on taking it – or, “whether advisers were away from talking about it”.

He added: “With so much being said about the cost-of-living crisis, it makes me wonder if advisers are starting to assume people won’t want to pay the ‘extra’ cost every month.

“Protection is the foundation of financial planning; if the financial safety net isn’t in place and something goes wrong, those mortgage payments likely won’t be maintained. That’s a problem for the lender and the customer. As an industry we need to keep educating and helping consumers understand how important these products are for their day to day life, but also check in with ourselves and make sure our own unconscious bias around the cost-of-living crisis isn’t affecting the way we’re interacting with clients.”

Alan Lakey, director of CIExpert agrees that brokers have an opportunity to review how they sell protection. “For example when Covid first hit in 2020 a greater awareness of ill-health washed over the population and sales of protection rose. This was a temporary reaction and has diminished over the months.”

Lakey was not hopeful, though. He said: “It is well known that mortgage advisers tend to ‘forget’ about protection plans when they are up to their necks in arranging mortgages.

“The last two years have seen a massive increase in house purchasing due to the stamp duty holiday and the kick that gave the market so mortgage advisers have focused less on protection than on getting the mortgages through.

“The reality is that many mortgage advisers are not fully committed to protection and see it as a useful adjunct to a mortgage but secondary to actually arranging the mortgage,” Lakey added.

How to sell protection

Emma Green, director of distribution at Paymentshield, said scrimping on insurance boiled down to two things: misconceptions around the value it brings, and not enough know-how to make informed decisions.

She said Paymentshield conducted some market research with over 2,000 UK adults, and found that over two-thirds, 73 per cent, are not confident when it comes to understanding common insurance terms.

Green added that nearly half, 49 per cent, wrongly assumed price is the only differentiator between different insurance products.  

She said: “It’s no wonder when under financial pressure that customers will look to dismiss something they don’t understand.”

“Advisers need to focus on education and information as much as sales and service. Advisers can help to demystify insurance, explain how it actually works, and what the implications might be of switching to a cheaper but lower quality product or cancelling their insurance all together.”

 

Options for homeowners with maturing interest-only mortgages – Pallett

Options for homeowners with maturing interest-only mortgages – Pallett

If they have not been setting aside money to repay at term end – in the past brokers and lenders did not insist on a repayment vehicle as they do now – what can they do?

Just because their original lender will not allow them to extend their mortgage or take out another one, it doesn’t mean other lenders won’t oblige.

If borrowers have had their mortgage for 25 years, which was a common term in the 1990s and early 2000s, many of them will be over 50 when the mortgage comes to the end of its term.

Some will be much older but unfortunately, many borrowers often think they can’t get a new mortgage because of their age – but that is not necessarily correct.

From research we have carried out, 57 per cent of borrowers over 50 believed it was more difficult to obtain a mortgage. They feel they’re being ignored and no one will help them or point them in the right direction to access finance.

 

Opportunity for brokers to outline options

But this is a huge opportunity for brokers to explain to clients that there are options which mean they don’t have to sell up, downsize, move miles away from family and friends or in the worst case, have their property repossessed.

For people in this situation, it is highly likely that the property will have risen in value, quite substantially depending on the region. Using average house price data from Office for National Statistics, in April 1997 a home cost £61,946 but 25 years later in April 2022 that has increased to £281,161 – a rise of 354 per cent.

If the borrower has been able to pay the mortgage each month for 25 years, they are likely to be able to pay it going forward. Even if they are retired, they will have retirement income and may have other assets such as investments, which we can use in our affordability calculation.

 

Long-term fixed rates increasingly popular

We know that many borrowers are concerned about the cost-of-living crisis. One potential solution is to consider a long-term fixed rate mortgage in today’s rising interest rate environment.

With some retirement interest-only (RIO) mortgages there is the option of fixing the interest rate for life so there is no set date to redeem the loan. Repayment of the mortgage can be at any time including up until the borrower passes away or moves into care.

With more interest-only mortgages due to mature, we encourage brokers to tap into this market and ensure borrowers are given options so they can stay in their home by taking on a new interest-only mortgage.

 

Average equity release withdrawal hits £100k – Key

Average equity release withdrawal hits £100k – Key

 

Key’s equity release market monitor found that new plan numbers rose by 25 per cent while the value of equity released grew by 32 per cent in the first half of this year (H1).

Remortgage transactions accounted for almost a fifth of borrowing with the total value at £3.43bn including existing customers during the period.

Plan sales totalled 25,448, while the value of new equity released rose 31.7 per cent to £2.556bn – a record high for new lending and plan sales in a six-month period.

Key, a specialist adviser in equity release, said a combination of flexibility and house price increases attracted new customers with average interest rates at 3.65 per cent,  lower than 3.92 per cent recorded three-years ago.

The rising cost-of-living squeeze was blamed on £876m taken out in further advances, a 32 per cent increase from £666m during the first half of 2021. The average drawdown customer reserved £52,363 compared with £45,746 last year and took an initial advance of £58,115.

However, customers who took advantage of drawdown facilities during the last six months took out on average £11,406 which is lower than the £13,765 last year.

Rebroking and equity release

Low rates and increased product flexibility appeared to be encouraging more customers to refinance, with a 79 per cent year on year increase in the number of people remortgaging from 2,130 during the first six months of 2021 to 3,817 the same period this year.

Key’s data also showed an increase in the number of customers using property wealth for discretionary spending, but debt repayment is the major use of the money released – 57  per cent of customers used some or all of the property wealth to repay debt compared with 53 per cent last year.

The use of equity release for home and garden improvements which can be both discretionary as well as necessary,  accounted for 37 per cent of product releases compared with 33 per cent in 2021, however, the amount spent also remained flat at seven per cent of the amount released.

Regional equity release figures

Key’s report found that use rose in every UK region. London was the only region to record a single digit increase in plan sales at 3.1 per cent although the value of new equity released rose by 12.2 per cent.

The biggest year-on-year rise in the total value of new equity released was in Northern Ireland where the figure trebled. Strong rises were seen in Wales where the total value rose by 73 per cent followed by Scotland on 67 per cent and Yorkshire and the Humber on 50 per cent.

Will Hale, chief executive at Key, said: “As an industry, the first half of the year has seen the market return to growth as we work to develop and grow to better serve over-55s homeowners.  With the cost-of-living crisis very much at the forefront of people’s minds, we’ve seen a continue focus on the management of both secured and unsecured debt – although the proportion of people who include some discretionary spending has increased.

“While pandemic and the cost-of-living crisis has affected all age groups, it is particularly critical in this market that we understand our customers’ needs and recognise their vulnerabilities.  You can only take out equity release with the support of a specialist broker as well as independent legal advice and choosing to start that conversation will help people to find the right option for their individual circumstances now and in the future.”

Brokers pivotal in helping manage clients’ financial squeeze – analysis

Brokers pivotal in helping manage clients’ financial squeeze – analysis

Earlier this month, chiefs at the Bank of England told MPs that a slew of base rate rises, intended to bring inflation under control, would push up mortgage costs for 40 per cent of borrowers over the next 12 months.

Governor Andrew Bailey and Sarah Breeden, executive director for Financial Stability Strategy and Risk at the Bank of England (BoE) told a Treasury Committee that a series of rate increases, which started in December, had already impacted 20 per cent of mortgages which were those on a variable rate.

By this time next year Breeden expected at least 40 per cent of all mortgages to have increased as borrowers came off fixed rate deals.

This is, of course, not news for brokers who have been warning borrowers to brace themselves for a rise in their monthly repayments.

Imran Hussain, director at Harmony Financial Services said most of his clients had been “keeping an eye on everything going on in the world,” and knew they were likely to be paying more when their current fix deal comes to an end.

He said clients were aware that “the previous decade of low rates has well and truly come to an end”. 

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said the challenge for brokers now was not the rise, but by how much.  

He said: “At the moment many people are getting an unpleasant surprise when they come off their 1.24 per cent fixed rate from a few years ago and get told the very best deal now starts at three per cent.” 

Taylor-Barr said he has not experienced problems with moving clients on to new deals so far, although this had not prevented some borrowers from panicking.

He added: “Lenders are quite sanguine with the situation, but clients are the ones in a bit of a panic at the extra few hundred quid they have to pay towards the mortgage.”

As borrowers slowly come off cheaper fixed rates, some brokers are being challenged to get their clients another deal.

Hussain said he was starting to find issues with clients whose circumstances had changed. “For example, one partner is no longer working so they are unable to move to another lender due to affordability, so the only viable option is to then stay with their current lender and take a product transfer.”

Lewis Shaw, founder of Shaw Financial Services, said that so far he believed the stress tests used prior to taking out their mortgage meant most borrowers still came in within current lending affordability rules. 

 

Changing rules

But Shaw said he could see problems arising as a result of the BoE’s decision to ditch the stress test, which checks a borrower’s ability to pay a rate three per cent above a lender’s reversion rate. 

Last month, the Financial Policy Committee (FPC) confirmed that this affordability stress test for mortgages would be withdrawn from 1 August 2022.  Ending the restriction also means a lender can issue at LTI ratios of 4.5 times income or greater. 

Shaw said: “Perhaps it was a reason to have kept the stress test rather than removed it. The problem facing borrowers is that because of a decade of artificially low rates, people have become accustomed to remortgaging and seeing their payments and interest rates reduce; but those days are over.

“It’s a shock to their systems simultaneously as everything else is rising in price. It’s particularly jarring for those previously new borrowers about to come to the end of their very first fixed-rate product, whether that was for two or five years.”

Shaw said it is now up to brokers to manage their clients’ expectations.

He added: “Many first-time buyers took mortgages with either five per cent or 10 per cent deposit, thinking when their first deal was up, they’d be quids in as their next rate would be lower. 

“Instead, they will find that they’re all on the up, and the mortgage payment will rise in many cases. Many people forget that we operate in a mortgage and property market. 

“Markets rise and fall; they can treat you well and quickly turn against you. However, many consumers think it’s unfair as they often expect things to always go in their favour, even though there is always a risk from the outset. It’s a peculiar symptom that many people consistently overestimate the upside at the same time as dismissing potential downsides. This is one wake-up call many do not want to face.”

Ashley Thomas, director at Magni Finance, said a lot of his clients have seen their rates more than double. 

He added: “It doesn’t surprise me that 40 per cent will see their payments go up next year, I think it may be higher and it will continue to increase as borrowers come off existing fixed rates in the future. 

“Those who locked their mortgages at a five-year fixed rate last year at less than one per cent will be feeling a huge sense of relief with the current rates.”

 

Brokers need to act fast

Affordability is just one challenge brokers are negotiating. Another is the speed in which the market is moving.

Rhys Schofield, managing director at Peak Money, said: “We’re having no issues placing clients but rates are increasing rapidly and even waiting a week or two can cost clients thousands of pounds in extra interest. We need to make sure customers talk to brokers as early as possible to try to secure rates.”

Rob Peters, principal at Simple Fast Mortgage, said: “The best time to review remortgage options was six months ago. The second best time to review remortgage options is right now.”

Peters said lenders were, so far, doing their best to help ease the situation.

He explained: “Some mortgage lenders are proactively looking at ways to assist those remortgaging.

“For instance, NatWest has extended their mortgage product transfer window to six months meaning borrowers can ‘lock in’ today’s rates much earlier. Nationwide is allowing those remortgaging to borrow up to 6.45 times their income on a like-for-like remortgage. 

“This is a clear message that they are happy to help as they have been able to afford it until now. I expect the market to further adapt to support borrowers.

Sabrina Hall, mortgage and protection adviser at Kind Financial Services, disagreed: “Lenders are factoring in rises in the cost of living into their affordability calculators so we can have a case where the client’s income is exactly the same, but the lenders are suggesting that they can no longer afford the mortgage. 

“This combined with the general increase in the cost of living is really worrying and will have a huge impact on many families and households.”

 

Value of a broker 

One of the more positive outcomes of a rise in rates could be the opportunity for brokers to sell their value to borrowers, for whom the right deal could save them hundreds, if not thousands a year.

Taylor-Barr said: “Of course, there are a few things that could potentially be looked at to help, such as extending the term of a repayment mortgage, to help manage that cost increase, but this is best looked at by a professional mortgage broker on a case-by-case basis, there is not a one-size-fits-all fix.”

Even if there is a summer pause in rate rises, brokers are uniquely placed to help their clients save at least some money on a major household expense.

Dariusz Karpowicz, director at Albion Financial Advice, said: “There are definitely interesting and worrying times ahead. The main question now is whether the Bank of England will increase rates to the required level of over six per cent.”