PM Boris Johnson announces 1.25% national insurance hike to fund social care
Boris Johnson said National Insurance rates will go up by 1.25 per cent from April 2022 to help fund “the biggest catch-up programme in NHS history”.
He said the new levy would raise almost £36bn over the next three years, with money “going directly to health and social care” across the whole UK.
From 2023, the tax will be applied to earned income, appearing on employees’ pay slips.
A 1.25 per cent rise in dividend tax will also be introduced.
Announcing the measures in the House of Commons, the prime minister said that from October 2023 lifetime care costs will be capped at £86,000 in England.
He also said no-one with assets of less than £20,000 will have to make any contribution from their savings or housing wealth – up from £14,000.
People with assets between £20,000 and £100,000 will be eligible for some means-tested support.
Scotland and Wales are devolved and work with a £50,000 housing wealth threshold, not £20,000 as stated in England.
Johnson said: “Today we are beginning the biggest catch-up programme in NHS history, tackling the Covid backlogs by increasing hospital capacity to 110 per cent, and enabling nine million more appointments, scans and operations.
“As a result, while waiting lists will get worse before they get better, the NHS will aim to be treating around 30 per cent more elective patients by 2024/25 than before Covid.
“And we will also fix the long-term problems of health and social care that have been so cruelly exposed by Covid.”
Johnson admitted that the increase to national insurance breaks a Tory manifesto pledge.
He said: “I accept this breaks a manifesto commitment, which is not something I do lightly.
“But a global pandemic was in no-one’s manifesto. I think the people in this country understand that in their bones and they can see the enormous debts this Government and the Treasury has taken.
“After all the extraordinary actions that have been taken to protect lives and livelihoods over the last eighteen months, this is the right, the reasonable and fair approach, enabling our amazing NHS to come back strongly from the crisis, tackling the Covid backlogs, funding our nurses, making sure people get the care and treatment they need, in the right place at the right time, and ending a chronic and unfair anxiety for millions of people and their families up and down this country.”
Matthew Connell, director of policy and public affairs at the Personal Finance Society, said: “This is far from a perfect care funding solution for all as the new cap on the cost of social care only reduces the risk that some people will have to sell their homes to pay for care.
“Today’s announcement focuses on funding but we also need to know what this cash will provide as there are issues with the availability and accessibility of different types of care.”
New build sales lowest in a decade due to Covid-19 and EWS1 form delays
Research from the Warwick Estates, which analyses data from the government’s UK house price index, showed that in 2010 new build homes accounted for 9.6 per cent of sales, rising to 13 per cent in 2019.
However, in 2020 only 8.8 per cent of sales were new builds, a fall of around four per cent on the previous year, which is the biggest annual decrease in a decade.
All regions bar Northern Ireland saw falls in new build sales, with the largest taking place in North East, which fell by 6.3 per cent.
This was followed by East England with a 5.2 per cent decrease and North West with a five per cent reduction.
Northern Ireland new build sales rose 0.5 per cent in 2020 to 18.3 per cent.
Warwick Estates partially attributed the fall in new build sales to the Covid-19 pandemic, which limited construction and delayed projects.
The firm said the introduction of the EWS1 form in 2019, which aims to ensure external cladding on high rise buildings is safe, had created backlogs in sales as there were few professionals who could complete inspections.
Consequently, home purchases could not be completed without the certification leaving many borrowers in the lurch and reducing the number of new build transactions.
Warwick Estates’ chief operating officer Bethan Griffiths said: “A huge level of buyer demand spurred by the stamp duty holiday has helped revive buyer demand, but such unprecedented levels of market activity have seen resources stretched and, while homes are going under offer at an alarming rate, there have been substantial delays during the back end of the transaction process.”
She added that the EWS1 forms has been “extremely difficult” to get, with delays of six months of more in some cases.
Griffiths said: “Despite attempts to remedy the situation by removing the requirement on buildings of 18 metres or less, we’re yet to see any real headway being made and the issue continues to prove problematic for those operating within the industry.”
Kensington offers self-employed tolerance in case affordability assessment
The product will assess the affordability of those who have seen their earnings fall by up to a quarter based on the average of the last two years of income. A minimum of three years’ trading history will be required.
The product is available up to 85 per cent loan to value (LTV) with rates starting at 3.28 per cent for a five-year fixed at 75 per cent LTV and a £1,999 fee.
Rates for Kensington’s shared ownership range start from 4.14 per cent on a two-year fixed mortgage and 4.54 for the five-year fixed equivalent.
The maximum loan size is £500,000 which will cover up to 95 per cent of the borrower’s share in the property.
It has no product fees and offers free valuations.
The shared ownership deal will be available on both new build and secondhand properties. Gifted deposits will also be considered.
Craig McKinlay (pictured), new business director at Kensington Mortgages, said: “Over the last year, many self-employed borrowers have found themselves demoralised from applying for a mortgage, either through past rejections or bearing the financial brunt of the pandemic.
“However, we’re not closing our doors on the self-employed. We’re keeping them wide open. Kensington will lend a hand to some of those hit hardest by the pandemic through the range.”
He added: “The shared ownership range will also help those who want their own space to own it. At a time when many have struggled, both products will help make homeownership a reality for those who may otherwise have felt it was out of reach after the pandemic.”
Lenders need to have ‘sense of urgency’ to protect customers as payment deferrals end
The scheme was introduced in March last year and allowed borrowers to defer mortgage payments by up to six months.
This was due to end in October last year, but new rules from the Financial Conduct Authority said applications for new mortgage payment deferrals would close on 31 March with all payment deferrals ending on 31 July.
According to the latest figures from UK Finance, around 2.9m people took a mortgage payment holiday whilst the scheme was active, and the majority have now returned to making full payments.
This is echoed by the most recent figures from lenders, who are currently reporting their half-year results.
However, as payment deferrals wind up, there are concerns that the removal of this support could lead some consumers to fall into arrears if lenders and advisors do not act quickly.
Smartr365 chief executive officer Conor Murphy said: “It was vital that lenders not only offered mortgage payment holidays to those in need but also did it quickly, given the severity of the financial situations that many found themselves in as a result of the global crisis.
“However, as this temporary lifeline comes to an end, advisers and lenders must now act with a sense of urgency to ensure homeowners do not fall from the safety of the holiday into arrears.”
He continued that the ending of the holiday should being a “renewed focus to vulnerable customers”, especially when it comes to how they are identified and supported.
“A strong CRM system, that allows you to communicate with clients virtually or in-person and keep track of their cases will be key to this. Finding ways to then help those who have been identified as needing additional support is likely to be complex and time-consuming,” he added.
Masthaven’s chief lending officer David Kennedy echoed the need for customers to be supported as schemes were rolled back.
He said: “As these pandemic measures and support schemes are wound down, it’s vitally important that customers aren’t abandoned. Some borrowers may be embarrassed to ask for help or unsure about where to turn.
“Lenders need to be proactive about identifying these customers early and reaching out to them to meet these challenges head on and avoid storing up problems further down the line.”
Kennedy added there could be a surge in customers needing specialist support and more “tailored lending”, which could be a boon for the specialist sector.
“Specialist lenders have coped well with the challenges of the pandemic so far and they have the right people and tools to take a pragmatic and personalised approach to supporting their customers through this next phase. There are certainly big challenges still to come and no one can afford to bury their head in the sand.”
A UK Finance spokesperson said that if customers were still struggling after payment deferrals end, they should contact their lender to discuss and agree on further support, which may include more tailored assistance.
This could include extending the length of the mortgage term, changing the type of mortgage, deferring the payment or interest or sums due or capitalising the interest accrued.
Updated figures from lenders on mortgage payment deferrals
The latest figures from NatWest showed there were around 500 borrowers still on mortgage payment holidays, which is down from 12,000 in the same period last year.
Coventry Building Society noted that up until 30 June this year there were 400 borrowers on a Covid-19 related mortgage payment holiday, down from 34,000 the same time last year. It added that around 98 per cent of affected customers had returned to full mortgage payments.
Lloyds has granted 491,000 payment holidays. Of these 460,000 are being repaid, 2,000 have been extended and 29,000 have missed payments.
Santander supported 256,00 customers with deferrals, but around 96 per cent were now up to date after their payment holiday. It noted that there was a value of £136m in outstanding payment holidays.
Yorkshire Building Society said it gave 40,424 payment deferrals linked to the pandemic, of which 99.5 per cent have resumed repayments.
The Co-operative Bank provided 175,000 mortgage customers until the scheme ended in March. Of those, 98 per cent had now returned to full payment.
Leeds Building Society has said that it supported 28,400 mortgages via the scheme.
Pandemic effects linger in criteria searches as lockdown lifts – Firth
The UK finally appears to be heading towards some level of normality as lockdown restrictions are eased. The mortgage market is also beginning to resemble its former self, if not in terms of volume of clients, then with regards to the criteria brokers are searching for.
Criteria have shifted at an incredibly rapid pace since lockdown first hit.
Knowledge Bank recorded an unprecedented 52,000 changes, and 1.35 million searches, in 2020, with lenders and brokers adapting to the extraordinary circumstances.
As criteria changed, the phrase “new normal” became a cliché as we discussed the ways the pandemic would impact the future.
Now that we are starting to see light at the end of the tunnel, what can criteria trends tell us about the mortgage market’s new normal?
Income multiples and soft DIPs
May was the first month since March 2021 to feature no Covid-related terms in the five most frequently searched criteria in the residential market.
“Furloughed workers” finally dropped out of the five most-searched terms after six-months of consistent interest from brokers.
While we may be through the worst of the pandemic, the lockdowns have certainly left some scars. There are still signs of clients struggling financially with brokers searching for “defaults – registered in the last three-years” frequently enough that the term was the fifth-most searched in May on Knowledge Bank.
Sadly, defaults are likely to continue to form a significant part of the residential market.
Even as we move away from lockdowns and industries fully reopen, clients who have been unable to pay bills will have these on their records for the next few years.
The competition for homes, which has driven rapid increases in property-prices, is perhaps also driving the use of the term “soft-footprint at decision in principle (DIP) stage”.
Brokers may be applying to multiple lenders due to the urgency that clients had to beat the stamp duty deadline. Due to the fierce competition for homes, many estate agents will not even allow a viewing without a decision in principle, so brokers are under pressure to ensure clients get one in place.
The use of soft-footprint searches could be set to continue. With brokers and clients looking for lenders who offer an application process that does not impact future credit scores, more and more lenders may look to offer this as standard in the coming months.
“Income multiple for affordability assessment” is another term that may be popular due to the pandemic. Motivated by lockdowns and sparked into life by the stamp duty holiday, house prices have risen over 10 per cent in the past year, according to Nationwide.
Despite savings increasing by £200bn since March 2020, according to the Bank of England, the spike in prices is causing many clients to stretch their affordability to get the home they want.
As the average wage is unlikely to spike to the same extent as house prices in the coming months and years, affordability will continue to be a high priority for clients.
The pandemic is still impacting the housing market to a degree, and we are not yet quite fully out of the tunnel, but a picture of the future is beginning to come into focus.
The vast torrent of clients rushing to beat the stamp duty deadline has begun to slow to a more recognisable level as the tax returns in stages.
Product ranges are returning to pre-pandemic levels, and with industries re-opening, a more settled future is on the horizon.
The mortgage market will certainly still retain some indirect indications of the pandemics impact, with some still under financial strain, but the outlook is somewhat familiar.
Around 56 per cent of self-employed renters feel mortgage lenders aren’t doing enough
According to research from Aldermore, which surveyed 1,000 self-employed adults in May, just under a third thought that mortgage lenders fully understood their earning capabilities when they applied for a mortgage.
Around 50 per cent said they thought their lender only partially understood, with 21 per cent saying that their mortgage lender did not understand their earning capability at all.
Just under a third of those surveyed also said that the main reason they were rejected was because they were self-employed.
The research also showed that factors such as increased difficulty in saving for a deposit and credit scores deteriorating due to the pandemic also had a negative impact on their attractiveness to lenders.
This has led the majority, around 64 per cent, to believe that the self-employed are treated worse by lenders than those with a salary, and over a third stated that buying a home feels out of reach right now.
However, some were more determined to buy a home than ever, with 20 per cent of those surveyed saying they were motivated to buy due to their lockdown experience and over a quarter saying they were actively saving for a deposit.
Aldermore’s head of mortgage distribution Jon Cooper said: “The UK is an entrepreneurial nation, and the growing self-employed workforce is integral to our economy, so it is disappointing to see persistent barriers for them when seeking to secure a mortgage, which appears to have been exacerbated by the pandemic. “
He said that self-employed borrowers should not despair as there were an increased number of specialist lenders who were more adept at understanding complicated income streams, therefore allowing self-employed borrowers more options to get on the property ladder.
Confidence in specialism
This was echoed by Pepper Money’s sales director Paul Adams, who said: “It’s disappointing that so many self-employed people have such little confidence about their prospects of getting a mortgage that accurately reflects their earnings, but we can use this as an opportunity to educate people about the importance of professional advice.
“Specialist lenders, like Pepper Money, are well-equipped to individually assess self-employed income and that means they can often establish a truer picture of their affordability. For brokers, it’s important to have access to a good range of different lenders as this will give them the best chance of identifying the right solution for their customers.”
Poole Family Financial’s director Matthew Poole said that the figures were not surprising as there is an “assumption” from self-employed borrowers that it would be more difficult to secure a mortgage.
“As long as you are completing your tax returns accurately and on time, which shows a true reflection of your earnings then there is no reason the self-employed shouldn’t access mortgages as easily as the employed population,” he explained.
He said that a “tricky” aspect with self-employed borrowers was that there was variation between lenders on how they assess income, which can create some confusion, but therefore using an adviser is vital.
From a criteria perspective Poole said that most lenders wanted to see the latest three months of trading to make sure trading was in line with or higher than pre-Covid-19 trading, and most used filed tax returns which could negatively impact some clients.
Poole concluded: “From a lender perspective it’s hard for them to do anything differently really as criteria can change at any time so they wouldn’t want to promote this too much, as what is correct today could be completely different tomorrow.”
Mansfield Building Society’s head of mortgage sales Andy Alvarez said: “If you look at it from a self-employed perspective it is no secret that it is harder to get a mortgage than it was 18 months ago and that is down to the way some lenders view government support and how they view change in income as well.”
He said that there was still appetite for self-employed mortgages, and that it would take one or two lenders to widen their criteria and then lenders would start “trickling through” and writing more business.
Payment holidays and cuts in spending put mortgage borrowers in good position – BoE
In a quarterly update on household debt, the Bank of England (BoE) said mortgage borrowers tended to have higher incomes than those with unsecured debt and were more likely to be in employment, placing them in a stronger position during the crisis.
The report noted that the proportion of mortgage balances in arrears had stayed relatively stable since the start of the pandemic.
It also found that those with mortgages were more likely to cut their spending compared to those with unsecured debt, who were more likely to use their savings.
This was attributed to mortgage borrowers being concentrated in higher income brackets and having more discretionary income, which was less able to be spent during lockdowns.
However, it caveated this by saying there was little evidence that those with high mortgage debt relative to income were more likely to cut back on spending compared to those with lower debt to income.
It said restrictions during lockdown curbed spending regardless of debt level and the take-up of payment deferral schemes meant households did not have the same financial pressures.
This makes Covid-19 distinct from the global financial crisis as during that time, consumers with higher levels of debt were more likely to cut back on their consumption.
The report said payment deferrals have had a bigger impact on mortgage borrowers, with figures from UK Finance indicating that around one in six UK mortgages was on a payment holiday in June 2020.
It said borrowers on a payment deferral were less likely to cut spending despite a fall in income.
The report noted that a large swathe of payment deferrals had been taken for “precautionary reasons” and a third of households who took them did not experience a fall in income. It added that a vast majority have now returned to full or partial payments.
Renters and buy-to-let
The report said whilst Covid-19 had a larger impact on renters’ finances than homeowners or those with a mortgage, the majority of renters kept up with rent and consumer credit payments.
Despite the fact renters were more likely to have lost jobs or be furloughed, rental deferrals were not common.
The report also noted that although there were concerns renters who were struggling financially could threaten the income of buy-to-let (BTL) landlords, evidence suggested that most borrwers were not “overly reliant on rental income”.
This benefits house prices, as a fall in income could lead BTL borrowers to sell properties quickly and therefore aggravate declines.
However, the report noted renters could be more vulnerable to future shocks and the roll-back of government schemes as they typically have less savings to fall back on.
It also noted that some households may already being feeling increased pressure due to the end of the eviction ban in May.
Better off than the financial crisis
Overall, the report said UK households were in a stronger financial position than they were going into the global financial crisis in 2008.
The report noted the total stock of UK household debt, excluding student loans, was around 123 per cent of total household income, which is below the peak of 145 per cent in 2008.
Mortgage debt accounted for four fifths of the total stock of UK household debt, with consumer credit making up the final share.
It said the implementation of Financial Policy Committee’s (FPC) mortgage market recommendations in 2014 helped limit a significant increase in the number of households with high debt burdens.
It also said the banking system was better capitalised, allowing lenders to offer more support to households.
Equity release borrowers using funds to support family through pandemic – More 2 Life
The study of 587 advisers found 53 per cent were seeing borrowers use equity release to help family members get on to the property ladder, potentially spurred on by the stamp duty holiday.
Meanwhile, a third reporting seeing more clients use the money to help relatives who were struggling financially.
Some 31 per cent of advisers said clients were using equity release to repay their residential mortgage while 27 per cent said the money was being used to refinance debt incurred since the pandemic.
As for how clients will use equity release going forward, 78 per cent expect clients to support their basic retirement needs over the next year with this kind of borrowing.
Decline in cases
Although advisers are seeing more clients use equity release as a means of financial support in response to the pandemic, 40 per cent said they were advising on fewer cases since the start of the Covid-19 crisis compared to usual business.
Some 34 per cent of advisers claimed to support more equity release cases since the pandemic while 26 per cent reported no change in activity.
Dave Harris (pictured), CEO at More 2 Life, said: “The later life lending market is facing an interesting conundrum – we’ve worked hard to educate people on the role that housing equity can play in retirement, but we are also aware that, now more than ever, we need to encourage people to avoid knee-jerk reactions and make smart sustainable choices for both the long and short term.
“What we need to do now as an industry is to ensure over-55s get high quality advice that helps them find the best solution for their specific needs – whether this involves an equity release mortgage or an alternative option.”
MAOE: Customer story is key for post-Covid self-employed mortgage applications
Speaking at The Mortgage Administrator Online Event (MAOE) Aldermore’s relationship manger Danielle Walters (pictured) said that adding a supplementary note to an application can “build a picture for the underwriter”, especially when it came to the impact of Covid-19 on turnover and anticipated issues going forward.
“We just want to have that story submitted with the application so that when the underwriter picks the case up, they will have a better understanding,” she said.
Walters said: “It’s really imperative that when an underwriter picks up a case, they’re not just looking at a bunch of figures, they actually have an understanding as to why that client is in the position that they’re in.”
She said that Aldermore were taking a more “cautious approach” to sectors that were more heavily impacted by Covid-19 such as travel, leisure and hospitality but noted that there were not ruling them out completely.
Walters said: “We are not discounting them, because we will consider lending to most self-employed without any issues.”
She said that Aldermore will still lend up to five and half times income for self-employed, subject to affordability, which takes borrowers up to the 90 per cent loan to value (LTV) band.
She continued that Aldermore would take a “holistic view” of borrowers using government support measures like back-up loans but noted that the lender may use an average but said that would be a “worst-case scenario”.
“We can’t tar everybody with the same brush, we have to have a better understanding of that application and they key word to all self-employed mortgage applications is sustainability,” she added.
Walters said that those impacted by Covid-19 or has had varying income the lender may require additional income evidence from an accountant ‘s reference or company accounts.
The presentations from the MAOE event will be available to watch on demand on Mortgage Solutions YouTube channel tomorrow morning.
Vote now: How will service fare over summer as the lockdown unwinds? – poll
As many take long overdue holidays after a frenzied H1 and energy levels naturally dip, can the mortgage industry sustain the service levels it has managed into H2?
Vote now on Mortgage Solutions’ latest poll to share your predictions for the coming weeks.
Will sun and an excess of delayed fun with family and friends bring a summer of service difficulties?