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Record surge in redundancies pushes UK unemployment to 4.8%

A surge in redundancies and a slump in hiring pushed UK unemployment up to 4.8 per cent in the three months to September, official data showed on Tuesday.

The figures reflect a wave of job cuts made as the government tapered wage support for workers furloughed under its Job Retention Scheme, which had been due to close at the end of October but has now been extended until the end of March next year.

Redundancies climbed to a record high of 314,000 between July and September, a rise of 195,000 from the previous year and 181,000 from the previous quarter, the Office for National Statistics said. Weekly figures showed especially strong growth during the first two weeks of September, when employers had to pay more towards the cost of furloughed workers in the run-up to the scheme’s scheduled end.

“The government’s failure to face up to the scale of this jobs crisis in time has cost people their livelihoods,” said Jonathan Reynolds, Labour’s shadow work and pensions secretary. He called on ministers to provide urgent support for those who had lost jobs and to fund the creation of new roles through green investment.

Rishi Sunak, the chancellor, said the figures “underline the scale of the challenge we’re facing”, adding: “I want to reassure anyone that is worried about the coming winter months that we will continue to support those affected.”

Job losses look set to climb further: the unemployment rate averaged 4.8 per cent over the three months to September, but experimental weekly figures from the ONS put it at 5.1 per cent by the end of that period.

The UK employment rate stood at 75.3 per cent in the three months to September, with 32.51m people in work — almost a quarter of a million fewer than a year earlier.

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Despite the weakening of the labour market, unemployment remains well below the worst-case projections of the Office for Budget Responsibility, and economists said the extension of government income support would both delay and limit the damage.

The fall in employment was especially steep for young people, with a drop of 174,000 on the quarter among 16 to 24-year-olds, down to a record low of 3.52m. There was also a clear divide by gender, with men faring much worse than women. And there has been a dramatic drop in the foreign-born workforce, with the number of EU nationals working in the UK 364,000 lower than a year earlier, and the number of non-UK nationals from other countries down by 65,000.

Samuel Tombs, at the consultancy Pantheon Macroeconomics, said the chancellor’s change of tack on furlough had “greatly improved the near-term outlook for employment”, especially as hopes of a vaccine might now persuade companies to keep staff on their books over the winter in expectation of a recovery in demand next summer.

Tony Wilson, director of the Institute for Employment Studies, said the changes in unemployment and employment were “worrying but not catastrophic”, although the continued dearth of hiring was troubling.

He noted that the number of people starting a new job between July and September was even lower than it had been during the spring lockdown. “Every recovery is built on a rebound in hiring but it didn’t happen in the summer,” he said.

This lack of hiring is one reason why youth unemployment has risen much faster than the overall jobless rate, with few openings for new labour market entrants.

Separate figures published on Wednesday by the Institute of Student Employers show a 12 per cent drop in the number of graduate jobs in 2020, and a much bigger fall in the number of internships and placements that often lead to permanent roles, with most employers also planning to cut recruitment in 2021.

Business groups, think-tanks and unions said government policy was now too narrowly focused on protecting jobs, and urged ministers to do more to spur new job creation, by cutting employer taxes, or by directly funding new jobs in the green economy and public services.

The ONS data gave some early signs of the labour market starting to pick up in the autumn, but this was before the spread of local Covid-19 restrictions and the announcement of the second national lockdown.

The ONS said data from HM Revenue & Customs suggested only a slight drop of 33,000 in the number of payroll employees between September and October, although this still left the number on company payrolls at 782,000 below pre-pandemic levels.

The number of vacancies advertised climbed steadily from August to October, driven by hiring in small businesses, but it remained almost a third lower than a year ago, even at the end of this period.

Annual growth in employees’ pay was stronger than the previous month — reflecting people returning to work on full pay after a period on furlough. However, this too was well below pre-pandemic levels, with annual growth of 1.3 per cent in total pay and 1.9 per cent in regular pay — the gap between the two measures reflecting lower bonuses.

And although the return of furloughed workers drove a rebound in working hours from the lows of the spring lockdown, average weekly hours were still below their level in March, and total weekly hours worked in the UK were more than a tenth below pre-pandemic levels.

“As the crisis enters its ninth month and second lockdown, job losses will continue to mount,” said Nye Cominetti, economist at the Resolution Foundation. “Crucially, this is as much about those out of work struggling to find new roles as it is about job losses.”

By Delphine Strauss

Source: Financial Times

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Disappointing GDP figures show UK recovery lost momentum ahead of second lockdown

UK GDP grew by a record quarterly amount in the three months to September, but failed to make up for its historic slump the previous quarter as Covid-19 brought large swathes of the economy to a halt.

The UK economy grew by a record 15.5 per cent in the third quarter, the Office for National Statistics said, but the rebound fell short of expectations as the economy struggled to maintain its recovery.

The record-breaking third-quarter growth in UK GDP is below the 15.8 per cent expansion forecast by economists, but is the largest quarterly growth ever recorded in the UK economy.

The growth in the three months to September follows a record-breaking slump of 19.8 per cent in June, as the coronavirus pandemic and subsequent lockdown measures brought large swathes of the UK economy to a halt.

UK GDP grew by a slower-than-expected 1.1 per cent in September even before the latest restrictions on businesses were introduced, ONS data showed. Economists polled by Reuters had forecast a 1.5 per cent expansion for the month.

“GDP probably won’t return to September’s level until the spring,” said Samuel Tombs of Pantheon Macroeconomics.

“GDP still was 8.6 per cent below its January 2020 peak in September, even though virtually all businesses had resumed trading and Covid-19 restrictions were light touch back then,” he continued.

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Tombs added that he expects the introduction of a second national lockdown in England to lead to a contraction in GDP in the final quarter of 2020.

“On a monthly basis,” he continued, “it probably won’t recover to September’s level until the spring, when it should be possible for Covid-19 restrictions to be sustainably relaxed.”

Responding to the GDP figures, Bank of England governor Andrew Bailey said there was still a “huge gap” in the economy, but added that news of a potential effective Covid-19 vaccine would help lift economic uncertainty.

Last week, the Bank said the world’s sixth-biggest economy was likely to shrink by a record 11 per cent in 2020 before growing by just over seven per cent in 2021.

The International Monetary Fund has forecast a 10.4 per cent slump in UK GDP for 2020 and growth of 5.7 per cent the following year.

However, news of a potentially effective Covid-19 vaccine has since emerged, raising hopes that next year’s recovery could be stronger than the BoE’s or IMF’s forecasts.

Chancellor Rishi Sunak said the figures “show that our economy was recovering over the Summer, but started to slow going into Autumn”.

Sunak added that the measures the government has since taken to curb the spread of Covid-19 “mean growth has likely slowed further since then”.

“While there was confirmation that the UK exited recession, the historically strong headline figure masks a loss of momentum through the quarter, as the temporary boost from the release of pent-up demand as the economy reopened gradually faded,” said Suren Thiru, head of economics at the British Chambers of Commerce.

“With output still well short of pre-crisis levels there was little sign of a ‘V’-shaped recovery even before the latest lockdown,” he added.

By Anna Menin

Source: City AM

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ONS shows UK economy slowing, led by decline in hospitality

The UK economy recorded 15% growth in Q3 as lockdown restrictions were eased through the summer, but any real recovery has slowed and this slow down is led by the Covid-19 impact on hospitality.

Data from the ONS shows that national output expanded by just 1.1% in September, the third month of Q3 prior to the regional and now national lockdowns being introduced.

The ONS data did show the UK economy expanding for five consecutive months, most recently that momentum of recovery had decelerated. Record growth in Q3 followed a record drop of 19.8% in Q2 and a 2.5% drop in Q1.

The services sector, that includes hospitality has sustained the worst impact and is now 8.8% lower than it was before the first lockdown in March was imposed.

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The Chancellor of the Exchequer, Rishi Sunak was somewhat optimistic in his reflections saying: “Today’s figures show that our economy was recovering over the summer, but started to slow going into autumn. The steps we’ve had to take since to halt the spread of the virus mean growth has likely slowed further since then.

“But there are reasons to be cautiously optimistic on the health side – including promising news on tests and vaccines. My economic priority continues to be jobs – that’s why we extended furlough through to March and I welcome the news today that nearly 20,000 new roles for young people have been created through our Kickstart scheme.

“There are still hard times ahead, but we will continue to support people through this and ensure nobody is left without hope or opportunity.”

There is no doubt that the government’s economic aid to hospitality businesses to date has been significant. But, to avoid further business failures and unemployment figures unseen in a generation, more intervention is needed, and very soon.

Source: Hospitality & Catering News

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The UK economy is heading back into recession

The Bank of England is pumping another £150 billion ($195 billion) into the UK economy after warning of a double-dip recession because of the coronavirus pandemic and an uncertain outlook because of Brexit.

The UK central bank said on Thursday that it would keep interest rates unchanged at a record low of 0.1% but would increase its purchases of UK government bonds to £875 billion ($1.1 trillion).
Restrictions introduced to tackle a rapid rise in Covid-19 cases would weigh on consumer spending to a greater extent than the bank projected in August, “leading to a decline in GDP” in the fourth quarter of this year, it added.

England re-entered a national lockdown on Thursday, with restaurants, bars and non-essential businesses closed until December 2. The United Kingdom reported its second-largest daily increase in Covid-19 cases on Wednesday with 25,177 new infections recorded in 24 hours.
In a bid to soften the blow to households and businesses, UK finance minister Rishi Sunak on Thursday announced that the British government would extend its furlough program through March 2021. The government will pay 80% of the wages of employees of businesses forced to close, capped at £2,500 ($3,270) per month.

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The lockdown and unresolved talks on a post-Brexit trade deal with the European Union left the outlook for the UK economy looking “unusually uncertain,” the Bank of England said. Without an EU deal, UK-based companies face hefty tariffs, quotas and other barriers to doing business with the country’s biggest export market from January 1.
“It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It also depends on the responses of households, businesses and financial markets to these developments.”
The central bank expects the economy to shrink by 2% in the fourth quarter, and by 11% in 2020.
Over the longer run, scarring caused by the pandemic will reduce the country’s economic output by roughly 1.75%. GDP is not expected to exceed the level it reached at the end of 2019 until the first quarter of 2022.
A survey of business activity published Wednesday showed the increase in private sector activity last month was the weakest since June, with new orders declining and employment dropping.

“November’s lockdown in England and a worsening Covid-19 situation across the rest of Europe means that the UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021,” said Tim Moore, economics director at IHS Markit, which compiled the survey.
The UK economy is expected to have rebounded strongly in the third quarter after suffering the biggest GDP fall of any major economy in the second. It also shrank by 2.5% in the first three months of 2020.

By Mark Thompson, CNN Business

Source: CNN

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As the furlough scheme comes to an end but a national lockdown looms again, Britain braces for a new tsunami of job losses

Major companies have culled nearly 200,000 British jobs already as they struggle with the devastating impact of the coronavirus pandemic, a Mail audit has found. 

As shops and eateries face growing curbs, and international travel is hit by a collapse in demand, leading firms from Marks & Spencer and British Airways to Rolls-Royce and Debenhams have slashed around 183,900 roles across the UK this year. 

But experts and business leaders warned this is just the tip of the iceberg – far worse is to come as fresh Covid-19 lockdowns slam the brakes on the economic recovery. 

The Government’s furlough scheme – which supported 9m jobs at its height – comes to an end today and will be replaced by a slimmer jobs support scheme.

Employers have warned it will not be enough to stave off more redundancies if restrictions tighten further, as businesses face tumbling visitor numbers or being forced to close altogether. Unemployment has already risen to a three-year high of 4.5 per cent, with the Bank of England predicting it could rise to 7.5 per cent by the year’s end, potentially leaving 2.6m out of work.

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And this week the Resolution Foundation estimated the UK is facing the highest level of youth unemployment since the 1980s, after a survey found 20 per cent of 18 to 24-year-olds could soon be jobless.

In a fresh warning yesterday, the Federation of Small Businesses (FSB) called on ministers to make sure that firms ‘have the support they need to make it through the next few months’.

Mike Cherry, the group’s national chair, said: ‘With new restrictions being imposed in every part of the country, many of which are set to get tighter in the weeks to come, small businesses face huge difficulties over the winter months ahead.

‘Our latest small business index found that 30 per cent of employers expect to make some staff redundant in the next three months.

‘That is the scale of concern and uncertainty that small firms are faced with for their businesses, with many letting staff go for the very first time.’

Pubs have warned that lifeline grants promised by Chancellor Rishi Sunak will not reach them unless state aid rules are changed – putting 1m jobs at risk. The British Beer & Pub Association, British Institute of Innkeeping and UK Hospitality warned that with – out action some 20,000 venues in areas hit by Tier Two and Three lockdowns will be starved of the desperately-needed cash. They said: ‘If action is not taken, thousands of businesses might not survive to the spring.’ Jobs at other leisure sector businesses, such as nightclubs, have also taken a sharp hit.

The UK’s largest nightclub owner, The Deltic Group, had already cut around half its staff before it put itself up for sale yesterday. The Treasury has insisted that its jobs support scheme and job retention bonus – awarded to firms for keeping on staff who were previously furloughed – will together cover 95 per cent of total wage costs for the average furloughed employee until February.

Around 9.6m people used the furlough scheme in total, though the most at any one time was 8.9m. Sunak said the programme had supported ‘9.6m jobs through some of the most challenging economic times’.

But he added: ‘It’s right that as we move towards a more targeted approach to tackle the virus, our support becomes more targeted too. The jobs support scheme will continue to protect jobs through – out the difficult months ahead and is part of our comprehensive plan for jobs.’

By MATT OLIVER

Source: This is Money

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Loan ‘holidays’ extended to six months after new English lockdown

The UK financial regulator has told mortgage, loan and credit card borrowers they may seek further repayment holidays following the government’s announcement of a second lockdown in England to contain the coronavirus.

The Financial Conduct Authority said on Monday that further relief would now be offered to struggling mortgage borrowers, and set out a similar package of measures for users of consumer credit.

Although the government said the new lockdown in England would be reviewed on December 2, the FCA has also instructed banks to extend payment deferrals to mortgage borrowers for up to six months.

Customers who did not take a mortgage holiday after the spring lockdown was introduced may now seek a break from repayments of up to six months, if they are in financial difficulty. Borrowers who have already had one payment holiday of less than six months will be allowed to extend that deferral up to the maximum half-year period.

But the FCA said borrowers who have already taken a full six-month payment holiday this year and need further help will have to speak to their lenders to agree an alternative form of “tailored support”. Customers who foresee longer-term financial difficulties are advised to do the same.

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Guidance over the summer from the regulator suggested tailored support could involve accepting reduced payments or restructuring a mortgage term.

Consumer groups welcomed the extension of support. “With a tough winter ahead for many consumers, we called for financial support measures to be extended, and it’s good to see the regulator taking action,” said Gareth Shaw, head of money at Which?. However, he called for “normal credit reporting” to be suspended, so that consumers’ future creditworthiness was not adversely affected.

Industry data show that 2.5m mortgage repayment holidays have been granted since the start of the Covid-19 pandemic, but only 162,000 were still in force last month.

Users of consumer credit products — including personal loans, credit cards, motor finance, rent to own, buy-now pay-later, pawnbroking and “payday” lending deals — were also told on Monday that payment deferrals could now be extended to six months.

New applicants may seek payment holidays of up to six months, while those who took a three-month payment deferral under the FCA’s July guidance may apply for a second deferral. About 1.9m of these initial three-month repayment holidays have already been claimed.

Peter Tutton, head of policy at debt charity StepChange, also demanded a longer-term strategy to avoid over-indebtedness. “Household debt built up due to the pandemic had soared to more than £6bn in May, a figure almost certain to have swelled further in the past five months,” he said. “We need to see short-term fixes replaced by a long-term, cross-government strategy that supports struggling households and prevents the build-up of unmanageable debt.”

UK Finance, the banking trade body, said that lenders would tell borrowers how to apply for new payment holidays in coming days. “Customers seeking to access this support do not need to contact their lenders yet,” explained Eric Leenders, managing director of personal finance at UK Finance. “Lenders will provide information after today on how to apply for this support.”

By Matthew Vincent

Source: Financial Times

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Two-thirds of all UK businesses at risk of insolvency

Two-thirds of all businesses across the UK currently trading have a “low to severe risk of insolvency”, according to the Office for National Statistics (ONS)

The latest Business Impact of Coronavirus Survey (BICS) from the ONS found that 64 per cent of businesses across all industries are at risk of insolvency, with 43 per cent of companies running on less than six months’ cash reserves.

The figure comes on top of the 14 per cent of all UK businesses that have already paused trading under local lockdown restrictions.

Businesses in the hospitality industry are at the highest risk of entering administration, with 17 per cent of all accommodation and food companies currently trading at “severe risk” of insolvency, according to the ONS.

Seven per cent of all pubs, restaurants and hotels in the UK have zero cash reserves, latest data showed.

A spokesperson for trade body UK Hospitality told City A.M: “There can be no doubt of the devastating impact that the government’s restrictions are having on hospitality and pub businesses across the UK.

“Without urgent sector-specific support for our industry, massive business failure is imminent and hundreds of thousands of jobs will be lost around Christmas from a sector that was in growth at the beginning of this year, as well as in the supply chain that supports them.”

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It comes after more than two-thirds of businesses in the hospitality sector reported a slump in usual turnover for this time of year in the three weeks to 4 October, when the survey was conducted.

Key figures in the hospitality sector have called for further financial support, warning that the 10pm curfew, social distancing measures and tier restrictions will decimate the industry and cause wide-scale job losses.

Nine per cent of the entire UK workforce, and more than a quarter of the nation’s hospitality industry, were still on partial or full furlough at the beginning of the month, according to the ONS.

The Trade Union Congress (TUC), which represents more than 5.5m workers across the UK, has warned the country will see a “tsunami” of job losses when the furlough scheme winds down on 31 October — in just three days’ time.

Figures up to the 4 October from the ONS showed a slight increase in the number of UK businesses resuming trading in October, with 86 per cent of businesses in the UK currently operating — compared to just 66 per cent in June.

However, the latest figures are likely to be much higher, after large swathes of the North of England, Scotland and the whole of Wales entered some form of local lockdown since the ONS survey was compiled.

Businesses in the arts and entertainment industry have taken the biggest hit from the pandemic, with 30 per cent of companies in the sector currently shuttered.

But the pandemic continues to weigh on those businesses that have reopened, with almost half of companies that have resumed trading experiencing a decrease in turnover compared to normal business at this time of year.

A government spokesperson told City A.M: “We understand the pressures businesses are currently under and have put in place one of the most comprehensive packages of business support in the world, worth more £200bn.

“We have also given businesses much-needed breathing space by extending measures put in place to protect them from insolvency.”

The spokesperson added: “Our plan for jobs will support businesses in the months ahead, and businesses required to close due to local lockdowns can claim £3,000 a month. On top of this firms can continue to access billions of loans and guarantees, cuts to VAT and business rate relief.”

By Poppy Wood

Source: City AM

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ONS finds 2m people still on furlough days before scheme ends

Almost one in 13 UK workers, about 2 million people, are still on furlough just days before the government job retention scheme comes to an end, according to the Office for National Statistics.

The regular ONS update on the economy during the coronavirus pandemic found 7.5% of the UK workforce was still relying on wage support from the government between 5 and 18 October.

The proportion on furlough was a quarter of that at the start of June, when 29.5% of workers had some of their wages paid by the government.

At its peak more than 9 million people’s wages were sustained by the scheme, which initially covered 80% of a worker’s wages. The job retention scheme (JRS) ends on Saturday, closing the first phase of the government’s economic response to Covid-19.

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The JRC is being replaced by the less generous job support scheme (JSS), which will cover up to two-thirds of an employee’s salary if they work 20% of their usual hours. However, Labour has expressed concerns that the replacement scheme does not do enough for workers in industries that remain severely affected by local lockdowns, such as the cinema sector, and that as a consequence unemployment will rise sharply in the run-up to Christmas.

Economists and trade unions have issued warnings that the new support measures announced by the chancellor, Rishi Sunak, will not be sufficient to protect jobs or save businesses from collapse, as the rates of Covid-19 infections increase and further local lockdowns are imposed.

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Nottinghamshire will be the latest area to enter tier 3 restrictions on Friday, and West Yorkshire is expected to follow within days. This will leave more than 11 million people in England under the tightest level of restrictions while the whole of Wales begins the second of a two-week “fire break” lockdown.

Frances O’Grady, the general secretary of the TUC, said the end of the furlough scheme would result in more redundancies, at a time when the number of coronavirus cases are rising across the country.

“No one should lose their job or be pushed into hardship by the tightening Covid restrictions, but from Saturday the amount of financial support available to workers will fall just as the public health crisis is getting worse. This will result in layoffs without further action from government,” O’Grady said.

The International Monetary Fund said on Thursday that Britain faced a difficult winter, with growing numbers of job losses and a further downturn in economic growth.

The IMF recommended the government increased spending on social protection to limit the economic impact of the second wave of the pandemic.

By Joanna Partridge

Source: The Guardian

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UK economy at risk of double-dip after bouncing back strongly over the summer

UK economy bounced back strongly over the summer but fears are mounting that the recovery is running out of steam.

Retail sales climbed by another 1.5 per cent in September – taking gains in the third quarter of the year to a record 17.4 per cent.

Sales are now 5.5 per cent higher than they were in February before the full force of the pandemic struck, according to the Office for National Statistics report.

With household spending seemingly powering the recovery following the lockdown, the Ernst & Young Item Club estimated that the economy grew 16 per cent in the third quarter.

That follows a record contraction of almost 20 per cent in the second quarter. But it is feared that the recovery is faltering as fresh restrictions to prevent a second wave of the virus take their toll.

A separate report by IHS Markit showed the economy has lost momentum. Its purchasing managers’ index (PMI) – a key gauge of the private sector where scores above 50 show growth – fell from 56.5 in September to a four-month low of 52.9 this month.

‘The pace of UK economic growth slowed in October to the weakest since the recovery from the national Covid-19 lockdown began,’ said IHS Markit economist Chris Williamson.

‘Not surprisingly, the weakening is most pronounced in the hospitality and transport sectors, as firms reported falling demand due to renewed lockdown measures and customers being deterred by worries over rising case numbers.’

Warning that the fourth quarter of the year has started on ‘a weakened footing’, he added: ‘The risk of a renewed downturn has risen.’

Paul Dales, chief UK economist at Capital Economics, said Britain was at risk of a double-dip recession.

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He said the slowdown this month ‘comes before the full force of the latest Covid-19 restrictions are felt and supports our view that GDP will stagnate in the final three months of the year, if not contract again.’

He added: ‘The PMIs suggest you shouldn’t read too much into the decent rise in retail sales in September.

‘Instead, the renewed downward trend in the PMIs provides a better sense of what’s happening to the overall economy. And it’s not looking good.’

The UK economy contracted by 2.5 per cent in the first quarter of the year and by a record 19.8 per cent in the second quarter as the closure of businesses wreaked havoc.

While the economy bounced back over the summer, it is feared that strict restrictions will derail the recovery.

Sam Miley, an economist at the Centre for Economics and Business Research, said: ‘Some fragility is likely to arise in the coming months.

‘This stems from the increasingly widespread reimplementation of restriction measures across the country, with this set to impact consumer behaviour.’

By HUGO DUNCAN FOR THE DAILY MAIL

Source: This is Money

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Second charge mortgages explained as new business volumes fall by over 50%

MORTGAGE holders may be able to take advantage of what’s known as either second charge or second mortgages. These are a secured loan taken out against a borrower’s home which are often utilised to raise money instead of remortgaging and new statistics on business volumes has shown how lenders are handling these types of products.

For August 2020, the number of new second charge mortgage agreements reached 1,134.

While this is a drop of 52 percent when compared to the same period last year, Fiona Hoyle, the Head of Consumer and Mortgage Finance at the FLA remained optimistic: “While the second charge mortgage market remains subdued compared with pre-crisis levels, it is encouraging to see the number of new mortgages increase month-on-month since the record-low in May.

“Lenders are continuing to do all they can to support customers during this challenging period and customers experiencing payment difficulties should contact their lender as soon as possible.”

Second charge mortgages can provide loans of anything from £1,000 upwards.

They’ll allow people to use any equity (cash) built up in a home as security against another loan, which will mean they’ll have two mortgages on their property.

According to the Money Advice Service, lenders have to comply with strict rules governing these products when evaluating customers.

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This means lenders will have to produce affordability and stress tests on borrower’s financial circumstances when they apply and the borrower’s will also have to provide evidence that they can afford the loan.

The following are reasons why a person may consider taking out a second charge mortgage:

  • They’re struggling to get some form of unsecured borrowing, such as a personal loan, perhaps because they’re self-employed
  • If their credit rating has gone down since taking out their first mortgage, remortgaging could mean they end up paying more interest on their entire mortgage. A second mortgage means extra interest is just added onto the new amount they want to borrow
  • If their mortgage has a high early repayment charge, it might be cheaper for them to take out a second charge mortgage rather than to remortgage

While second charge mortgages can be beneficial, it should be remembered that they can also have costly downsides.

It is unadvisable to utilise this option if a person is only just managing to keep on top of their regular mortgage.

They could end up losing their homes if they cannot keep up with repayment on either their mortgage or the second charge mortgage.

Indeed, according to the FCA, 447 properties were repossessed by second charge lenders in 2014.

Additionally, consumers may want to reconsider their options if they’re looking to use a second charge mortgage to consolidate or cover exiting debts.

Second charge mortgages can run for up to 25 years, meaning if they’re used to pay off smaller debts such as credit card bills, more interest may be paid in the long term.

Also, if unsecured credit debts are converted into a secured credit product such as this one, is could increase the risk of repossession.

By CONNOR COOMBE-WHITLOCK

Source: Express

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