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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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UK economy facing “capital destruction” event as furlough ends

Major sectors across the UK equity market are facing a “capital destruction” event in the next few months as the real impact of coronavirus feeds through to their bottom lines, Smith & Williamson Investment Management’s Enterprise Fund team has warned.

The furlough scheme has protected a number of businesses, including many in the retail and leisure industries, which have been some of the worst impacted by the coronavirus.

However, as the scheme is wound up, many businesses will not be able to return to trade as normal. Mark Swain, co-manager of the Smith & Williamson Enterprise Fund, said the impact of this was about to be felt across several industries.

“Markets have held up relatively well in the face of coronavirus, including in the UK, but capital destruction is coming now,” he said.

“We are at the tipping point as the furlough scheme comes to an end, and unfortunately coronavirus is going to create ‘survivor’ companies and remove a lot of weaker ones.”

Swain, who manages the Enterprise fund alongside co-manager Mark Boucher, said various sectors are seeing long-running trends – both positive and negative – being accelerated by the pandemic.

“Some companies are benefiting from this and will continue to do so and some, particularly those relying on cheap and abundant leverage, no longer have viable business models,” Swain said.

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“Pandemics accelerate existing structural trends, and so this time companies with a strong internet presence are thriving, and those relying on high footfall, or those overburdened with too much debt for example, are really struggling.”

Swain said as a result of the nature of the crisis, the sectors in the eye of the storm, including retail and travel and leisure, were polarising, with winners likely to benefit from better business models and healthier balance sheets, but also a decline in competitors.

“If you look at retail, for example, a lot of capacity is coming out of that market and the better operators – those that are good at retailing and have a strong internet presence – are going to prosper.”

By contrast, the duo expect the “zombie” companies being kept afloat by the furlough scheme to face an uphill struggle for survival.

“If you are a business that is currently not open because of Covid-19 restrictions then the future looks very bleak, and there are large swathes of struggling companies across the UK that will not get through this,” he said.

By Peter Wilson

Source: IFA Magazine

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Pound lingers above 10-day lows as Brexit talks enter crunch week

The British pound held above a 10-day low on Monday as investors cut their holdings with British and European negotiators scrambling to salvage post-Brexit trade talks.

British Prime Minister Boris Johnson said on Friday there was no point in continuing talks and it was time to prepare for a ‘no-deal’ exit when transitional arrangements end on Dec. 31 while the European Union said Britain needed to give ground.

EU chief negotiator Michel Barnier had been due in London for talks with his British counterpart David Frost this week. Instead, they will now speak by telephone on Monday to discuss the structure of future talks.

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With only 11 weeks to go before the end of the transition period, Berenberg economists estimate the probability of a hard Brexit at as much as 50% with both sides taking steps to soften the blow on their respective economies.

“We thus have to watch carefully the risk that neither side blinks and, in the end, the two sides finally part ways without a deal,” they said in a note.

Against a broadly steady U.S. dollar, the pound edged 0.2% higher at $1.2936 hovering just above a Oct. 7 low of $1.2860 hit on Friday. Against the euro, the pound weakened 0.3% to 90.49 pence.

Latest positioning data for the week ending Oct. 13 showed investors have been steadily reducing their holdings in the British pound.

While the overall picture showed a small reduction in net short pound positions, the overall picture was worrying with hedge funds cutting both their bought and sold bets.

In derivative markets, one-month implied volatility gauges for the pound firmed above 11%, the highest levels in more than a month, pointing to rising uncertainty.

Source: UK Reuters

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Tenants face evictions as repossession claims lodged

Weymouth and Portland’s county court saw seven property repossession claims lodged by landlords or mortgage lenders during the coronavirus lockdown despite the evictions ban, figures show.

Housing campaigners ACORN called for the ban on new evictions from social and private housing to be extended, warning thousands across England and Wales will be at risk of homelessness when it is lifted.

Though bailiff and eviction activities were paused as part of the ban, claimants have still been able to lodge property possession claims ahead of court eviction cases resuming.

Ministry of Justice data shows seven claims were submitted to the Weymouth County Court between April and June.

All claims were from private and social landlords, with none from mortgage lenders.

There were significantly fewer claims made this year than during the same period in 2019, when there were 73.

This reflected the trend across England and Wales, where the number of possession claims made between April and June fell to 3,183 – a drop of 90%.

Campaign group ACORN is calling on the Government to urgently extend protections for all, including those behind on their mortgage payments.

Mortgage payment holidays, first introduced in March, are also set to end on October 31.

Tom Renhard, ACORN national chair, said: “One person at risk of homelessness is still one too many and the latest figures show thousands of people at risk.

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“This is likely to spike as the furlough scheme comes to an end and many more people may struggle to pay their bills.

“We are in the middle of a public health emergency and people being made homeless could increase the risk of Covid-19 cases.”

Landlords in England must also give tenants six months’ notice before they evict them, a new protection which will last until March 2021.

But tenants involved in the most serious cases, such as anti-social behaviour or those with over six months’ accumulated rent arrears, can be given just four weeks’ notice.

Homeless charity Crisis said the figures confirm banning evictions and extending the notice period was the right thing to do.

Jon Sparkes, Crisis chief executive, said: “As jobs cuts are coming in thick and fast, we know that tens of thousands of people may struggle to find somewhere cheaper to live even with six months’ notice.

“The Government still has time to intervene and protect people from being swept into homelessness. We urgently need renters who are struggling to afford their rent and in arrears given financial support from Government.”

Total county court claims across England and Wales between April and June fell by 75% year-on-year to 118,000, which the MoJ said was linked to measures taken to reduce the spread of Covid-19.

In Weymouth and Portland, claims fell from 104 in 2019 to 20 this year.

A Ministry of Housing, Communities and Local Government spokeswoman said: “We’ve taken unprecedented action to support renters, preventing people getting into financial hardship and helping businesses to pay salaries – meaning no tenants have been forced from their home.

“These measures strike a fair balance – supporting landlords to act in the most serious cases while keeping the public safe.”

By Ellie Maslin

Source: Dorset Echo

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UK jobless rate hits 4.5% as work-protection plan nears end

UK jobless rate rose by more than expected in the three months to August, before the end of the government’s broad coronavirus job-protection plan and the imposition of new restrictions to slow the pandemic.

The jobless rate hit 4.5%, its highest in more than three years and above the forecast of 4.3% in a Reuters poll of economists.

The number of people counted as unemployed rose by the most since 2009, during the global financial crisis, and the Office for National Statistics revised up its estimate of job losses earlier this year, raising its estimate of unemployment in the three months to July to 4.3%.

“Since the start of the pandemic there has been a sharp increase in those out of work and job hunting but more people telling us they are not actively looking for work,” Jonathan Athow, the ONS’s deputy national statistician, said.

“There has also been a stark rise in the number of people who have recently been made redundant.”

The ONS data showed redundancies jumped by a record 114,000 on the quarter to 227,000, their highest level since 2009.

The number of people in employment fell by 153,000, much higher than a median forecast for a fall of 30,000 in the Reuters poll.

Finance minister Rishi Sunak reiterated on Tuesday that his priority remained to slow the rising job losses. However, he is replacing a 50 billion-pound wage-subsidy scheme, which expires at the end of this month, with a less generous programme.

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“I’ve been honest with people from the start that we would unfortunately not be able to save every job,” he said.

Prime Minister Boris Johnson introduced a new system of restrictions for England on Monday that will hit the hospitality industry, and a minister said the government may have to go further.

“With economic support falling just as lockdown restrictions increase across the country, we should prepare for a major increase in unemployment over the coming months,” said Nye Cominetti, an economist at the Resolution Foundation think tank.

The Confederation of British Industry said ramping up testing was key to securing an economic recovery.

There were some positive signs in Tuesday’s data.

Tax office figures showed the number of staff on company payrolls rose by a monthly 20,000 in September, slightly reducing the total number of job losses by that measure since March to 673,000.

The number of job vacancies rose by the most on record in the three months to September, although the total remained down 40% compared with a year earlier.

The Bank of England has forecast that the unemployment rate will hit 7.5% by the end of the year. But BoE Governor Andrew Bailey on Monday repeated his warning that the recovery could prove weaker than the central bank’s forecasts.

Britain’s economy grew in August at its slowest pace since May as its recovery from the lockdown slowed.

Scores of companies have announced plans to cut jobs since the pandemic struck. Last week the owner of clothing retailers Edinburgh Woollen Mills, Peacock’s and Jaeger put 24,000 jobs at risk by saying it was set for administration.

Reporting by William Schomberg and Andy Bruce

Source: UK Reuters

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Sterling dips below $1.30, tough Brexit negotiations eyed

Sterling sank on Tuesday, dipping against a broadly stronger dollar as investors kept an eye on ongoing Brexit negotiations for fresh drivers for a currency that has hovered below the $1.30 mark since September.

Recent reports have shown that the European Union wants more concessions from Britain before entering a last, intense phase of negotiations on future relations following the United Kingdom’s departure from the EU.

The two chief negotiators, the EU’s Michel Barnier and Britain’s David Frost, say they are inching towards a deal, though they have underscored that important gaps remain on fishing, level playing field issues and governance.

British Prime Minister Boris Johnson had set a deadline of the Oct. 15 EU summit for agreeing a trade deal and Frost is in Brussels for intensified talks.

With no fresh news coming out of the negotiations, sterling was trading in tight ranges. By 1521 GMT, the pound was 0.6% lower to the dollar at $1.2983.

The pound has been only minimally affected this week by labour market data, the Bank of England further weighing the possibility of negative interest rates, and renewed social restrictions in the UK to combat a fresh wave of COVID-19 infections, despite the implications of these factors for Britain’s economy.

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On Tuesday, Housing Secretary Robert Jenrick said the British government may have to impose tougher restrictions than it currently has if the second spike of the novel coronavirus accelerates in high risk areas.

Johnson introduced a new tiered system of restrictions for England on Monday, with Liverpool and the surrounding Merseyside area placed in the highest level, with pubs shut, to curb an acceleration in COVID-19 cases.

“The UK government announced stricter containment measures in some areas of the country and top health officials are already suggesting more will likely be needed,” ING strategists said in a note to clients.

“This is not good news for the battered UK economy but with Brexit negotiations at a critical phase, hardly anything else looks likely to impact the pound (the lack of reaction to labour data and comments about negative interest rates being a case in point).”

The Bank of England asked banks on Monday how ready they are for zero or negative interest rates. BoE policymaker Jonathan Haskel said the central bank had an “absolutely open mind” about the possibility of sub-zero rates as part of its support for Britain’s economy during the coronavirus crisis.

Britain’s unemployment rate rose by more than expected to 4.5% in the three months to August, its highest in more than three years, even before the end of the government’s broad coronavirus job protection plan.

Economists polled by Reuters had expected the jobless rate to rise more slowly, to 4.3% from 4.1% in the three months to July.

Sterling traded in tight ranges against the euro on Tuesday, last flat at 90.40 pence per euro.

“As we still see no major breakthrough in the Brexit negotiations this week, we think euro-sterling will continue to be trapped in the 0.90-0.92 range,” said Kristoffer Kjær Lomholt, Chief Analyst at Danske Bank.

Reporting by Ritvik Carvalho

Source: UK Reuters

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UK sees largest jump in redundancies since 2009

The United Kingdom’s jobless rate witnessed a higher increase than expected in the three months to August, intensifying anxieties about the imminent end to the government’s £50bn ($65bn, €55bn) Covid-19 work-protection scheme.

The Office for National Statistics (ONS) found that unemployment rose to 4.5 per cent in the quarter, its highest reading in more than three years and higher than analyst projections of around 4.3 per cent.

The body’s deputy national statistician Jonathan Athow said: “Since the start of the pandemic there has been a sharp increase in those out of work and job hunting but more people telling us they are not actively looking for work.”

Athow added: “There has also been a stark rise in the number of people who have recently been made redundant.”

Indeed, redundancies witnessed a record jump of 114,000 from the previous quarter to 227,000, their highest level since 2009 and the global financial crisis.

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Before the novel coronavirus outbreak began and governments around the world imposed lockdowns, the unemployment rate in Britain was at its lowest point in almost 50 years.

The latest reading of 4.5 per cent is still below the jobless rate seen throughout the relatively prosperous pre-GFC 2000s.

As the October 31 deadline of the government’s seven-month-long furlough scheme approaches, there is growing concern that unemployment could skyrocket, with the economic consequences of the nationwide lockdown finally coming home to roost once government support is lifted.

The Bank of England has forecast that the jobless rate will reach 7.5 per cent by the end of the year.

Chancellor of the Exchequer Rishi Sunak reaffirmed his determination to stem the rise in job losses. The 40-year-old politician hopes to achieve this with a more targeted job protection scheme, which will cover the wages of employees whose businesses have been forced to close as a result of government restrictions.

With the recent launch of a three-tier Covid-19 rules system for England, many workers in parts of the north could continue to find their wages subsidised by the state.

By Lawrence Gash

Source: Capital

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UK economy stumbles in August, setting back recovery from COVID-19 slump

UK economy struggled to grow in August, setting back its recovery from the coronavirus lockdown, and finance minister Rishi Sunak was due to announce more help to slow a rise in jobs losses as a second wave of COVID-19 infections hits.

Gross domestic product rose by 2.1% from July, official data showed, not even half the median forecast in a Reuters poll of economists and the slowest increase since the economy began to recover in May from a record slump.

Much of what growth there was in August was down to a one-off government restaurant subsidy programme.

Finance minister Rishi Sunak was due to announce later on Friday a plan to support jobs in businesses that may be ordered to close to slow a resurgence of COVID-19 infections. Economists said the data also raised the chance of more stimulus from the Bank of England.

“The sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels,” Suren Thiru, head of economics at the British Chambers of Commerce said.

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“The increase in activity in August largely reflects a temporary boost from the economy reopening and government stimulus, including the Eat Out to Help Out Scheme, rather than proof of a sustained ‘V’-shaped recovery.”

More than half of the economy’s growth in August came from accommodation and food, where output surged by 71.4% thanks to the government’s one-month meals subsidies, more people taking holidays in Britain and the easing of lockdown restrictions.

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Kate Nicholls, head of the UK Hospitality trade body, said new COVID-19 restrictions introduced in September had weighed on the hospitality sector again.

“Today’s figures show our economy has grown for 4 consecutive months, but I know that many people are worried about the coming winter months,” Sunak said.

“Throughout this crisis, my single-focus has been jobs – protecting as many jobs as possible, and providing support for people to find other opportunities where this isn’t possible. This goal remains unchanged.”

Sunak’s new jobs plan would subsidise two thirds of the wages of workers in pubs, restaurants and other businesses forced to close to slow the spread of the coronavirus, the Times reported.

His wage subsidy plan for workers across the economy expires at the end of this month and will be replaced by less generous support for employers, raising fears of a jump in job losses.

Friday’s data showed the economy – which shrank by more than any other Group of Seven nation in the April-June period – remained 9.2% smaller than its pre-the pandemic level.

The huge services sector grew by 2.4% from July, half the pace expected by economists. Growth in the smaller manufacturing and construction sectors also fell short of forecasts.

Bank of England Governor Andrew Bailey said on Thursday that risks to the economy were “very much on the downside” and the central bank was ready to use its policy firepower.

Dean Turner, an economist at UBS Global Wealth Management, said recent surveys had pointed to the economy slowing in September which could be made worse by local COVID-19 restrictions on activity.

“Sluggish progress is likely to encourage the Bank of England to increase its bond buying program at its November meeting,” he said.

Britain is also facing the risk that it fails to secure a trade deal with the European Union with negotiations still ongoing ahead of the Dec. 31 expiry of the country’s post-Brexit transition period.

Reporting by William Schomberg and Andy Bruce

Source: UK Reuters

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UK economy 7-10% below pre-Covid levels

Bank of England governor Andrew Bailey on Thursday said UK economic output in the third quarter was between seven and ten per cent below pre-pandemic levels.

While this was far better than at the start of the pandemic, Mr Bailey warned there was still an unprecedented level of uncertainty and that the risks to the economy are still to the downside.

“We think, in the third quarter, on average, activity in the economy will probably (have been) somewhere between seven and ten per cent below pre-Covid levels,” he said in an online conference.

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“And while that number was obviously much better than we had in the spring, it’s still… produced a very big recession.” Recent official data have shown that the UK economy shrank by a fifth in the second quarter which coincided with Britain being in lockdown.

Mr Bailey added that the economy faced the prospect of an “uneven” recovery as the British government battles a second wave of rising infections with tighter restrictions, particularly on the hospitality sector.

“When you look at areas of activity in the economy that require more close social interaction, it’s no surprise that they have been the weakest to recover,” he said.

“Other areas of the economy have actually recovered very strongly – and a few areas of the UK are ahead of where they were pre-Covid.”

Source: The Business Times

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Covid: Nearly 500,000 redundancies planned since crisis began

British employers planned 58,000 redundancies in August, taking the total to 498,000 for the first five months of the Covid crisis.

Some 966 separate employers told the government of plans to cut 20 or more jobs, compared with 214 last August, a more than fourfold increase.

However, the figures were down from the levels seen in June and July, which both saw 150,000 job cuts planned.

The figures were released to the BBC after a freedom of information request.

The economy bounced back in the summer after the unprecedented economic downturn earlier in the year, as workers were urged to return to the office, and customers encouraged to spend more by schemes such as the Eat Out To Help Out restaurant vouchers.

However a number of big businesses from many of the hardest-hit sectors, such as retail and restaurants, announced big redundancy plans, including Debenhams, DW Sports, Marks & Spencer, Pret a Manger, currency exchange company Travelex, and WH Smith.

The 58,000 positions put at risk in August was considerably lower than previous months, but it was still more than 150% up on the previous year.

“There was a sense of optimism in August, we were starting to see more spending and more activity, there were hopes for a quick recovery,” said Rebecca McDonald, senior economist at the Joseph Rowntree Foundation think tank. “That seems a lot less likely now.”

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A government spokesperson said: “Supporting jobs is an absolute priority, which is why we have set out our plan for jobs to protect, create and support jobs across the UK.

“We are helping employees get back to work through a £1,000 retention bonus, creating new roles for young people with our £2bn Kickstart scheme and doubling the number of frontline work coaches.”

How will the end of the furlough scheme affect redundancies?

The big summer rush may have been partly caused by firms preparing to cut staff before the end of the furlough scheme on 31 October.

That scheme, where the government pays part of workers’ wages when their employers cannot, has helped to reduce the number of pandemic-related redundancies. A total of 9.6 million jobs were furloughed.

But given that most redundancy processes take months to complete, firms planning significant dismissals by the end of furlough would have had to notify government in the summer.

The Chancellor, Rishi Sunak, unveiled a new employment support scheme last month, where government will subsidise the pay of employees who are working fewer than their usual hours due to reduced demand.

By Ben King

Source: BBC