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Mortgage arrears fall in fourth quarter: UK Finance

The number of homeowners in arrears on their mortgage continued to decline in the fourth quarter of 2021, despite the removal of the government’s furlough scheme at the end of the September.

Figures from the UK Finance show there were a total of 79,620 homeowner mortgages in arrears at the end of December 2021. This is 750 fewer mortgages when compared to the previous quarter’s figures.

These figures related to mortgages where arrears are 2.5% or more of the outstanding mortgage balance.

Within this total there were 26,850 homeowner mortgages in early arrears (those between 2.5% and 5% of balance in arrears), a decrease of 2% on the previous quarter and 14% fewer than the same period in 2020.

UK Finance says these early arrears figures remain substantially lower than the numbers seen before the pandemic began.

However, UK Finance says the number of homeowners with more significant arrears (representing 10% or more of the outstanding mortgage balance) has risen. In total there were 30,010 mortgage holders in this position, 350 more cases than the previous quarter. This figure has risen — from a low base — since Q1 2020, although the rate of increase has slowed.

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UK Finance says these customers were already in relatively deep arrears positions prior to the pandemic, and will likely have made use of the full six months of Covid-19 payment deferrals scheme. They are equally likely to be receiving (or in need of) further support through lenders’ tailored forbearance options.

The figures show there were a total of 6,010 buy-to-let mortgages in arrears in the fourth quarter of 2021 – an increase of 2% compared with the previous quarter but 1% down on the number a year previously.

When it comes to repossessions, the figures show that there were 390 homeowner mortgaged properties and 320 buy-to-let mortgaged properties taken into possession in the final quarter of 2021.

UK Finance says year-on-year comparisons will look unusually large due to the ‘Possession Moratorium’ from March 2020 to 1 April 2021, over which period no enforced possessions took place.

In absolute terms, there were 20 fewer possessions in Q4 2021 compared with the previous quarter. The voluntary possessions moratorium ended on 4 January 2022, and the number of possessions will now gradually increase as the courts resume working through the backlog of cases accumulated over the first moratorium.

Commenting on these figures Equifax’s chief data and analytics officer Paul Heywood says while these figures are encouraging there are potential dangers on the horizon.

He says: “Far fewer homeowners than feared fell into arrears on their mortgage repayments in the early months of the pandemic, thanks in part to emergency consumer protections such as furlough and mortgage payment holidays.

“Even today, we are still seeing a relatively low level of arrears as most homeowners in the UK took advantage of lockdowns to build up rainy day savings and insulate against future income shocks.

“That picture, however, is quickly changing. Prices are rising, interest rates are creeping up, and unless wages keep pace, most borrowers will see their finances squeezed over the coming months.

“Equifax data suggests that these financial pressures are already leading to growing numbers of people falling behind on loan repayments in the consumer credit and motor finance space, and we would expect mortgage arrears to follow suit in the coming months.”

He adds: “As the UK walks headlong into a cost of living crisis, credit affordability is more important than ever, and we encourage credit providers, whether they be lenders or utility companies, to be looking closely at how innovations such as Open Banking can help them to identify people in need of help before they fall into acute financial difficulty.”

Source: Mortgage Finance Gazette

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Second charge mortgages: costs, how they work and when they could work for you

If you’re looking to carry out home improvements or consolidate your debts, and you don’t want to remortgage, then a second charge mortgage could be the perfect option.

How do second charge mortgages work?

Second charge mortgages are a way to borrow against your property that run alongside your existing mortgage.

Second charge mortgages work rather like first charge mortgages, in that you borrow a specific sum over a set term and then make monthly repayments in order to clear that debt.

There is one key difference, however. Rather than borrow against the value of the property, you instead borrow against the equity that you hold in the property.

Let’s take an example. I have a house worth £200,000, with a £150,000 outstanding mortgage.

If I want to take out a second charge mortgage, I’ll be borrowing against the £50,000 equity I hold in the property. In other words, the bit of the property that is mortgage free.

If things go wrong and your property is repossessed, then the funds raised from the sale will first go towards clearing your outstanding mortgage, with anything left then going to pay off the second charge mortgage.

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Are second mortgages popular?

There’s certainly been a striking increase in the number of borrowers opting for second charge mortgages in recent times.

The Finance and Leasing Association, the trade body for the sector, releases monthly figures highlighting both the volume and value of new second charge agreements.

In its latest release, it found that in November there were 2,584 new deals, worth a total of £114 million. That is up by 36% and 48% respectively on the previous month, while the volume and value of deals in the 12 months to November were up by 36% each.

In other words, significantly more people are now making use of second charge mortgages.

Another factor here is the massive house price growth seen since the start of the pandemic.

Significant numbers of homeowners now have larger equity stakes in their properties, and as a result, are better able to take advantage of that through a second charge mortgage.

Why do people take out second charge mortgages?

There are two common reasons for homeowners opting for a second charge mortgage, both of which are seeing far more interest than usual at the moment.

The first is home improvements. If you want to build an extension or convert an attic into a new room, then you may not have the savings set aside to cover the cost of that work.

That means having to borrow some money, and you may not be able to raise enough through credit cards and personal loans. Instead a second charge mortgage could work.

The other big driver of second charge mortgages is debt consolidation.

Some people may find they owe money across a host of different debts, and find keeping on top of the repayments ‒ as well as what they are actually being charged in interest ‒ tricky.

By combining them into a single debt, at a single rate of interest, it may make clearing that debt more straightforward.

Both of these drivers have seen a significant spike in recent times.

An awful lot of people have opted to adapt their homes through the pandemic, so that they are more appropriate as a workspace for part of the week, while the financial shocks of Covid-19 have caused some to take on additional debts in order to keep their heads above water, and they now want to get those debts under control by consolidating them.

The pros and cons of second charge mortgages

There are a few notable benefits to taking out a second charge mortgage, rather than remortgaging, if you need to raise funds.

If you opt to remortgage, then first and foremost you may have to pay an early repayment charge. This is calculated as a percentage of the outstanding mortgage, so can easily run into many thousands of pounds.

What’s more, doing so means you give up your existing rate and have to apply for a new one.

That’s great if rates today are lower than when you took out your initial loan, but the reverse could easily be true.

In addition, as you are increasing the size of your loan, you may find that you fall into a higher loan-to-value band for a mortgage, which means that you’ll have to take on a higher interest rate. All of those factors combined can make remortgaging in order to raise funds a pretty expensive method.

However, you don’t have to worry about those issues if you take out a second charge mortgage.

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As you are borrowing against the equity you own in your property, your first mortgage is left untouched. As a result, there are no exit fees or interest rate jumps to worry about ‒ you simply carry on enjoying that initial rate until it reaches the end of its term.

There are some downsides to be aware of though. Second charge mortgages tend to come with slightly higher rates than you will get from a first charge mortgage, which is important to bear in mind.

That’s because of the second charge mortgage sitting behind the original mortgage in the priority list in the event of a repossession.

In effect, the lender is taking a bigger risk lending to you, and as a result, wants to balance that out with a higher rate of interest.

What’s more, second charge mortgages are something of a specialist area of the market. Not all lenders off them, so you will undoubtedly have a much smaller range of options to choose from than with a simple remortgage.

In fact, some second charge lenders only offer their deals through mortgage brokers. As a result, securing one may mean that you need to make use of an adviser, which will likely mean incurring an advice fee.

Where can I get a second charge mortgage?

While some mainstream lenders offer second charge mortgages, the fact is that some of the most competitive deals come from lenders you’ve probably never heard of.

What’s more, they often only offer their deals through a mortgage broker.

That means that if you want the best range of options, and some guidance on which lenders are most likely to be happy to offer you a deal, you’re best off speaking to a mortgage broker.

By John Fitzsimons

Source: Love Money

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UK economy gets moving again as diners and commuters return

The UK economy saw increased activity in the final week of January as the effects of the Omicron wave of Covid retreated and consumers saw the removal of Covid restrictions.

Near-term data from the ONS revealed the lifting of Plan B restrictions in England on January 27 helped the seven-day average estimate of UK seated diners increase by 9 percentage points in the week to 31 January 2022.

This was 106% of the level in the equivalent week of 2020.

In London and Manchester seated diners increased by 8 and 11 percentage points over the same period, respectively said the ONS.

The news indicates the all-important UK services sector – which accounts for over 80% of UK economic activity – is set for a recovery in February.

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The ONS says retail footfall in the UK increased by 2% from last week but was still at only 82% of the level seen in the equivalent week of 2019.

Nevertheless the ONS data shows this is the third consecutive week of increasing retail footfall and was again driven in part by weekly rises in high street footfall.

Consumers are spending again too; the aggregate CHAPS-based indicator of credit and debit card purchases – supplied to the ONS by the Bank of England – increased by 3 percentage points from the previous week, to 90% of its February 2020 average.

There were increases in all spending categories in the latest week, the largest of which were in “delayable” and “social” spending, both of which increased by 4 percentage points.

But, 69% of respondents to a regular ONS survey reported their cost of living had increased over the last month which was up slightly from the last period (66%).

Rising inflation and imminent tax and energy bill increases are all tipped by economists to place pressure on consumers in 2022, potentially denting the post-Covid economic recovery.

However the labour market remains in strong shape with the ONS saying the total volume of online job adverts on 28 January 2022 was at 141% of its February 2020 average level making for the third consecutive week-on-week increase.

This suggests a recovery following the dip in the volume of online job adverts over Christmas and New Year.

In all, the findings are consistent with an economy that is likely to recover in the first half of 2022, but the recovery will in all likelihood be stifled by rising costs.

Written by Gary Howes

Source: PSL

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Bank of England to Defend Pound Sterling’s Gains against Euro, Dollar says Analyst

In its quest to fight inflation the Bank of England will welcome onside the recent appreciation in the value of the British Pound.

The Bank of England will on Thursday likely raise interest rates again according to current market expectations in an attempt to stem surging inflation levels which could go as high as 7.0% this year and risk staying above the Bank’s 2.0% target for months to come.

For the Pound the steady build up in expectations for 2022 rate hikes at the Bank has proven a potent source of support: for the UK currency’s valuations to be maintained going forward these expectations must not be disappointed.

Expectations are certainly lofty with Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE, saying current pricing by money markets “is now at a staggering 1.35% for the December 2022 Bank of England meeting”.

This implies over 100 basis points of hikes are expected to be delivered in 2022, posing questions as to whether the market is getting ahead of itself.

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Given the Pound is priced according to these expectations, any paring back of such expectations could result in the Pound retreating from recent highs against the Euro while opening the door to a more concerted downtrend against the Dollar.

But Turner says the Bank won’t want to derail Pound Sterling as a stronger currency in fact helps ease inflationary pressures.

“In the past, in a deflationary environment with weak global demand a former BoE might have issued a verbal rate protest against such pricing – in order to weaken GBP. However, we suspect that the Bank of England is currently welcoming GBP strength in its fight against higher energy prices,” says Turner.

This year has seen the effective exchange rate of the Pound rise to its highest levels since 2016 when it fell in precipitous fashion following the UK’s vote to leave the EU.

The effective exchange rate is a basket of Pound exchange rates that weighs in favour of the country’s main trade partners.

Give the Eurozone is by far the UK’s largest trading partner it stands that the Pound to Euro exchange rate is the effective exchange rate’s largest constituent, and its recent rally to two-year highs has aided the UK’s purchasing power.

A stronger Pound makes the cost of imports cheaper, which is important given the UK is a net importer, thereby acting as a deflationary source.

Turner says a 25 basis point rate hike on Thursday and no protest against market pricing of rate hikes should see EUR/GBP pressing strong support near 0.8275. For those watching the GBP/EUR equation translates into a rise to 1.2084.

ING holds a base case expectation for the Bank to hike rates 25 basis points on a 8-1 vote, raise their inflation forecasts and say medium-term growth has not been impacted by Omicron.

They are expected to signal more “modest” rate hikes are coming but are vague about when they might come.

They are also expected to announce quantitive tightening will begin by not reinvesting maturing bonds purchased under their quantitative easing programme.

A more hawkish scenario – but which does not form ING’s base-case – is the Bank hikes on an unanimous decision and explicitly signals another rate hike in March or May. They also signal a desire to accelerate quantitative tightening via bond sales in coming months.

Here, EUR/GBP goes to 0.8250 (GBP/EUR up to 1.2121).

ING says a dovish outcome would see the Bank of England forgoing a rate hike courtesy of a split decision on the MPC, while signalling that a rate hike is likely at the March meeting.

They would justify going against the market’s expectations for a hike by saying they need more time to gather data regarding the impact of Omicron on the economy.

Here EUR/GBP is forecast to go to 0.8450 (GBP/EUR to 1.1834).

Written by Gary Howes

Source: Pound Sterling Live

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Cost of Covid-19 and Brexit to the UK economy now at at least £250bn each, with Brexit expected to cost more long-term: research

What do Brexit and Covid-19 have in common? They’ve each cost the UK at least £250bn so far, new research out this week suggests – adding that long-term, Brexit is set to prove the more expensive.

Parcel delivery comparison website ParcelHero this week analysed Government figures and publicly-available third-party economic assessments and forecasts to arrive at the totals.

ParcelHero head of consumer research David Jinks says: “British businesses have had a torrid few years. The impact of either Covid-19 or Brexit would have been bad enough; together they have proved disastrous. But which has been the heavier burden for them to bear? The shocking answer is that the entirely avoidable Brexit crisis has had as much of an impact on UK businesses as the unforeseeable Covid-19 tragedy, and its costs are still rising.”

ParcelHero’s calculations start with the cost of Covid-19, citing research from the Centre for Economics and Business Research which put the total for Covid-19 lockdowns at £251bn. It found that the value of goods and services produced by the economy was more than £250bn lower than it would have been, as represented by the GVA (gross value added) of the economy – the value of goods and services delivered minus the costs of producing them.

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Within that, business insurer Simply Business found that Covid-19 cost small businesses £126.6bn, and in November 2021, a Government report suggested that the UK government had set aside almost £365bn in announced budgetary measures in its response to Covid .

The Brexit column of the calculation starts with a 2020 Bloomberg Economics report that suggests the economic cost of Brexit would have top £200bn in lost revenues to UK companies, before it even happened, with the British economy by then 3% smaller than it otherwise would have been.

In August 2020, an Institute for Government suggested in August 2020 that the UK government expected to have spent £8.1bn on preparing for Brexit by the end of the transition period, which ended in January 2020. That included £4.4bn that the National Audit Office suggested had already been spent by January 31 2020.

And in November 2021, a report from the UK Trade Policy Observatory suggested that falling trade had cost UK businesses a further £43.5bn – divided between £32.5bn in imports and £11bn in exports.

Jinks says the two sums mean “the combined costs of Brexit and of the pandemic both equal around £250bn. However, in the long term, Brexit could end up costing even more than Covid-19.”

He points to comments by Thomas Sampson, associate professor at the London School of Economics, who predicted in an August 2020 blogpost that, “When measured in terms of their impact on the present value of UK GDP, the Brexit shock is forecast to be two to three times greater than the impact of COVID-19.”

And he cites forecasts from the Office for Budget Responsibility (OBR) last October that suggested leaving the EU would “reduce our long run GDP by around 4%.” That adds to a 2% hit from the pandemic.

The Government Business Insights report of January 13 2022 estimated that 66% of UK businesses experienced challenges with exporting and 79% with importing in December 2021, with 33.7% of transport and logistics companies closing, permanently (2.7%), temporarily (11.8%) or partially (19.3%).

By Chloe Rigby

Source: Internet Retailing

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Bank of England expected to impose back-to-back rate hikes for the first time since 2004

Economists expect the Bank of England to hike interest rates consecutively for the first time since 2004 as the central bank looks to steer the U.K. economy through persistent high inflation.

The Bank fired the starting gun on rate rises in December, hiking its main interest rate to 0.25% from its historic low of 0.1%. Since then, data has shown U.K. inflation soared to a 30-year high in December as higher energy costs, resurgent demand and supply chain issues continued to drive up consumer prices.

The December rate hike came despite the omicron Covid-19 variant spreading rapidly throughout the U.K. and threatening to destabilize the economic recovery once again. However, the Covid outlook has improved in recent weeks, compounding anticipation for a 25 basis point hike on Feb. 3.

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“If December’s surprise rate hike decision taught us anything, it was, firstly, that the Bank – and especially Governor Andrew Bailey – is clearly worried about elevated rates of headline inflation and the risk of a virtuous wage-price cycle,” James Smith, developed markets economist at ING, said.

Smith suggested that the high-frequency data points to only a “modest and short-lived” economic impact from omicron, making a 25 basis point hike to 0.5% the most likely course of action.

A ‘less hawkish’ high

Deutsche Bank also expects a 25 basis point increase, and senior economist Sanjay Raja expects the Monetary Policy Committee to vote unanimously in favor of such a move.

“With the Bank Rate reaching 0.5%, we expect the MPC to confirm that all APF (asset purchase facility) reinvestments will cease following the February decision,” Raja said in a note Thursday.

“This would see roughly GBP 28bn of reinvestments (~3% of APF) fall out from the Bank’s balance sheet next month with a further GBP 9bn dropped over the remainder of the year.”

Raja expects the MPC’s primary message to be that more modest tightening will be necessary to keep the economy stable, with economists now expecting inflation to peak at 6.5% and take longer to moderate, remaining above the Bank’s 2% target in two years’ time.

“Worries around rising wage expectations and thus services inflation, alongside lingering supply chain pressures should give the MPC further ammunition for more rate hikes over the next several quarters,” Raja said.

What’s more, Deutsche Bank expects the MPC to highlight the wide confidence bands around the inflation outlook.

“The jump in inflation, and particularly energy bills, should weigh on future demand. Tightening global financial conditions should also restrain global growth, and therefore U.K. external demand, and rate rises should also push up borrowing costs for households and firms, tempering GDP growth,” Raja said.

“We continue to see the MPC projecting excess supply at the very end of the forecast horizon (three years’ out), with inflation sitting below the Bank’s 2% target and the unemployment rate edging up as a result.”

This would enable the Bank to stick with a message of only “modest” tightening, and Deutsche sees another 25 basis points hike in August, followed by further hikes in February 2023 and August 2023, taking the Bank Rate to 1.25%.

BNP Paribas brought forward its call for the next hike from May to February as the Covid situation has improved and inflation continues to run even hotter than expected. The French lender’s economists similarly do not believe the MPC’s messaging will introduce any additional hawkishness, and also expects a 25 basis points hike on Thursday.

“In doing so, we expect the monetary policy committee to kick start the process of balance sheet reduction,” BNP Paribas economists said in a note on Wednesday.

“Still, the MPC is likely to be less hawkish next week than the action alone would imply, while we remain of the view that it will deliver a more gradual pace of rate hikes than is priced into markets.”

By Elliot Smith

Source: CNBC

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UK economy falters as Omicron wave hits service sector

The UK economy faltered in January, a closely-watched survey showed on Monday, after the rapid spread of Omicron weighed heavily on the service sector.

The flash IHS Markit/CIPS UK Composite Output Index fell to an 11 month-low of 53.4, compared to December’s final reading of 53.6. Most analysts had expected a rise, with consensus at 54.0.

Within that, the flash manufacturing output index strengthened to a five-month high of 53.8 from 53.6 in December. But the manufacturing PMI eased to 56.9 from 57.9, while the services business activity index was 53.3, an 11 month-low compared to December’s 53.6.

IHS Markit noted: “With hospitality, leisure and travel all struggling due to Omicron restrictions, this offset resilient growth in business and financial services.”

Manufacturers fared better during the month as material shortages started to ease. But staff absences affected all sectors, while input cost inflation remained “stubbornly high”, largely reflecting stronger cost pressures in the service sector.

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Chris Williamson, chief business economist at IHS Markit, said: “A resilient rate of economic growth in the UK during January masks wide variations across different sectors. Consumer0facing businesses have been hit hard by Omicron, and manufacturers have reported a further worrying weakening of order book growth. But other business sectors have remained encouragingly robust.

“Looking ahead, while the Omicron wave meant the hospitality sector has sunk into a third steep downturn, these restrictions are now easing, meaning this downturn should be brief.”

Duncan Brock, group director at Chartered Institute of Procurement & Supply, said: “Though professional and financial services in particular saw a resurgence in activity, hospitality and travel firms took another body blow as the market place stagnated.

“In the gloomiest month of the year, what is also disappointing for the UK economy is price inflation returning with a vengeance, with the second-highest jump in business expenses since 1998.

“The private sector may be experiencing a sense of two steps forward and one step back with price and supply challenges, but with the strongest level of optimism since August 2021, we may be looking forward to a more favourable trading environment in the months ahead.”

Pantheon Macroeconomics noted: “The further drop in Markit’s composite PMI in January suggests that the Omicron variant continued to weight on activity in the first half of the month.

“As things we stand, we think that GDP dropped by a further 0.2% month-to-month in January, after dropping by about 10.0% in December.

“The drop in the composite PMI, however, likely won’t dissuade the [Bank of England’s] Monetary Policy Committee from increases the Bank Rate at next week’s meeting. For a start, some of the survey’s forward-looking indicators improved: the new orders index of the services survey rose from 56.5, and businesses were the most upbeat about the outlook for in demand since August.

“In addition, near-real-time data show that activity has started to recover as January has progressed, indicating that month-to-month growth in GDP in February likely will be positive.”

The survey was sent to panels of around 650 manufacturers and 650 service provides, with responses collected between 12 and 20 January.

By Abigail Townsend

Source: Sharecast News

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Rising costs seep into every sector of UK economy

Every sector of the UK economy is suffering from swelling costs in a sign that inflation will trend much higher in the coming months, reveals a fresh study published today.

Higher wages, compounded by soaring energy and raw material costs, are severely eroding firms margins, according to research carried out by high street lender Lloyds.

The fresh figures reinforce official data published by the Office for National Statistics yesterday showing British businesses’ input costs have soared 13.5 per cent over the last year.

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Jeavon Lolay, head of economics and market insight at Lloyds, said firms’ cost backdrop remains “acute as higher energy prices and wage bills pushed up firms’ expenses”.

Widespare cost increases have ensnared British businesses since the UK emerged from Covid-19 restrictions last spring, mainly triggered by a global supply chain crisis and an energy crunch on the Continent.

The spread between British firms’ costs and prices is the joint highest of any country tracked by Lloyds, raising the prospect of inflationary pressures worsening if businesses hike prices in an effort to shield their margins.

A looming 1.25 percentage point NI hike this April will add to firms’ costs.

By JACK BARNETT

Source: City AM

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Second charge mortgage market set for a bumper 2022

It’s been a very positive year for the second charge market with new business levels almost back to pre-Covid numbers.

Data from the Finance and Leasing Association (FLA) revealed that completions in October reached £109m which is the highest total for 2021 and the third consecutive month of growth. Agreements have increased annually by 26 per cent to 24,626 and the value of new business rose by 24 per cent to over £1bn.

To put it into context there were 28,016 second charge completions totalling almost £1.3bn in 2019 pre-pandemic. So, we could end 2021 on a similar level to 2019.

This new found momentum is expected to continue into 2022 and it is anticipated that we could see the highest second charge lending figures in the post financial crisis era.

Factors driving second charge growth

There are several contributory facts to the growth in second charge and 2022 will be heavily influenced by the high number of mortgage products expiring. These are worth billions of pounds with almost £40bn due to expire in January.

No doubt this will fuel record product transfer levels which will support further growth in the second charge market. Second charge can serve borrowers with additional borrowing needs who are likely to have proceeded with a product transfer on a like-for-like basis, particularly where this has been completed as an execution-only transaction.

On 16 December the Bank of England increased the base rate for the first time in three years from 0.1 per cent to 0.25 per cent in response to inflationary pressures. But even prior to this we had started to see an increase in mortgage rates in the first charge space as swap rates continue to rise.

Longer-term fixed rates, especially five-year fixes, are becoming increasingly popular for borrowers looking for payment stability against a backdrop of rising interest rates, which often carry substantial early repayment charges. A second mortgage offers flexibility where borrowers need to capital raise during the fixed-rate term.

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Change in circumstances

Many borrowers’ credit profiles may have been adversely affected by the pandemic. This means there will be a significant number of borrowers who could benefit by staying with their existing mortgage provider to ensure they can continue to access high street mortgage rates.

If they are benefiting from a low first charge mortgage rate, remortgaging away from their existing deal to raise capital may not be the best option for borrowers in this situation.

This is where a second charge would allow borrowers to raise further funds without disturbing their existing mortgage arrangements.

Housing stock shortages

The stamp duty holiday was introduced to keep the housing market active and it succeeded in its aim, some would say it over-succeeded.

Demand for house buying has resulted in prices rising annually by ten per cent in November, according to Nationwide. Since March 2020 when the first lockdown began house prices have increased by 15 per cent, which equates to a rise of more than £33,000.

The uplift in house prices coupled with a shortage of homes for sale has led to more homeowners opting to improve or extend their existing property. We have been seeing more of this particularly on larger and more expensive properties.

I expect this will continue in 2022 and second charges can provide flexibility both in terms of speed and loan size supporting home improvements in higher value property projects.

Reasons to be cheerful

Whilst the spectre of the new omicron variant may give cause for concern for a further lockdown, there are many reasons to be optimistic about the outlook for 2022 for the mortgage industry as a whole.

Borrowers will undoubtedly rely on professional mortgage advice more than ever. Lenders offer a wide range of financial solutions and this will ensure that as an industry we can strive to deliver the best possible outcomes for consumers with additional borrowing needs.

By Marie Grundy

Source: Mortgage Solutions

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UK economy above pre-Covid levels in November

The UK economy surpassed pre-Covid levels for the first time in November after recording stronger-than-expected growth.

The Office for National Statistics said gross domestic product (GDP) expanded by 0.9% between October and November.

That was higher than economists’ expectations and meant the economy was 0.7% larger than in February 2020.

But there is concern growth slowed again after the spread of Omicron and the introduction of Plan B measures.

“The economy grew strongly in the month before Omicron struck, with architects, retailers, couriers and accountants having a bumper month,” said ONS chief economist Grant Fitzner.

“Construction also recovered from several weak months as many raw materials became easier to get hold of.”

Analysts at Capital Economics said the economy was boosted by 3.5% growth in the construction sector, adding “the unusually dry weather probably helped”.

It also said manufacturing output also improved and the professional sector also picked up, “apparently due to architectural and engineering activities being brought forward from December”.

What is GDP?

GDP or Gross Domestic Product is one of the most important ways of showing how well, or badly, an economy is doing.

It’s a measure – or an attempt to measure – all the activity of companies, governments and individuals in an economy.

GDP allows businesses to judge when to expand and hire more people, and for government to work out how much to tax and spend.

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Rising GDP means more jobs are likely to be created, and workers are more likely to get better pay rises.

If GDP is falling, then the economy is shrinking – bad news for businesses and workers.

The Covid pandemic caused the most severe recession seen in over 300 years, hurting business and employment, and forcing government to borrow hundreds of billions of pounds to support the economy.

Economists had been expecting GDP to expand by 0.4% in November.

Chancellor Rishi Sunak said the stronger growth was “a testament to the grit and determination of the British people”.

But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “GDP almost certainly dropped in December, as households hunkered down in response to the Omicron variant.”

The Omicron variant emerged at the end of November and Plan B measures were introduced on 8 December.

Mr Tombs said data such as restaurant diner numbers, transport usage and cinema revenues “point to a pullback in consumer services expenditure” last month, while “Omicron also depressed labour supply”.

However, he added: “Omicron looks set to fade almost as quickly as it arrived, thanks partly to the rapid rollout of booster jabs. As a result, we expect the government to allow Plan B rules to automatically expire on 26 January and for GDP to bounce back in February.”

These figures show that the reopening and recovery of the UK economy was motoring just before Omicron struck.

The economy had for the first time regained, on a monthly basis, all the very heavy losses during the pandemic lockdowns. Business had been returning to something approaching normality after the government’s decision to axe restrictions since the summer.

Monthly figures are quite volatile though and usually not provided by other countries. It is possible that the Omicron-linked hit to the economy in December could undo the impressive growth in November on the key fourth quarter figure. Using this more usual and internationally comparable quarterly basis, it is still not certain if the UK economy has recovered these losses.

The bigger question is about the impact of Omicron. With hopes that the rapidly-spreading variant has peaked, economists are now confident it will have far less of a hit than previous Covid waves. Retailers’ results over the festive period have been very encouraging.

But the response of the public and its attitude to going out and spending is the big economic unknown. And while Omicron concern fades, the hits to disposable income from rising prices are very real.

So while the chancellor called today’s GDP milestone “amazing” it’s probably not the moment for celebration.

The ONS said that, on a quarterly basis, in the final three months of 2021 the UK economy will reach or surpass pre-Covid levels seen in the last quarter of 2019 if GDP grows by at least 0.2% in December and there are no downward revisions to figures for October and November.

However, several economists pointed to a bumpy road for growth in the first months of this year.

“We expect growth to slow in 2022 as it will no longer be able to simply rely on the [Covid] rebound effect to propel it,” said Yael Selfin, chief economist at KPMG UK.

“In addition, rising taxes and borrowing costs, as well as elevated inflation, will squeeze households’ purchasing power, while the lingering effects of supply chain bottlenecks together with a persistent shortage of labour could constrain production this year.”

Inflation is expected to hit 6% by spring, according to the Bank of England which raised its key interest rate in December and is forecast to lift borrowing costs again this year.

The government will raise the National Living Wage by 6.6% for over 23 year-olds in April but that is the same month when energy regulator Ofgem will implement the new price cap on household gas and electricity bills.

Ofgem is widely expected to lift the price cap following a sharp rise in wholesale gas prices last year which forced around 20 smaller energy companies out of business.

Also from April, employers, workers and the self-employed will all pay 1.25p more in the pound for National Insurance.

By Dearbail Jordan

Source: BBC News

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