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Businesses using second charge mortgages to raise capital

Business owners turned to second charge mortgages to raise capital as Omicron continues to disrupt UK industry, according to Knowledge Bank.

The criteria tracker found brokers looking for ‘capital raising for business purposes’ in December was the fourth most searched term, some of which the firm attributes to the Covid-19 variant.

It says: “While some of these searches may be connected to the disruption caused by staff having to isolate, there will be others using second charge mortgages for positive reasons, such as to make improvements or renovations to offices.

“With the shift to working from home prevalent across industries, some businesses are reassessing their office needs and re-organising spaces to maximise efficiency.”

The tracker adds that the third most searched second charge mortgage term last month was ‘capital raising for debt consolidation’, which “provides further evidence that some individuals have struggled financially due to the disruption caused by the pandemic”.

The tracker says that while age-related searches are common for residential products, maximum age is rarely searched a factor in the buy-to-let market.

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But adds that December marked the first ever month in which ‘maximum age at end of term’ featured as the fifth most-searched term in the buy-to-let market.

It says: “With the stock market still relatively volatile and house prices continuing to rise, some older investors may be looking to the buy-to-let market as an integral part of their retirement planning.”

In the residential sector, broker search activity remained relatively stable from November.

The tracker says that with house prices rising, the terms ‘maximum age at end of term’ and ‘income multiple used for affordability assessment’ were the first and second most searched terms in the residential market, respectively.

The firm says there was interest in equity release products.

It says: “This perhaps was sparked by the second reading of the Leasehold Reform (ground rent) Bill in the House of Commons which took place on 29 November last year. The bill is set to put an end to ground rents for new and qualifying long residential leasehold properties.”

Brokers looking for ‘leasehold remaining at end of mortgage’ and ‘leasehold remaining at beginning of term’ were the second and third most search equity release terms last month, respectively.

The tracker adds that some of the borrowers looking to use equity release may be looking to use the funds to undertake fire safety measures, such as removal of cladding and expensive waking watch, fire safety systems.

Earlier this week, Secretary of State for Levelling Up, Housing and Communities Michael Gove said leaseholders in buildings higher than 11 metres will no longer have to contribute to replacing dangerous cladding.

He gave building firms until March to agree on how to fund this work, and warned legislation compelling them to do so may follow if a plan was not worked out.

By Roger Baird

Source: Mortgage Finance Gazette

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UK inflation to remain more than double BoE’s target for entire year

UK inflation will run at more than double the Bank of England’s two per cent target for a whole year, reveals fresh forecasts published today.

The rate of price increases will peak at 6.7 per cent this April, lifted higher by the energy bill cap being hoisted around 50 per cent, according to investment bank BNP Paribas.

October’s 2021 official inflation rate hit 4.2 per cent. BNP Paribas predict the rate will not fall below four per cent until November this year, meaning the cost of living will remain at least double the Bank’s target for an entire year.

Inflation does not fall back to the Bank’s target until April next year under the investment bank’s forecasts.

Soaring wholesale gas prices triggered by an energy crunch in Europe, compounded by supply chain breakdowns and a tight labour squeeze has propelled inflation in the UK to historically high levels.

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The cost of living is already running at its hottest rate in over a decade, hitting 5.1 per cent in November, according to the Office for National Statistics.

Households are set to be squeezed by inflation eroding real incomes and the Bank hiking rates rapidly in response to the rapid cost of living increase.

Consultancy Capital Economics is pricing in four rate hikes in 2022, taking borrowing costs 1.25 per cent, the highest level since February 2009.

The predictions come as the International Monetary Fund warned yesterday emerging market economies need to prepare for potential currency fluctuations and financial market volatility triggered by the world’s top central banks tightening policy sharply this year.

The Bank will announce its next decision on interest rates on February 3. Last month, the central bank raised rates for the first time in over three years, lifting them 15 basis points from a record low 0.1 per cent.

By JACK BARNETT

Source: City AM

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Second charge for debt consolidation rises

Second-charge products, by both volume and value, are more likely to be required by debt consolidation borrowers, rather than prime borrowers, according to the Evolution Money quarterly data tracker.

Looking at its total lending data for the last three months, up until the end of November 2021, the product split by volume of mortgages is 77% debt consolidation/23% prime, and by value 67% debt consolidation/33% prime.

During the previous two quarters covered by the tracker, lending by volume to prime borrowers had been around 10% higher than this quarter, and there was a more even split between debt consolidation and prime.

For those borrowers specifically using a second-charge mortgage for debt consolidation purposes, the average loan amount has increased just slightly to £21,448, with an average term of 123 months, and average loan-to-value (LTV) also increasing to 73.9%.

Borrowers, on average, continued to consolidate five specific debts, however the average value of the debts consolidated increased to £15,358.

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For prime borrowers, the average loan amount has also increased up to £35,215, with an average term of 153 months, and an average LTV also increasing to 72% from 69%.

Prime borrowers are typically taking out these second-charge mortgages again for debt consolidation (55%), home improvement and some consolidation (23%) and home improvement (18%).

Borrowers were also utilising second-charge loans to pay for vehicles and to fund existing business ventures. The average number of specific debts being consolidated by prime borrowers has remained at five, and the average value of the debt has increased again to £23,160.

Steve Brilus, chief executive of Evolution Money, said: “Second-charge products have always been used by homeowners for debt consolidation purposes, however in previous iterations of the tracker we were starting to see a growing number of prime borrowers using seconds for purposes which were not purely to pay off debts.

“This time around however, it’s clear there has been a shift back in favour of debt consolidation and this is likely to be fuelled by the data coming from a period when government support was being removed, particularly with regards to furlough, and the fact that many people who had accumulated debts during the pandemic were looking for solutions to pay those more expensive debts off.

“This may be why we’ve seen an increase in both loan amount and the average value of debts consolidated by both debt consolidation and prime borrowers, and why LTVs have moved upwards.

“We should not underestimate the benefits that debt consolidation can provide and with second-charge rates likely to be much lower than many other forms of debt, it makes perfect sense for some homeowners to take out a second-charge and pay off their more expensive debts first.

“It’s likely that as we move into 2022 debt consolidation will continue to remain the number one reason for taking out a second-charge mortgage, however we should not rule out more prime borrowers requiring these products especially if they were able to secure an ultra-competitive first-charge rate over the last 12 months, but still find themselves with a requirement to access further equity.

“2021 was a very strong year for the seconds market, and we certainly believe 2022 will be the same. This is a growing sector of the market which advisers should be active in to help those clients with these specific requirements.”

By Jake Carter

Source: Mortgage Introducer

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Labour squeeze and soaring costs compound to hit UK businesses

The ongoing labour squeeze, soaring costs and uncertainty over the economic landscape since the emergence of Omicron are compounding to hit British businesses, reveals a new survey published today.

Growth among UK private sector firms slowed to 21 per cent in the three months to December, down sharply from 32 per cent in the last quarter, according to the Confederation of British Industry (CBI).

That is the slowest rate of growth since April when the UK economy was still in the teeth of tight Covid-19 restrictions.

Alpesh Paleja, lead economist at the CBI, said: “Substantial challenges remain for businesses heading into Christmas: labour and materials shortages, rising costs and new Covid measures are restricting business’ ability to trade during this crucial period.”

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“With uncertainty rising – associated with the sharp rise in Omicron cases – it’s no surprise that the near-term growth outlook has dampened,” he added.

Prime Minister Boris Johnson this week ruled out imposing tighter measures on economic activity to curb the spread of Omicron before Christmas.

However, he has warned the UK government is ready to launch tougher curbs after Christmas if data on the new strain does not improve.

Yesterday, the UK reported more than 100,000 Covid-19 cases for the first time since the onset of the pandemic.

By JACK BARNETT

Source: City AM

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Second charge market ‘returns to more normal levels’: FLA

The value of new second charge business came to £109m across 2,543 new agreements in October, which following September’s positive figures, has been cheered as a “return to more normal monthly levels.”

So says the Finance and Leasing Association (FLA) director of consumer finance Fiona Hoyle regarding the association’s latest figures, which describe the value of new business in October growing 55% on the year.

In the 12 months to October, the value of new business came to to £1.04bn, the report adds – a 24% annual increase.

And the total of new agreements in the 12 months to October now stands at 24,626 – an annual rise of 26%.

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Hoyle continues: “We expect new business volumes to continue to grow despite heightened economic uncertainty over the coming months.”

Paul McGerrigan agrees. He says: “Comparing the FLA figures out today with our own October and November performance, we calculate that the UK’s annual secured lending will comfortably exceed 2018’s total of almost £1.07bn – though this year’s final numbers may come in slightly behind the peak (post 2008 crash) of £1.3bn achieved in 2019.”

He adds: “Looking to the future – second charge lending typically reduces over December as families concentrate on Christmas, with a reawakening in January.

“Judging by this year’s growth in lending and house prices, we believe that – if the economy remains stable and unemployment under control – next year will experience growth beyond 2019’s figures.”

By Gary Adams

Source: Mortgage Strategy

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UK economy to return to anaemic growth as cost of living crisis spikes Brits

A triple threat of a worsening cost of living crisis, higher interest rates and a pulling of government Covid-19 support will throw the UK economy back into an anaemic state, according to new research published today.

Swelling energy bills and rising costs for basic necessities will cause households on tight budgets to rein in spending, according to predictions made by accountancy firm PwC.

Weaker spending from low income households will clamp down on the UK’s economic recovery from the Covid-19 crisis.

The forecast underlines the impact soaring inflation is having on the economy’s capacity for growth.

The UK economy is heavily reliant on consumer spending to generate output, meaning a reduction in spending from low income households would constrain growth.

Brits living on tight budgets “will feel the pinch from a combination of rising inflation, higher interest rates, and fiscal changes” and a looming 1.25 percentage point national insurance hike, cautioned Hoa Duong, economist at PwC.

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PwC’s experts said richer households would be able to shake off the impact of rising prices due to them having greater bandwidth to absorb a higher cost of living.

A surge in spending “will likely be concentrated on higher income households” as a result, the firm said.

Inflation in the UK has taken off in recent months, triggered by a combination of global supply chains breaking down, soaring wholesale energy costs and rising commodity prices.

The Office for National Statistics estimates prices are 4.2 per cent higher than they were a year ago, the highest rate of inflation in nearly a decade.

Yet, PwC expects the rate to scale even further and hit its highest level in three decades next spring.

“The rise in the energy price cap and the reversal of the VAT cuts for hospitality and tourism create a perfect storm that is set to push headline inflation rates to around five per cent and six per cent,” the firm said.

The downbeat projections will be a cause for concern for the Bank of England, which has a mandate to keep inflation at two per cent.

The Old Lady has come under intense scrutiny for keeping interest rates at a record low 0.1 per cent despite expecting inflation to rise to more than double its target.

Officials on Threadneedle Street will announce their next decision on rates on December 16. Earlier this month, they stunned markets when they left rates unchanged.

By JACK BARNETT

Source: City AM

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The economic outlook for the UK and Wales post-pandemic and Brexit

UK businesses, especially in North Wales, have demonstrated strong resilience and most have performed better than the economic predictions.

The main reason for the economic bounce back was the furlough scheme, which mirrored that of Germany’s normal economic support policy of intervention during financial crises in order to save the economy and jobs.

As the businesses are opening, these furloughed high skilled workers have resumed work and production. The machines which were lying idle for a while have started producing.

The economic downturn from the pandemic will be short-lived, as long as we are all very vigilant and the UK and Welsh governments do not attempt to completely stop their support.

In contrast, during the 1980s, 1990s and 2008 economic crises, the UK government did not provide economic support and allowed many good quality, viable businesses to go bust; permanently damaging the economy and jobs. Hopefully, we have all learned a lesson from the past.

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In this current crisis we have also witnessed the key roles which devolved nations can play.

The Welsh government’s targeted support not only saved many viable businesses, it also had a major positive social impact within the most deprived communities in North Wales.

This again signifies how the powers passed to a devolved nation can enhance the social and economic wellbeing of the whole of the UK.

The Welsh government’s support and intervention complemented the national support and tackled locally-focused challenges.

Welsh government’s development bank (DBW) also targeted its support to areas of the economy that were missed by the UK government and the large international banks.

The Office for Budget Responsibility (OBR) predicts that, although the UK economy will almost fully bounce back from the pandemic, it’s economy and eventually the jobs market will suffer for decades due to Brexit.

We are now facing mountains of bureaucratic paperwork in order to trade with the EU.

Some of the EU businesses do not want to go through the bureaucratic hassles of purchasing or selling to UK companies.

The only way my organisation can maintain a good trading relationship with EU businesses is through our Belfast or German offices.

The UK has already seen a dramatic drop in exports to the EU. Building trade deals with most countries outside the EU is now proving to be a long and horribly complex process which will take many years to achieve.

The Welsh government administration has proved its maturity and economic competence during the pandemic.

If Wales has greater power to manage its economic activity and was allowed to have its own direct independent trading relationship with the EU; it would deliver significant economic growth and social wellbeing.

Sadly, the UK government will not grant further autonomy to Wales and will very likely erode the autonomy it presently has.

Source: The Leader

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Why the seconds market is thriving

When the pandemic took hold last year, a host of second-charge lenders pulled back on their lending. As a result, the market struggled. However, there’s no denying that the second-charge market is now booming.

In fact, the latest figures from the Finance & Leasing Association show that in September this year new business agreements jumped by 67% to nearly 2,500, while the value of new lending increased 78% to £102m.

These aren’t one-offs either. In the three months to the end of September, both the number of new second-charge agreements and the value of those deals are up by more than 100% on the same point last year, while on an annual basis they are both up by more than 10%.

There is a pretty clear message there. Not only has the second-charge market bounced back from the challenges of COVID, it’s now at pre-pandemic levels. What’s more, the momentum isn’t ending – the FLA said it fully expects new business volumes to grow over the remainder of the year as demand is so solid.

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Changing circumstances

There are plenty of different reasons for why the second-charge sector is looking so positive at the moment, but the strength of that demand from borrowers is a significant one.

The last couple of years has had a real impact on the finances of millions of homeowners, and making use of the biggest asset they own – their home – in order to correct that makes sense.

It’s no secret that scores of clients have taken on additional forms of debt to get through the pandemic, but now that the economy – and perhaps their personal circumstances – look to be on an upward trajectory, they may want to explore their options for consolidating those debts into a single monthly payment.

Equally, there will be plenty of homeowners who have realised their current home doesn’t quite meet their needs, but they don’t have the appetite – or the funds – to purchase a new one, and so instead want to improve what they already have.

It may be converting an attic to build a new bedroom for a growing family, or perhaps adding an extension which can serve as a home office now that they spend a portion of the week working from home. That sort of home improvement project will likely require some serious funding too.

The number of clients in these positions has only increased as a result of the pandemic, and a second-charge mortgage is likely the perfect option for them.

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Remortgage regret

There was a time when intermediaries may have immediately turned to a remortgage for a client looking to raise funds for home improvement or to pay off debts.

There are some potentially significant downsides to following this course of action though. For starters, there’s the danger of large exit fees.

Let’s face it, with interest rates as they have been for the last decade, it’s no great surprise that huge numbers of borrowers have chosen to lock in for longer periods. For many borrowers, the 2-year fix is yesterday’s news – instead borrowers are more likely to want a 5-year fixed rate.

But that means that if they do need to raise funds, remortgaging can be prohibitively expensive due to the large early repayment charges they would face.

Of course, remortgaging may also mean the client has to move to a less attractive rate, particularly if the sum they are borrowing for their debt repayment or home refurbishment pushes the loan into a higher loan-to-value band.

Remortgaging may mean sacrificing a great rate, moving into a more costly band for borrowing and having to pay a hefty exit fee to boot. It’s not exactly a compelling proposition, is it?

A second option

However, a second-charge mortgage avoids all of those downsides. The client borrows against the equity they hold in the property outside of the existing mortgage – that first-charge is completely untouched.

This is an even more attractive idea after the last year, when the activity levels in the housing market have meant the value of our homes has increased, meaning homeowners often hold more significant equity levels than was the case just a year or so ago.

There are no exit fees to worry about, no payment shocks that will come from having to shift the existing mortgage to a higher rate or a higher loan-to-value (LTV) band. Instead, the client can simply access the funds they need for their project or debt repayment and get on with their lives.

With every week that passes, we see more and more advisers becoming more comfortable with the role that second-charges can play for their clients.

This has been coupled with fantastic competition and innovation across the lending space, meaning the products we deliver are better designed and suited for clients.

The FLA is absolutely right that demand for second-charge products are only likely to grow from here. As a result, it’s crucial for advisers to put plans in place for helping these clients, whether that be handling the advice themselves or partnering with specialists who can ensure those clients still receive the best possible guidance.

By Steve Brilus

Source: Mortgage Introducer

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Brexit is harming the UK economy, say 44% of voters

Almost twice as many voters now believe Brexit is having a negative effect on the UK economy as think it is benefiting the nation’s finances, according to the latest Opinium poll for the Observer, carried out during budget week.

The survey comes after Richard Hughes, the chairman of the Office for Budget Responsibility, said his organisation calculated that the negative impact on GDP caused by the UK’s exit from the EU was expected to be twice as great as that resulting from the pandemic.

Hughes said Brexit would reduce the UK’s potential GDP by about 4% in the long term, while the pandemic would cut it “by a further 2%”. “In the long term, it is the case that Brexit has a bigger impact than the pandemic,” he said.

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Opinium’s findings appear to be in line with other recent polling, including a survey last week by Ipsos MORI, which showed concern about the effects of Brexit rising to the point that it is now seen as the biggest issue for the country alongside Covid-19.

The Opinium survey found that 44% of people think Brexit is having a bad impact on the UK economy, compared with 25% who think it is having a positive effect.

More starkly, 53% of people believe Brexit is having a bad effect on prices in shops, against 13% who think it is having a good effect, while 51% think it is adversely affecting the UK’s ability to import goods from the EU, against 15% who think it is helping.

While chancellor Rishi Sunak’s approval rating rose slightly after his Budget speech on Wednesday, in which he increased government spending to its highest sustained level since the 1970s while warning that inflation would rise to 4% next year, the fact that people appear to be linking Brexit with economic problems including rising prices will be a worry to No 10 and No 11 Downing Street.

During the campaign for Brexit, led by Boris Johnson and Michael Gove, voters were told by the Leave campaign that leaving the EU would create a more dynamic UK economy able to trade freely across the globe, and less bureaucracy, leading to lower prices.

The OBR report, published alongside Sunak’s budget, said that its evidence to date suggested its previous forecasts that Brexit would lead to a 15% fall in both UK imports from, and exports to, the EU appeared to have been broadly accurate.

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The report said: “The evidence so far suggests that both import and export intensity have been reduced by Brexit, with developments still consistent with our initial assumption of a 15% reduction in each.”

It is also made clear that shortages of lorry drivers were at least partly caused by Brexit.

Last week the Financial Times reported that whereas by August this year global goods trade had rebounded sharply since the height of the pandemic (according to the CPB World Trade Monitor), the UK was proving a notable exception, with its exports still sharply down.

Since the end of the Brexit transition period on 1 January this year, UK ministers have insisted that difficulties with trade to and from the EU would be short-lived and amounted merely to “teething problems” that would be resolved quickly once companies got used to the new arrangements.

While Opinium found evidence of clear anxiety about Brexit, this has yet to translate into a negative effect on support for the Tory party.

The Conservatives are on 40%, down 1 point compared with a fortnight ago, while Labour is down 2 points on 35%. The Lib Dems are on 8%, the Green party 7%, the SNP 5% and Plaid Cymru 1%.

By Toby Helm

Source: The Guardian

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British adults are £1,189 more in debt than they were a year ago

The financial impact of the pandemic has been felt everywhere in the UK. Data from The Money Charity shows that for many, it’s not only affected savings and investments but also overall debt. Between June and August 2021, an average of 305 people a day in England or Wales declared insolvency or bankruptcy.

Added to this, figures from the Office for National Statistics show that by December 2020, almost nine million people had to borrow money to make up for a reduction in income or additional expenses during the pandemic. People on lower incomes were more likely to get into debt, need to borrow money or have their finances affected as a result of the pandemic.

How the country is faring

When it comes to personal debt, it turns out the UK is not faring so well. In fact, Brits are now £62.9 billion more in debt than they were back in July 2020. This equates to an extra £1,189 in debt per adult.

The average household now has a debt of £62,670, including a mortgage. This translates to £32,931 per adult. Perhaps more scary is the fact that estimates for 2025 see the total rising to an average of £82,641 per household if things continue moving in the same direction.

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If you take away mortgages, the average adult in the UK now has about £3,734 in unsecured debt, including £1,067 in credit card debt. For those making the minimum payment, it will take 24 years and nine months to repay the entire amount.

Dealing with your debt

If you’re one of the many Brits struggling to keep up with bills, a good first step is to tally up everything you owe. This includes not only credit cards and loans but also household bills you might have fallen behind on. Research shows that over six million Brits have fallen behind on at least one household bill as a result of the pandemic, and a significant 1.2 million haven’t been able to keep up with their rent payments.

Once you understand what you really owe, it’s time to make a few phone calls to your providers to figure out payment plans or see if you can get extra time to pay. This is important for things like your mortgage, as The Money Charity points out that more than two properties a day were repossessed between April and June this year for missed payments.

Reducing expenses

Since the end of the lockdown, expenses in the average household have increased significantly. This is good news for the economy, as people are shopping and eating out again. But as a consumer, if you’re not careful, it can spell trouble for your bank account.

Now is a good time to redo your budget and make sure you’re not overspending. If a monthly budget feels overwhelming, start with a weekly one. Revise it regularly until the numbers add up. Don’t forget to give yourself an amount for fun post-lockdown spending.

If you are overwhelmed with debt and cannot make minimum payments, it might be worth talking to a debt advice service such as the StepChange Debt Charity. They can advise you on your rights and how to move forward in the best possible way.

By Diana Bocco

Source: The Motley Fool

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