Paper Summary: 20th December 2013

In Friday’s papers…

Economics

Businesses will be paid to cut their energy use on winter evenings next year, amid warnings from Ofgem of increased risk of power shortages by the middle of the decade. The National Grid will ask businesses to reduce electricity use between 4pm and 8pm – the peak demand period for households – forcing the government to deny that we are heading towards a sustained wave of blackouts reminiscent of the 1970s.  The cost of running the scheme however, is likely to fall on consumers’ energy bills, and the measures would also have serious ramifications for the nation’s productivity and economic recovery.  The fact that these measures are deemed necessary is being viewed  as proof that not enough wind turbines are being built to cover the fall in Britain’s electricity-generating capacity, as many coal and gas-fired stations are closed to meet government promises to cut carbon emissions. (FT p.1., Mail p.2, Guardian p.34, Times p.20)

Personal Finance

The Bank of England has highlighted the rate-setting dilemma facing the government as the economy recovers, warning that heavily indebted homeowners will be hard hit if interest rates start to rise before wages have picked up. Their research finds that if interest rates were raised to 3% from the current record low of 0.5% it would almost double the proportion of “vulnerable mortgagors” (who spend at least 35% of their pre-tax income on repayments) to 16%. The Independent claims that nearly 1 in 6 households would be at risk of losing their homes.  It comes as strong jobs data this week raised the prospect of an earlier rise in interest rates, but Carney has signalled he wants wages to pick up first. (Guardian p.33, Times p.49, Independent p.55, Telegraph Business p.1)

Property

Rents are rising twice as fast as wages, according to the latest buy-to-Let index from LSL Property Services. Rents are up 1.6% over the last 12 months, compared to only 0.8% annual growth in weekly earnings. David Newnes comments that “for many households, the dream of home ownership is still relegated to the imagination”, as the pressure on tenants’ finances make saving up for a deposit a real struggle. (Mirror p.62, Metro p.16)

The British housing market is ending the year strongly with mortgage lending rising by 30% in November, according to the CML.  The Mortgage Advice Bureau revealed that in November the number of mortgages being marketed to borrowers broke through 12,000 for the first time in four and a half years, more than three times the number on offer in April 2009. (Guardian p.33)

MAB: Homebuyers’ income exceeds £40,000 on average for the first time in almost five years

• House purchase applications up 31% in Q2 2013 and 58% year-on-year
• Affordability improves as high earners mobilise
• Twelve months since average two or five year fixes last rose

Homebuyers’ average income crept above £40,000 in June 2013 for the first time in over four and a half years according to the National Mortgage Index from Mortgage Advice Bureau (MAB), the UK’s leading independent mortgage broker.

This is the first time that purchasers’ income has averaged more than £40,000 since January 2009 when MAB first began collecting this data. June’s average of £40,510 was 2% higher than in May (£39,648) and 9% higher than June last year (£37,164)*.

Using data from more than 500 brokers and 800 estate agents, the National Mortgage Index also shows that purchase prices grew by 1.4% in the month and by 4.5% since June 2012 to £224,450.

Typical buyers’ income, borrowing and purchase profiles

	June 2013	May 2013	June 2012
Average income*	£40,510	£39,648	£37,164
Average loan	£158,456	£155,338	£148,802
Average purchase price	£228,405	£225,151	£218,619
Affordability**	17.7%	17.6%	17.0%

 

Affordability has therefore improved gradually over the last year as a result of prices growing at a slower rate than incomes. However, homebuyers’ average income has grown significant more (by 9%) than annual inflation (2.7% ***) or average weekly earnings (3.7% ****) suggesting that more affluent borrowers are driving up the average as they take advantage of the housing market recovery.

This trend has been especially visible across Greater London, the South West, the Midlands and the North where homebuyers’ typical incomes have risen by 10% or more since June 2012. Only three regions – the South East, East Anglia and Wales – saw average incomes fall.

Quarterly purchase applications jump by almost a third

Growing interest in the property market contributed to a 31% increase in the volume of purchase applications between the first and second quarters of 2013.  Despite a 2% drop between May and June, quarterly purchase applications were up by 58% compared with the second quarter of 2012.

June also witnessed the highest volume of remortgage applications since the financial crisis – 6% more than in May and 83% up on June 2012.   Remortgage loan to values (LTVs) have shifted noticeably in the last year with the typical application now involving 5% less equity (59.6% LTV – June 2013 vs. 54.6% LTV – June 2012).

One year since average two or five year fixes last rose:

Competition continued to drive up product numbers in June with a 2% increase pushing this average ever closer to the 10,000 marker. At 9,887 the average number of products was the highest since November 2011.

Average fixed rates fell once more in June: apart from a solitary rise of 0.06% in the average three year fixed rate between June 2012 and July 2012, average two, three and five year rates have either held firm or fallen every month for the last year.

The average three year rate fell by 0.07% to 4.06% from May to June while average two and five year rates each fell by 0.08% to 3.74% and 3.88% respectively. June’s average five year rate was more than a full percentage point lower than a year ago (-1.02%) with the average two year rate (-0.98%) and three year rate (-0.90%) close behind.

For anyone taking out a £150,000 mortgage over a 25 year term, the rate changes over the last year equate to a saving of £3,412 over the lifetime of a two year fixed deal, £4,625 for a three year deal and £8,493 for a five year deal.

Fixed rate performance June 2013 vs. June 2012

	2 year fixes	3 year fixes	5 year fixes
June 2012 average	4.72%	4.96%	4.90%
June 2013 average	3.74%	4.06%	3.88%
June 2012 fixed term cost ◊	£20,462	£31,442	£52,090
June 2013 fixed term cost ◊	£18,489	£28,682	£46,911
June 2012 full term cost ◊	£240,030	£242,461	£245,021
June 2013 full term cost ◊	£236,618	£237,836	£236,528

◊ Based on taking out a £150,000 mortgage for a 25 year term.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“June’s figures suggest that the first part of the jigsaw is firmly in place as far as a housing market recovery is concerned. The first instalment of Help To Buy has whetted the appetite for property and sent buyers swarming to their nearest estate agent to see what’s on offer.

“Having almost 7,000 reservations under his belt will give George Osborne confidence when he steps up to play his next card and reveal the details of the mortgage guarantee scheme. It’s a crucial move that will open up the market to less affluent buyers if he gets it right and if confidence spreads to the construction sector.

”Reports that fixed mortgage rates will start to rise are turning out to be premature; in fact, I’d bet my house on further reductions over the summer.”

-ENDS-

* Three month averages.  The figures for average salary take all applications into account and use the larger income for any application which features two borrowers who are both earning.

** Affordability is treated as the average annual income as a percentage of purchase prices

*** Office for National Statistics, Consumer Price Inflation up to May 2013, released 12 July 2013

**** Office for National Statistics, Average Weekly Earnings up to April 2013, released 12 June 2013

 

MAB comments on the latest CML data for March 2013

Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), comments on the latest CML regulated mortgage survey data:

“The best news from the CML is the four year high in the proportion of first-time buyers accessing loans with a deposit of 10% or less. Competition under the Funding for Lending Scheme (FLS) has prompted lenders to improve their offers higher up the loan to value (LTV) curve, opening up the market to borrowers without a large deposit and making it easier to achieve their homeowning ambitions.

“First quarter activity has held up remarkably well given last year’s added incentive of the stamp duty holiday. Without this extra boost, this year’s comparatively healthy figures are an encouraging sign of the improving market for first time buyers in 2013.

“The battle among lenders for bigger volumes has continued to fuel consumer choice, with nearly 2,000 more products available on average in March 2013 compared with March 2012 (9,269 vs. 7,592). Brokers have a crucial role to play in identifying the best deal for each person’s circumstances, so it’s encouraging to see more borrowers turning to expert advice.”

Mortgage Advice Bureau: Quarterly Mortgage Applications up by 25%

•      Growing purchase activity fuels mortgage market resurgence
•    22% yearly growth in product range boosts consumer choice
•     Average two year rates not bettered since June 2007
•     Incomes are up and purchase LTVs down since March 2012 

A 25% increase in mortgage activity during the first quarter of 2013 points to a growing resurgence in the market, according to March’s National Mortgage Index from Mortgage Advice Bureau – the UK’s leading independent mortgage broker.

Combined purchase and remortgage cases were up by a quarter during the first three months of 2013, compared with the final three months of 2012, and by 18% compared with the equivalent period last year.

Using data from more than 500 brokers and 800 estate agents, the National Mortgage Index shows the strongest momentum is with purchase activity, helped by an 11% monthly increase to March 2013.  This boosted the quarterly increase in purchase business to 26%, compared with 22% for remortgages, which dropped by 2% in the month.

Total mortgage activity for March was 22% higher than in March 2012, fuelled by a 13% annual increase in purchase mortgage cases and 19% more remortgage cases.

Lender competition drives consumer choice:

Competition for business between lenders meant there were more mortgage products available on average during March – 9,269 – than any month since November 2011.  Apart from December 2012, when the average total fell by 1%, consumer choice has improved every month since the Funding for Lending Scheme (FLS) was launched in August 2012. 

There were 20% more products available on average during March, compared with July 2012 before the FLS launched, and 22% more than in March 2012.  Recent growth has been driven by intermediary products, which increased by 4% in the month and by 22% under the FLS to 6,644 – the widest range on offer since December 2011.

While direct-only products have grown by 15% under the FLS, their number fell by 4% in March to 2,625.

March also saw the average two year fixed rate drop below 4% to 3.9%. This figure – the lowest since MAB’s records began in June 2007 – is 0.78% lower than in July 2012 before the FLS came into effect.

Typical homebuyers are nearly £3,400 better off than last year:

The average homebuyer in the first quarter of 2013 earned noticeably more than the same time last year, with an average income of £38,660 – £3,372 more than in the first quarter of 2012.

Better product pricing meant they were also far likelier to opt for fixed rate deals.  While three quarters of buyers (75%) chose to fix at the start of 2012 – when average fixed rates ranged from 4.76% to 4.27% – this increased to 92% during the first quarter of 2013, tempted by fixed rates averaging between 4.47% and 3.90%.

Conditions have improved marginally in 2013 for homebuyers with limited deposits. Average purchase deposits were almost £2,500 lower in the first quarter of 2013 (£61,671) than the final quarter of 2012 (£64,153).

However, despite increasing by 1% in the first quarter of 2013 to 71%, the average loan to value (LTV) for purchase mortgages remained almost half a percentage point lower than in the first quarter of 2012 – signalling the need for initiatives such as Help To Buy to encourage higher LTV lending.

In another sign of continuing caution from lenders, homebuyers’ average income at the start of 2013 continued to make up more of the average loan (25.7%) than in the first quarter of 2012 (24.4%).

Remortgage customers borrow more and put forward less equity:

The biggest shift in LTVs at the start of 2013 benefited remortgage customers as activity continued to improve following a slump in 2012. 

Whereas the typical consumer borrowed 55.5% of their existing property’s value at the end of 2012 – putting £119,134 forward as equity – the typical remortgage increased to 59.8% of the property value in the first quarter of 2013, with the typical equity down by over £5,000 to £113,864.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“There has certainly been no shortage of options when it comes to selecting mortgage products so far this year. Lenders have served up a feast of offers that have fed consumer demand with some exceptionally low fixed borrowing rates.

“What we need are greater helpings of funding for people on the fringes of the market, who are either knocked back because of strict criteria or scared off by towering deposits. We are almost halfway through the FLS, but despite the incentive to increase lending, the average borrower is still putting up almost 30% of their property’s value as a deposit.

“Not everyone has this kind of money available, so Help To Buy is definitely needed to open the market up to more would-be homeowners. Interest in house purchases is already far healthier than it was last year, and we are confident there is plenty more to come.”

 

MAB: Mortgage Rate War Fuels Bumper January Sales Applications

• Average rates predicted to drop below 4% by April
• Price war pushes remortgage LTVs to a 15-month high
• Average deposit more than £6,000 larger than in Jan 2012

Average rates for two and five year fixed mortgages are predicted to dip below 4% by the end of April, as the National Mortgage Index from the Mortgage Advice Bureau (MAB) – the UK’s leading independent mortgage broker – showed unprecedented interest in fixed rates from borrowers.

More than nine in ten purchase (93%) and remortgage (92%) applications in January 2013 saw borrowers opting for fixed rates. Using data from more than 500 brokers and 800 estate agents, the Index also saw the average loan to value (LTV) for remortgages climb back to its highest point (59.2%) since October 2011, as borrowers higher up the LTV curve benefitted from the lender pricing war.

Deposits stretch homebuyers’ purse strings:
Despite the influx of lower priced deals, house buyers typically had dig deep to find more than £6,000 extra for their deposits than in January 2012. Buyers in January 2013 also took on an extra £12,000 in mortgage debt, compared with the same time last year (see below).

Digging deeper, borrowing more: house purchases in Jan 2013
Average purchase deposit Average purchase loan
January 2013 UK £62,461 £150,494
London £143,574 £314,180
January 2012 UK £56,167 £138,345
London £127,845 £275,915
Difference UK +£6,294 (+11%) +£12,149 (+9%)
London +£15,729 (+12%) +£38,265 (+14%)

The overall growth of purchase deposits has been driven by a hefty rise for homebuyers in London, who put down an average of £23,179 extra as a deposit in January 2013 than they did last year. This increase alone represents more than a third of the typical buyer’s salary (£68,205 – Jan 2013).

Even discounting London, the average purchase deposit across England has increased by £2,267 in the last twelve months, with only two regions – the West Midlands and East Anglia – seeing average deposits fall.

Falling rates boost activity levels:
Descending mortgage rates saw two-year fixed deals reach 4.26% in January 2013 – their lowest level since December 2011 (4.24%). At 4.47% and 4.27% respectively, average three and five year deals have not once offered better rates since MAB began tracking this data in summer 2007.

New year launches meant the average number of available products increased slightly in January, up by 1% to 8,716, driven by a 3% rise in direct-only products to 2,427. Overall applications activity for the month within the MAB network was up by 17% on January 2012, with purchase cases up by 18% and remortgage cases by 14%.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“Generous helpings of Government funding mean lenders are showing more appetite for risk, which is a godsend to anyone wondering where they will find the money for a deposit. The best deals are available at low LTVs, but as that space becomes increasingly crowded, lenders are open to offering better rates in return for less up-front investment.

“There has been little to get excited about around remortgages until recently, and just 12 months ago you would struggle to find a deal lower than 5%. Now they are closer to 4% and people looking to remortgage will be pretty pleased with the options open to them.

“We’re looking at an abnormal rate environment compared to the past, with a tiny difference between average two and five year deals. By the end of April, we fully expect the average to dip below 4%, and there has never been a better outlook for mortgages borrowers who tick all the boxes.”

Mortgage Advice Bureau comments on the CML gross lending figures

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“The CML’s gross lending figures for September portray a mixed picture, with month-on-month lending down from August, but the Q3 figures were up on Q2.

“However, the September lending figures refer to completions which were hit by the usual summer lull and the effect of the London Olympics. In contrast, MAB found mortgage applications actually increased last month, up 1.9% on August. Application activity has been boosted by increased availability of competitive mortgage deals and the launch of the Funding for Lending Scheme, which has seen a number of lenders have now begun to engage with the higher loan-to-value sector again.

“Nevertheless, we still need to see more lenders moving up the LTV curve before there will be any sizeable increase in housing transactions.”

Mortgage Advice Bureau comments on October MPC decision

MAB comments on October MPC decision

Brian Murphy, head of lending at leading broker Mortgage Advice Bureau, said:

“With reports filtering through that the UK economy has finally clawed its way out of the double dip recession, the MPC were most likely to sit on their hands again this month and see what happens.

“There was vague speculation interest rates could have come down to 0.25% given the weak economic data, but this has been outweighed by the view that such a move wouldn’t have resulted in a net benefit overall.

“They will also have been aware that the Bank of England’s Funding for Lending Scheme has been seized upon by lenders and has resulted in a further fall in mortgage rates in the last month.

“We saw a pickup in application activity in September as average rates on two, three, and five year fixed rates have all continued to move down, and the percentage of borrowers choosing fixed rate deals on purchase business now stands at 86%, which is the highest for over three years.”

Mortgage Advice Bureau comments on today’s BOE Credit Conditions Survey

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“The easing of the wholesale funding markets along with the Bank of England’s Funding for Lending scheme has allowed lenders to realise their market share objectives, and there’s been a noticeable increase in mortgage availability in the last quarter.

“The Credit Conditions Survey suggests the availability of secured credit will increase significantly for the rest of the year, but we need lenders to focus on the bottom end of the market. Lenders say they’ve seen an increase in demand for house purchase, but if the market is to grow it needs new borrowers and remortgagors coming through at high LTV levels.”

Mortgage Advice Bureau comments on today’s CML figures

MAB comments on today’s CML figures

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“The launch of the Funding for Lending Scheme last month saw an increase in the number of competitive products being launched. It will have been too soon for this to filter through to the August figures, but I’d expect this will start having more of an impact on activity levels over the remainder of the year.

“However, if there is to be a lasting effect we really need to see more lenders launching high loan to value products. We are encouraged that Aldermore Mortgages have launched into the New Buy market and we need more lenders to engage in this important sector of the housing market both to offer greater choice and drive competition. First-time buyers are the lifeblood of the industry and until we can address this the lending environment will not fully recover.”

Mortgage Advice Bureau comments on September MPC decision

MAB comments on September MPC decision

Brian Murphy, head of lending at leading broker Mortgage Advice Bureau, said:

“It’s no surprise the base rate has been held again. There are a number of economic factors currently in play aimed at boosting growth, and the MPC needs to see what impact they have before making a major decision over the base rate.

“It is still waiting to see what effect the latest round of QE has, and we also have today’s announcement from the Government which details measures to slash unnecessary red tape across the planning system. These factors will take a while to filter through and it will be several months before we can realistically expect to see a change.

“A cut would benefit borrowers with mortgages linked to the base rate, but would hurt lenders – especially those in the mutual sector who are more reliant on savers and who have been doing their best to maintain the relative ‘health’ of the housing market.”