New £1 billion fund announced for building new homes in England

The Government and Barclays have announced a £1 billion housing development fund to help deliver thousands of new homes across England.

Under the agreement loans ranging from £5 million to £100 million, which will be competitively priced, will be available for developers and house builders who are able to demonstrate the necessary experience and track record to undertake and complete their proposed project.

Funding is open to new clients as well as existing Barclays clients, and will put greater emphasis on diversifying the housing market, as at present almost two thirds of homes are built by just 10 companies.

A key priority of The Housing Delivery Fund is to support small and medium sized businesses to develop homes for rent or sale including social housing, retirement living and the private rented sector, whilst also supporting innovation in the model of delivery such as brownfield land and urban regeneration projects.

‘There is a vital need to build more good quality homes across the country. This £1 billion fund is about helping to do exactly that by showing firms in the business of house building that the right finance is available for projects that help meet this urgent need,’ said John McFarlane, Barclays’ chairman.

Housing Secretary James Brokenshire said that it will see Barclays in partnership with Homes England also help to see more design and innovation introduced to new home building.

‘It is a further important step by giving smaller builders access to the finance they need to get housing developments off the ground. This is a fantastic opportunity to not only get more homes built but also promote new and innovative approaches to construction and design that exist across the housing market,’ he added.

According to Sir E Lister, chairman of Homes England, the organisation will play a more active role in the housing market and do things differently to increase the pace, scale and quality of delivering new homes.

‘The Housing Delivery Fund demonstrates Barclays’ commitment to the residential sector and will provide a new funding stream for SME developers to help progress sites and deliver more affordable homes across England,’ he said.

Brokenshire added that it will move towards the target of 300,000 new homes being built a year by the mid-2020s and that with 217,000 homes built last year, England has seen the biggest increase in housing supply for almost a decade.

Home equity release may cost pension firms billions

UK pension companies may be harbouring billions of pounds of losses from home equity release loans, according to research seen by the BBC.

Under equity release, homeowners borrow money against their house’s value and don’t repay anything until it’s sold.

That’s fine for the borrower, but there are fears lenders have underestimated how much these loans could cost them.

At least one firm assumes house prices will rise 4.25% a year. If they don’t, firms face losses – or even bailouts.

Pensioners whose firms invest in the loans would be protected through the Financial Services Compensation Scheme (FSCS) which is funded through a levy on the industry meaning losses would be ultimately borne by all pension holders.

Parliament probed insurance rules last year and one MP wants to reinvestigate.

John Mann, MP for Bassetlaw and vice chair of the Treasury Committee, which investigated the market last year, told the BBC: “We need to hold a new hearing, a new session, to go into the issue.” He added: “I think some financial institutions have pushed the boat out too far with this, and that creates a potential systemic risk.”

Parliament’s report was seen as broadly supportive of the industry, focusing on competition and innovation.

Equity release works like this:

  • Borrowers over the age of 55, take out a percentage of the value of the house.
  • They pay nothing; the money is paid back when the borrower dies or moves into care. Interest is added each year or month, and because of compound interest, the loans can grow in size very quickly.
  • Borrowers are safe. The loans come with a guarantee that they won’t have to pay more than the value of the house. Any difference is absorbed by the lender.
  • But the loan can exceed the value of the house it is secured against, especially if borrowers live longer than expected or the value of the house drops, and that threatens some lenders.

‘Bad enough’

The Prudential Regulation Authority (PRA), which oversees the companies offering these loans, says it is considering whether to tighten the rules. But critics say it has been too slow.

“It evokes the global financial crisis, but this is an insurance crisis,” said Kevin Dowd, professor of finance and economics at Durham University and author of the report. “It’s not on the scale of the financial crisis, but it’s bad enough.”

If new rules don’t emerge, house prices continue to rise and there are no surprises for insurers when it comes to people living longer, equity release lenders may never realise these losses.

Image caption Professor Kevin Dowd says poorly priced guarantees could bite insurers

Which is the problem, says Professor Dowd. A property price crash or a period of consistent negative growth would see equity release loans become a loss-maker for their providers. So, says Professor Dowd, equity release providers are gambling that house prices will continue to rise.

‘Prudent Resources’

Just Group, to which borrowers owe more than £6bn of these loans, said last month that a PRA draft “does contain proposals, which if implemented would result in a reduction in Just’s regulatory capital position.” This would mean a smaller financial cushion to absorb losses.

Professor Dowd’s calculations suggest its guarantees could cost it £2bn if accounted for correctly in his view. Just Group declined to comment on his estimate.

It said: “At Just we set aside substantial prudent resources against UK residential property risks. We calculate these on a basis equivalent to a 28% fall in the property market and property prices never rising thereafter which is much stronger than the more severe economic scenarios that the Bank of England prescribes for the banking sector. […] Protecting the guarantees we have made to our policyholders is, and has always been, of paramount importance to Just.”

It declined to comment on the size or nature of these resources, or how they might be affected by a change in the rules.

The PRA watchdog is considering whether to change the rules to stop companies assuming house prices will rise.

Equity release mortgages are increasingly popular as older homeowners seek to top up their retirement funds.

In the three months to the end of June, homeowners aged 55 and above borrowed a record £971m through equity release, according to the Equity Release Council.

Image caption Anne and Chris Lee took out an equity release mortgage,and are covered by a no negative equity guarantee

Case Study: Anne and Chris Lee

They are in their early 60s and borrowed about 30% of the value of their home to finance renovations and help fund their retirement.

Their loan was £112,000, at a rate of 6.78%. It will take just over 10 years for that amount to double.

But they are sitting pretty. And that’s because of the no negative equity guarantee, borne by lenders.

Sharing Professor Dowd’s concerns is Dean Buckner, a former senior technical specialist at the PRA who retired in May. He said progress at his former employer in fixing these loans had been slow. Part of that may be the nature of the regulator and the many roles it must fulfil.

“The regulator is there both to protect firms and to protect the general public,” he said. “The Bank of England has part of its mission statement to protect the good of the people or something like that. I think it’s a horrible failure of regulation and I’m very sorry about that.”

The PRA said in a statement: “Following a review announced in 2015, more robust expectations of firms were published in 2016 and confirmed in 2017. Clearer and more precise tools to determine whether firms are meeting these prudent expectations have been out for public consultation since July 2018.

“They benefit from experience of Solvency II in practice and the collective expertise within the PRA, in which a plurality of views is actively encouraged when determining policy”.

Interest rate rise UK: Bank of England raises rate to 0.75 per cent in August 2018 – what does it mean for your mortgage?

Around a third of London, borrowers could see the cost of their mortgages rise by hundreds of pounds following August’s interest rate rise.

The Bank of England has voted unanimously to raise UK interest rates to their highest level in almost ten years.

The decision to raise the base rate to 0.75 per cent from 0.5 per cent pushes the Bank rate to its highest level since March 2009.

It is only the second Bank rate rise since the financial crisis in 2008, after a rise in November 2017 pushed interest rates back up from a historic low of 0.25 per cent to 0.5 per cent.

Today’s announcement will come as little surprise after most economists predicted the monetary policy committee’s decision.

The Bank of England raised interest rates today to the highest level for more than nine years

Another interest rate rise of 0.25 per cent was widely expected to take interest rates to 0.75 per cent in May.

However, the disruption caused by the “Beast from the East” that hit this March led to the economy growing by just 0.1 per cent in the first three months of the year and the Bank opted to keep interest rates at 0.5 per cent.

Two more rate rises are expected in 2019 and 2020.

Will I still be able to afford my mortgage after today’s interest rate rise?

“According to Nationwide Building Society, only a third of London borrowers are on variable rates. This means the vast majority of borrowers will see no impact on their mortgage payments have taken advantage of the low fixed rates that have been on offer,” said Colin Payne, associate director at Chapelgate Private Finance.

However, the third of London homeowners on variable rates will see their average mortgage payments pushed up by more than £300 a year as a result of the rise.

Today’s interest rate rise will push up the average mortgage by £26 per month to £1,180, further squeezing household incomes.

 

“In real terms, wage rates are still at levels prevailing in 2005. Moreover, a small proportion of households already have a relatively high debt service burden. For those, some of whom will be on variable rates, any rate rise will be a struggle, even though the impact on the wider economy and most households are likely to be modest,” said Robert Gardner, Nationwide’s chief economist.

That said, while a rise in interest rates may come to a shock to anyone who bought their first home in the past decade, higher mortgage interest will have been factored into lenders’ calculations since new rules were introduced in 2014 to curtail high-risk lending, so don’t panic.

Should I fix my mortgage now?

People on a variable rate mortgage benefit from interest rate changes when the base rate drops. However, mortgage experts agree that today’s announcement heralds a general upwards trend in interest rates.

MarkCarneyinterestratesmortgage.jpg
Mark Carney, governer of the Bank of England, announced the Bank rate rise to 0.75 per cent today (Bloomberg)

This means that borrowers on a variable rate should seek out a new deal now if they can.

“If November’s rate rise was important for its symbolism, today’s rate rise is equally important for its message to the market: the record low interest rate era is over, and interest rates are now headed in one direction,” said Craig McKinlay, sales and marketing director at Kensington Mortgages.

“This rise should be a call to action for those borrowers who haven’t yet remortgaged to get in touch with a mortgage broker and seek a new competitive deal.”

Will house prices go up or down now interest rates have risen?

The 0.25 per cent rate rise may push down already falling London house prices, as the cost of home ownership looks set to rise further.

“It’s not the relatively modest increase in interest rates which is significant – the message it sends about their future direction is far more important,” said London estate agent and former residential chairman of the Royal Institution of Chartered Surveyors, Jeremy Leaf.

“The change is likely to compromise already fragile confidence to take on debt in the property market and wider economy.”

London house prices fell for the fourth month running in May to £479,000, a drop of £2,000 off the value of the average home in the capital.

Prices were expected to continue to decline slightly for the next couple of years due to uncertainty over Brexit, combined with the likelihood of further interest rate rises.

“In our regional forecasts we predict price falls in London in 2018 and 2019 of 1.7 per cent and 0.2 per cent respectively,” said Richard Snook, senior economist at consultants PwC.

UK House Prices Fall as London Decline Intensifies

U.K. House Prices Fall as London Decline Intensifies

U.K. house prices fell for the first time in seven months as sellers adapted to the reality of the weaker market.

Asking prices slipped 0.1 percent in July from a month earlier, property website Rightmove said on Monday. In London, prices slipped 0.5 percent, with smaller apartments falling faster than bigger homes.

The reduction in asking prices can “be a sign of a falling market,” Rightmove director Miles Shipside said. “With more price reductions at this time of year than in any of the last six years, there is likely to be a combination of both initial over-pricing and failure to react fast enough — or to reduce by enough — when initial buyer interest fails to lead to a sale.”

The British housing market is weakening after a three-decade boom amid slower economic growth and the uncertainty created by Brexit. London, where the average house price is more than double the national average, has been hit harder than the rest of the country. This month’s declines also reflect a normal summer slowdown in activity, Rightmove said.

A separate report by Acadata showed U.K. house prices fell 0.2 percent in June. Most regions in the U.K. still have higher house prices than a year ago, the property services firm said.

More Sellers

On an annual basis, Rightmove said house-price inflation slowed to 1.4 percent in July from 1.7 percent. In London, prices fell 1.7 percent from a year ago. The average U.K. asking price stood at 309,191 pounds ($400,000).

There are more sellers coming to the market than buyers, the report showed. The average number of houses in the window of each U.K. estate agency branch is at the highest since September 2015, meaning sellers are having to compete harder on price.

The slump is an opportunity for first-time buyers in London as properties with two bedrooms or fewer saw prices decline. The trendy borough of Hackney posted a 3.5 percent drop.

Made in Chelsea

House prices fell in half of London’s boroughs, but not its most expensive one

Source: Rightmove

Other reports on Monday were more positive for the U.K. economy. Business confidence has reached a two-year high since the U.K.’s vote to leave the European Union — and was strongest in London — according to Lloyds Bank Commercial Banking. At the same time, consumer spending saw its first back-to-back monthly increase since early 2017, Visa’s Consumer Spending Index showed.

Banks push back BoE rate forecasts after growth data shock

LONDON (Reuters) – Banks scrambled to push back their forecasts for the next Bank of England interest rate raise after data on Friday showed a sharp and unexpected slowdown in Britain’s economic growth.

The new forecasts anticipate the next BoE hike to take place in August this year or as late as 2019.

Before Friday’s GDP data most economists had expected the central bank to tighten monetary policy in May.

The change in banks’ forecasts signals a much weaker outlook for the pound, which has been among the best performing major currencies in 2018.

Last week expectations of higher rates lifted sterling to its highest since the Brexit referendum in June 2016.

The likelihood that the BoE will not hike next month also means bond prices could rally further and presents a more volatile backdrop for the UK stock market.

UBS scrapped its estimate of a single rate hike in 2018 after the weaker-than-expected growth figures while Nomura, which has long been hawkish on UK interest rates, now sees a first hike in August.

Bank of America Merrill Lynch and Natwest Markets strategists pushed back their May rate hike calls to November.

“We view the (economic) slowdown as more serious, and see no prospect of hikes in 2018,” said UBS, the world’s largest wealth manager, in a note.

John Wraith, a UBS economist, said inflation could fall back to the central bank’s target of two percent later this year and that concerns about talks between Britain and the European Union over the terms of their divorce could resurface.

Market expectations of a rate hike in May tumbled to less than 20 percent from around 50 percent, after GDP data showed Britain’s economy slowed to 0.1 percent growth between January and March, the weakest quarter since 2012.

Earlier this month the market was pricing in a 90 percent chance of a rate rise.

The market is now also forecasting no more than one 25 basis point rate hike over the remainder of 2018, from a near-certain two rate rises expected a fortnight ago.

Sterling GBP=D3 tanked more than one percent to $1.3748 and government bond prices surged in the aftermath of the data.

Reporting by Tom Finn and Saikat Chatterjee, Editing by Tommy Wilkes and William Maclean

Extent of North-South Renting Affordability Gap Revealed

Households outside London spend an average of just over half their income on renting…

Households renting in London are putting a significant percentage of their income towards rent compared to the rest of the country, according to new data from Landbay.

Annual rental growth in the UK, excluding London, rose to 1.21% in March, bringing the average monthly rent to outside the capital.

In London, the average monthly cost of renting is more than double the national average, at 2100

However, the average disposable income for a worker in the capital is per 2455 month. As a result, 89% of their take-home pay is used on renting.

Outside the capital, rental payments amount to just over half (52%) of the average disposable income, which is per 1760 month.

In England, renters in the North East have the lowest percentage (41%) of their incomes going towards rent, followed by Yorkshire & the Humber (43%), the North West (44%) and the East Midlands (44%).

“Rents have continued to rise over the last five years, increasing by 9% across the UK since March 2013 and by 7% in London,” notes John Goodall, CEO and founder of Landbay.

“Not a day goes by when there isn’t more news about the supply-demand mismatch in the UK housing sector and until this is resolved, tenants will continue to rely on the private rented sector to support them.

“With the right property and the right location, there are attractive yields to be had, and consistent rental demand will drive returns in the long-term,” Goodall concludes.

 

Midlands Cities Among Top 10 Buy-To-Let Property Postcodes

London commuter belt towns fall down the rankings as Northampton, Leicester and Birmingham surge

Three of the top five locations for buy-to-let property investments are in the Midlands, according to new research.

Northampton, Birmingham and Leicester were all cited as top postcodes for buy-to-let, with strong rental growth of 2.38%, 3.91% and 4.35% respectively, according to independent mortgage lender LendInvest.

Whilst the Midlands regions have been steadily rising up the rankings, the report highlights the South West region as an up-and-coming market, as strong rental growth and healthy market activity has boosted the profile of cities like Bristol, Swindow, Truro and Gloucester.

Conversely, London and the South East continue to underperform, as declining rents deters further investment in these regional markets.

Historically strong performing commuter towns like Dartford, Romford and St Albans have recent begun to slide down the LendInvest buy-to-let rankings, in some cases by as many as 58 places.

However, the report notes that demand for housing will continue to support future growth: “Political changes are increasingly underpinning this uncertainty in the market, however the need for housing around the UK prevails.

“As such, we can expect the rental market to grow, with investors prioritising yields and rental price growth as valuable metrics to consider when purchasing a property.”

Over the last 10 years, rents have grown by 16% nationally, according to figures from Rightmove.

 

Substantial Rental Growth Found Outside of the Capital

UK renters are increasingly looking outside of London, as the capital’s rental market reaches an affordability ceiling.

Your Move’s latest buy-to-let index shows rents across England & Wales averaged in February.

In London, however, the exodus of renters looking outside of the capital for more affordable accommodation has resulted in slower rental growth, with rents declining 1% year-on-year and 0.5% from the previous month to an average of in February.

Similarly, the rental market in the South West also saw pressure ease in February, as rental properties reached a surplus in the region; rents in the area reduced by 1.5% year-on-year, with the average price now standing at pcm.

Tenants in Wales, on the other hand, saw rents surge the quickest over the month, with the average property letting for in February – a 7.7% annual increase.

A monthly reduction saw rental returns slide by 0.1% from January to an average of 4.1% across England and Wales.

The highest rental returns were found in the northern regions of the North East & North West, where average returns stood at 5.3% & 5% respectively, in February.

Conversely, landlords with properties in the South East and South West saw rental return fall below 4% in February, following a year-on-year decline.

The news follows Knight Frank and IHS Markit’s latest publication, which found that property owners continued to remain positive about the UK property market in March.