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The unbalanced economic recovery and resulting mortgage mismatch make lending a risky business

The data on the world economy has been disappointing in recent months largely lead by poor performance in the emerging economies.  

The UK has increasingly looked like a bright spot in this landscape as each quarter has passed the UK growth forecasts have been revised up.  

The latest forecasts show growth of 1.5 per cent for 2013 and over 2 per cent for 2014 far better than most people expected six months ago.

However, behind these stronger numbers on growth and the related employment and unemployment figures there lies a significant problem for us all.  

The table below shows the Office for National Statistics latest estimates of the level of employment and employment growth by region in 2012.

The overall growth in employment is extremely welcome given the depth and length of the recession we have experienced, however the distribution of the jobs growth is far from helpful.


The overall growth in employment for the UK is over 126 thousand but London alone represents growth of nearly 143 thousand.  

Most regions experience either a modest rise or fall in employment with the exception of Scotland, Yorkshire and Humberside and London where the shift has been more significant.  

The fall in employment for Scotland is rather odd and I would not be surprised to see this revised but the remaining pattern in employment growth is all too familiar.  

Rapid employment growth in London with limited increases or declines elsewhere.  When you consider that only 16 per cent of the working population is employed in London the unbalanced nature of the recovery is very clear.   

The shape of this employment growth pattern not only results in the young moving to jobs in London but also drives up the wages in those markets relative to the rest of the UK.  

The symptoms of this lack of active regional policy can be seen clearly in the performance of the housing market where London is completely outperforming all other regions in the UK even when you allow for foreign investors and cash purchases.  

The latest ONS house price figures show London growing by 9.4 per cent year on year whereas the average for the rest of the UK excluding London is only 2.1 per cent.

The unbalanced nature of this recovery and resulting housing mismatch makes mortgage lending a far more risky business than it first appears.  

Reported aggregate data on house price growth and affordability only gives a partial view on the underlying risks.  

The majority of borrowers rely on employment income to support mortgages and debt and if the employment growth continues to be a mainly southern phenomenon, the housing markets of many parts of the UK are going to be difficult places to lend.  Pursuing economic growth at  any cost may come with a much bigger price tag in the medium term than we all expect.  

The time has come for far more active industrial and regional policy not just to support the rest of the UK but to help make the situation sustainable in a congested London and South-east.

Gary Styles


GPS Economics


Barclays is right to bring call centres back to the UK

I was interested to read the news last week that Barclays has brought all of its telephone-based mortgage services in India to the UK, Mortgage Strategy can reveal.

The lender says some brokers have experienced delays when dealing with its broker arm, Woolwich, as a result of the move and has apologised.

Personally, I feel returning call centres back to the UK is a very positive move.

Both my personal assistant and myself have often struggled to understand and make ourselves understood when speaking to the India based staff.

This is not disrespectful to their levels of intelligence or knowledge of the English language, and I have no doubt many of them are graduates and highly intelligent, but it will always be difficult to talk to them without slipping in some colloquial language or English-isms and nuances which cannot be taught from textbooks or English classes.

The one good thing about the foreign call centres was the investment in technology which meant the actual calls were always crystal clear, and better than when I call clients in my home town.

Andy Wilson


Good for Barclays for taking heed of the market

Barclays’ decision to onshore its call centres is great news. My biggest bug with the Woolwich has been their overseas call centres glad they have listened to the market. I can’t see how anyone could see it in any different light?

Tom Wester


It’s not just payday loans that wreck your credit score

The effect taking out a payday loan can have on borrowers’ credit scores was highlighted in the recent poll Mortgage Strategy conducted with its readers in which 63.6 per cent of the 289 respondents said clients had been turned down for a mortgage as a result of taking out a payday loan.

But there are lots of other things that can wreck your credit score too.

Take insurance comparison websites – you get your quotes then hawk your case around a bit making sure that the cover offered actually fits your criteria.

However every time you do this a footprint is left on your credit file lowering your score each time as the amount of recent searches mounts up.

Chris Gardner


Interest-only is still a legitimate way of buying property  

Virgin Money is the latest lender to restrict its interest-only products, with it now only available to customers with a minimum income of £100,000 in total for applicants, including bonuses, and a minimum property value of £500,000.

The minimum property value replaces the minimum loan size that it previously had of £300,000 for interest-only loans.

But once again this is just another example from the regulatory interference that has resulted from the Mortgage Market Review.

It results in not only a tightening of interest-only policy and customer choice in what was and remains a perfectly legitimate way of buying a property for many many people.

Moreover, what it has done is create a massive simmering problem that is coming to a boiling point – mortgage prisoners.

Into this category I would put both existing interest-only mortgage holders who cannot move and repayment mortgage holders who will get into difficulty and have no recourse to turn to interest-only when rates go up because lenders simply will not let them.

Watch this space, the FCA cannot say it has not been warned. The regulator’s chief executive Martin Wheatley described interest-only as a ticking time bomb but it is not quite what it thought it was.

Dick Sprinkler


FCA’s treatment of CCL rules is unfair on intermediaries

I was interested to read your lead story on the Association of Mortgage Intermediaries lobbying the FCA to amend the new consumer credit license rules for mortgage intermediaries.

The FCA will take over responsibility for consumer credit licenses from the Office of Fair Trading on 1 April next year.

From 2 September this year, current OFT licence holders have been able to register with the FCA for interim permission to carry on regulated activities from 1 April 2014.

The article also stated that brokers have been “astonished” at the new fees.

AMI’s chief executive Robert Sinclair said the aim of the interim regime is to ensure firms can continue to trade after 1 April 2014, after which the FCA will consult on appropriate measures for different types of licence holders.

There is an open consultation with the FCA at the moment, which closes on 3 December and Sinclair said AMI is arguing for a number of alternative measures.

These include whether appointed representatives of firms can be part of a network arrangement and also whether mortgage intermediaries need to hold a licence at all given the changes to the Mortgage Conduct of Business under the Mortgage Market Review.

He says: “The fee levels currently being discussed by the FCA appear significant given that the vast majority of mortgage brokers have no eligible income arising from consumer credit. Therefore, we feel some sort of carve out would be appropriate.”

But when the consultation period with the FCA has finished and a further timescale has elapsed for the outcome to be published, the opportunity to get a discount for early payment, by 30 November 2013, will have been lost.

If I offered my customers this pay up and shut deal no doubt there would be sanctions for failing to treat customers fairly.

Andrew Allcock


Second-charge approvals on a high

Second-charge mortgage approvals hit a four-year high in October, according to figures published last week by the Finance & Leasing Association. A total of 1,391 new approvals were secured in the second charge mortgage market in October 2013, a 25 per cent increase from the same month last year. The value of new business in […]


Economic tracker: High-street brands not the only option

There’s no doubt about it – the buy-to-let market continues to grow and the latest CML figures for quarter three show a 16 per cent increase in loans advanced on quarter two. The loans themselves were worth £5.7bn, up 19 per cent on the previous quarter. The reasons for this increase are many and varied […]

Report describes MAS as ‘not fit for purpose’

The Treasury select sub-committee last week described the Money Advice Service as “not fit for purpose” and in need of a “radical overhaul” as part of a damning inquiry into the future of the service. On 3 December the Treasury select sub-committee published its report into the effectiveness of MAS following a year-long inquiry. MPs […]


Caption Competition

Can you put the boot in to your nearest and dearest to win a delicious box of Hotel Chocolat milk chocolates? Submit a witty caption for the photo above and you will be automatically entered into our prize draw. Remember, the funnier it is, the more likely you are to win. What are you waiting […]

Don’t play chicken with the Bank of Japan

By Josh Ausden, Head of Client Investment Strategy, Neptune Short-term yen strength has hurt the Neptune Japan Opportunities Fund but recent events have only added weight to our conviction that the Bank of Japan will act to ease policy, boosting multinationals’ profits and weakening the yen. In recent weeks the performance of the Japanese stockmarket […]


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  • John Duggan 11th December 2013 at 11:40 am

    Chris Gardner’s letter in Mortgage Strategy 11/12/2013, in which he comments that insurance comparison website searches can have an adverse effect on your credit score is rather concerning. I have always been of the opinion that these type of searches have no effect on your credit score. Maybe someone could clarify the matter. I even have a Camelot search on my credit file, as a result of playing the lottery online. John Duggan. Mortgage Advisor.