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Market Watch: From the sublime to the ridiculous

Andrew Montlake-CorecoAs Brexit uncertainty clouds businesses’ future plans, World Cup fervour may prompt an interest-rate increase and AST changes could be nigh.

At this point, you are either reading this on a wave of passionate pride in our brilliant England team continuing to battle towards their first World Cup semi-final since 1990, or bemoaning an opportunity missed. The big question is whether the economy and consumer spending are also intrinsically linked to the fortunes of our English national side.

A wave of World Cup-induced fervour could well tip the scales for the Bank of England in deciding whether to increase interest rates in August, something that at present is widely tipped. As we know, this means nothing; changes have been ‘nailed on’ before and not transpired – many times in fact – but it was a big move for the Bank of England chief economist Andy Haldane to join the rate-rise vote. If we see GDP edging upwards again then August may well happen.

Theresa MayThe usual Brexit shenanigans are going from the sublime to the ridiculous, almost as if the writers of Yes Minister are back in their prime. Although even they would probably have thought this plot too far-fetched. Apparently, the PM does have a new plan, a plan that David Davis for one knows nothing about, and in a meeting to discuss the plan they did not actually discuss any new plan, which leads everyone to believe that rumours of any plan – old or new – have been mainly exaggerated. Confused?

It’s no wonder that businesses have been questioning things as the need for at least some sort of certainty or semblance of sense is needed to plan for the future. Although, as BoJo was clear to, er, articulate, business can go forth and multiply. Never did I think I would hear a Conservative politician utter those words!

Meanwhile, an interesting proposal has been put forward by James Brokenshire, the housing, communities and local government secretary, to give all tenants a minimum three-year tenancy. In my experience, many landlords would love to have longer tenancy lengths for their good tenants but have been tied by the requirements of the mortgage lenders, who traditionally did not like more than a year’s AST. There is much more choice now, but if this were to become law, there would be a fair few lenders who would have to review their lending requirements to accept three-year ASTs.

Also, is this really what all tenants want? Research by the NLA suggests that “around 40 per cent of tenants want longer tenancies, but 40 per cent do not. More than 50 per cent consistently say that they are happy with the tenancy length they were offered, and 20 per cent tell us that, when they asked for a longer tenancy, they got it”.

I have always supported the idea that longer-term tenancies should be more readily available, especially for those trying to set down roots or whose children are at a particular school who do not want to be forced to move, but with any market there has to be a degree of choice rather than being told what to do. I assume once the details of the plan are released there will be some kind of flexibility – certainly on the tenant’s side if they choose to have a shorter term.

In the markets, three-month Libor has drifted back up to 0.67 per cent, while swap rates, like our Brexit negotiators, have not really done much at all.

There has been a lot of further analysis of the FCA’s initial competition review findings, and although much has already been written on this subject, there are some worrying things to reiterate. First off, much seems to be based on the underlying assumption that cheapest is best. As any consumer will tell you when looking to buy anything, this is more likely not the case. I do find it pretty astonishing that there is a belief that ‘unobservable characteristics’ – such as speed, service, property type and every other soft fact – do not significantly affect results.

The insinuation that some consumers will be better off without advice, or better suited to execution-only, is also worrying. Is it just that they feel that the broker share has got out of hand, or is there a strong push by some lenders and new digital brokers to re-write MMR? The fear is that this will all lead to a dumbing down of advice, consumers being steered away from advice when they need it and ultimately poor outcomes for customers who find themselves with a cheap – but ultimately unsuitable – product.

In the lender world, there have been some interesting changes. Barclays has announced that it is capping all lending (Family Springboard and Shared Ownership 100 per cent staircasing exempt) at £300,000 for flats/maisonettes above 85 per cent LTV and £400,000 for houses above 85 per cent LTV.

virgin money northern rock large logoVirgin Money has finally come back into interest-only lending officially and will now lend 65 per cent LTV on sale of property basis as long as there is equity of £300,000. The maximum loan-to-income multiple for interest-only loans has been increased from 3.5 to 4 times and the minimum income is £75,000. It will also now lend to BTL portfolio landlords.

Skipton has improved its contractor offering and for those with two years’ experience, one year’s contract history and a minimum income of £50,000, it will assess self-employed contractors using its daily contract rate times 5 times 48 weeks.

The Mortgage Works has announced its new range for limited companies, which is a welcome addition to the market. The ICR is at 125 per cent, no floating charge is required and they will even pay an extra 0.1 per cent proc fee!

Kent Reliance will now do ‘Day One’ remortgages for both BTL and residential, whilst Accord has made its agreements in principle soft footprints. Accord will also now do let-to-buy remortgages for first-time landlords.

Hodge Lifetime has increased its maximum loan size to £1m for its 55+ mortgage and the minimum equity requirement is dropped slightly to £100,000.

Finally, specialist lender Vida has launched its new joint borrower, sole proprietor product, via its Helping Hand range, and Santander has raised the maximum loan amount and LTVs for residential non-new-build flats.

Hero to Zero

  • Virgin Money’s new interest-only policy
  • Santander for their new bereavement service
  • TMW new Ltd company BTL range
  • Service standards from some lenders still need to be addressed
  • The FCA competition reviews basic assumption that cheapest is best
  • Lenders who fail to try to help borrowers in difficult situations

What Really Grinds My Gears?

There was a story last week about someone who was refused any help from their lender with payments whilst he was caring for his sick wife. Now of course we don’t know the full details, but in what modern world is this acceptable? I know lenders are businesses blah blah blah, but they have a responsibility to also help those that have borrowed a lot of money and paid an awful lot of interest to safeguard their home, unless of course the borrower is doing something untoward.

Lenders have to modernise and adapt to the new world, to the rights of borrowers who through no fault of their own have issues. The lending game is a partnership, entered into when the lender has underwritten the borrower and accepted the lending risk. When things like this happen the issue needs to be solved together.

Trust is an oft misused word and there is still a long way to go for the financial services industry to rebuild itself after the scandals and mismanagement of the past. Treating borrowers fairly, empathising and helping those in need is a good way to start clawing this back. In fact, it is more than this, it is fundamentally essential.

Andrew Montlake is a director at Coreco

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