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Baker Financial
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Couples, Families and Singletons

The stereotype of students seeking out a chaotic existence in a communal house no longer typifies those renting a home from a private landlord, according to research from Nationwide – in fact they are more likely to be couples (47%), families (11%) or those living alone (30%), rather than young people living with university friends (7%). More than a third of men surveyed (35%) rent a home alone, compared to one in four (25%) women, with lack of affordability or a change in life circumstances most likely to be the cause.

The YouGov survey of more than 2,000 tenants renting from a private landlord provides a broad snapshot of diverse experiences and expectations depending on age, life stage, route to renting and location – as well as highlighting many everyday realities for renters across the UK. For almost half (46%) of those surveyed, their main reason for renting was that they could not afford to buy. However, for more than one in ten (11%) a change in circumstances, such as the breakdown of a relationship, leaves them renting – and the likelihood of this grows with age, with 15 per cent of over 55s citing this as their main reason for renting. Having to leave a previous home (6%) and lack of social housing (4%) also feature – while others rent because of the flexibility it provides (6%) or to have easier access to their work (5%). While more than three quarters (78%) of those surveyed, renting flats or houses, rent the whole property, one in five (19%) just rent a room – though this figure rises to more than a third (36%) of those renting in London, likely due to both affordability and availability.

Once in, UK tenants renting from a private landlord stay an average of four years and two months, though almost one in three (31%) stay for five years or more and one in eight (13%) stay for a decade or more – rising to almost one in five (19%) of those renting on their own. One in five (20%) of those staying put for a decade or more are 45-54 year olds and more than one in four (28%) are 55 plus. According to the study, the older the tenant, the longer they seem to stay, with average length of tenancy duration for 18-24 year olds at just over a year, 25-34 year olds at two years four months, 35-44 year olds at four years five months, 45-54 year olds at five years eight months and those 55+ staying six years nine months in the same home.

The average UK monthly rent is £562.05, though one in seven (14%) pay more than £800. After paying for food, rent and bills, the average Brit has £314.45 monthly disposable income left – though men are left, on average, more than one hundred pounds better off than women (£372.84 v £264.69).
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No Change 6, Change 3

At its meeting ending on 20 June 2018, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-3 to maintain Bank Rate at 0.5%. In the MPC’s most recent projections, set out in the May Inflation Report, GDP was expected to grow by around 1¾% per year on average over the forecast.
A key assumption in the MPC’s May projections was that the dip in output growth in the first quarter would prove temporary, with momentum recovering in the second quarter. This judgement appears broadly on track. A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness in Q1, in part related to the adverse weather. Employment growth has remained solid. Although manufacturing output recorded a decline in April, and this was accompanied by a fall in goods exports. More broadly, the prospects for global GDP growth remain strong, and while financial conditions have tightened somewhat, they continue to be accommodative.
Consumer Price Inflation was 2.4% in May, unchanged from April. According to the Committee, inflation is expected to pick up by slightly more than projected in May in the near term, reflecting higher dollar oil prices and a weaker sterling exchange rate. Most indicators of pay growth have picked up over the past year and the labour market remains tight, suggesting that domestic cost pressures will continue to firm gradually, as expected.
The Committee’s best collective judgement remained that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agreed that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.
https://bakerfinancial.co.uk/mortgage-broker/
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No change, no change ...

Despite plenty of speculation to the contrary, at its meeting ending on 9 May 2018, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to maintain Bank Rate at 0.5%. The MPC highlighted that their preliminary estimate of GDP growth in the first quarter was 0.1%, 0.3 percentage points lower than expected in February, suggesting that adverse weather in late February and early March had an impact. Survey indicators suggest that growth was somewhat stronger in Q1 than implied by the preliminary estimate. According to the Bank, GDP is expected to grow by around 1¾% per year on average over the forecast period with business investment restrained by Brexit-related uncertainties. However growth is being supported, like exports, by strong global demand and accommodative financial conditions. Household consumption growth remains subdued, in line with the modest growth in real income over the forecast period. CPI inflation fell to 2.5% in March, lower than expected at the time of their February Report and the MPC predict that the impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought. It is predicted that CPI inflation will hit the MPC target in two years. These projections are conditioned on a gently rising path for Bank Rate over the next three years. In what they call exceptional circumstances presented by Brexit, the MPC has been balancing any significant trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity. Whilst not changing the bank base rate this week, the Committee’s best collective judgement appears to be that, were the economy to develop broadly in line with the May Inflation Report projections, an increase in the bank base rate would be appropriate to return inflation sustainably to its target at a more conventional rate. For the majority of members therefore, an increase on the current 0.5% was not required at this meeting and it was re-affirmed that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.
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Greater probability



Nearly three quarters (74%) of first-time buyers’ mortgage applications via intermediaries resulted in a completion during Q4 2017, according to the latest Mortgage Market Tracker from the Intermediary Mortgage Lenders Association (IMLA). This compares with just over half (53%) a year earlier, as first-time buyers benefitted more than any other customer group from improving access to mortgage finance during 2017.

The quarterly IMLA report – which uses data from BDRC – examines consumers’ success rate in securing a mortgage via the intermediary channel, by tracking their progress from initial expression of interest (seeking a ‘decision in principle’) through to completion. In doing so, it compares the fortunes of intermediaries dealing with first-time buyers, homemovers, remortgagors, buy-to-let (BTL) borrowers and applicants for specialist loans.

UK Finance data recently showed that first-time buyer numbers reached a ten-year high in 2017 . IMLA’s report suggests that this was helped by nearly nine in ten (88%) applicants securing a mortgage offer in Q4 2017 for the third successive quarter, up from 73% a year earlier. More than four in five (84%) of those offers in Q4 2017 went on to complete, compared to 72% twelve months before.

Across 2017 as a whole, 87% of first-time buyer applications resulted in an offer and 81% of those went on to complete: both noticeable improvements on 2016. Overall, it meant that 71% of first-time buyer applicants achieved their aim of securing a mortgage in 2017, compared with just half (50%) in 2016.
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Greater probability



Nearly three quarters (74%) of first-time buyers’ mortgage applications via intermediaries resulted in a completion during Q4 2017, according to the latest Mortgage Market Tracker from the Intermediary Mortgage Lenders Association (IMLA). This compares with just over half (53%) a year earlier, as first-time buyers benefitted more than any other customer group from improving access to mortgage finance during 2017.

The quarterly IMLA report – which uses data from BDRC – examines consumers’ success rate in securing a mortgage via the intermediary channel, by tracking their progress from initial expression of interest (seeking a ‘decision in principle’) through to completion. In doing so, it compares the fortunes of intermediaries dealing with first-time buyers, homemovers, remortgagors, buy-to-let (BTL) borrowers and applicants for specialist loans.

UK Finance data recently showed that first-time buyer numbers reached a ten-year high in 2017 . IMLA’s report suggests that this was helped by nearly nine in ten (88%) applicants securing a mortgage offer in Q4 2017 for the third successive quarter, up from 73% a year earlier. More than four in five (84%) of those offers in Q4 2017 went on to complete, compared to 72% twelve months before.

Across 2017 as a whole, 87% of first-time buyer applications resulted in an offer and 81% of those went on to complete: both noticeable improvements on 2016. Overall, it meant that 71% of first-time buyer applicants achieved their aim of securing a mortgage in 2017, compared with just half (50%) in 2016.
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Affordable payments...

Research by Halifax suggests the typical mortgage payment accounted for less than a third (29%) of homeowners’ disposable income in the fourth quarter of 2017 compared to almost half (48%) in 2007 (Quarter 3). This means mortgage affordability levels for first-time buyers and homemovers have dropped by 40% since the 2007 peak.

The significant improvement in affordability since 2007 has been driven predominantly by historically low mortgage rates, despite the first base rate rise in a decade last November. With average house prices rising by 3% in the past year, mortgage affordability marginally improved in the last quarter of 2017, edging down from 29.6% in 2016.This is comfortably below the long-term average of 35%,, remaining low due to a further dip in mortgage rates during 2017 from an average of 2.09% in Q1 to 1.98% in Q4.

There have been substantial improvements in affordability in almost all local authority districts (LADs) since 2007, with mortgage payments falling by at least 30% as a proportion of average earnings in 35 areas. Three-quarters (74%) of all districts have seen an improvement of at least 15 percentage points over the period.

The 10 most affordable local areas are all in northern Britain, whilst the 10 least affordable areas are all in the South. Whilst the comparison of mortgage affordability over the last 10 years shows a vast improvement, when looking only over a five-year period, affordability – on this measure – has actually deteriorated. Whilst the average mortgage rate has fallen from 3.7% in 2012 to 1.98% at the end of 2017, average house prices have grown by 40% in the same period.
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Are we content?

The jaw-dropping value of possessions owned by the UK’s 27 million households, and the amount that is uninsured is laid bare this week by the Association of British Insurers. The value of the UK’s household contents is now nudging towards £1 trillion (one million million: £1,000,000,000,000), with the value of possessions owned by all UK households now worth £950 billion – that is more than central government’s entire spending last year (£675 billion), more than the combined value of all homes in Scotland, Wales and Northern Ireland (£630 billion) and eleven times greater than the wealth of the world’s richest man – Jeff Bezos, founder of Amazon (£84 billion). And if you remember back to the financial crisis of 2008, its greater than the Government bail out of the banks (£850 billion).

Worryingly, with over a quarter (28%) of households without home contents insurance, this could leave £266 billion worth of possessions uninsured against risks such as theft, fire, flooding and accidental damage. This despite the fact that the average cost of home contents insurance, at £141 a year, works out at less than £3 a week, with the weekly cost of a combined buildings and contents policy less than £6 a week.
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Pay back time

According to the latest figures published by UK Finance, Gross mortgage lending in January is estimated to have been £21.9bn, 9.7 per cent more than a year earlier. Card spending was 5.8 per cent higher than in January 2017, although higher repayment levels meant that the pace of borrowing saw little change, growing at 4.8 per cent annually. Meanwhile UK businesses’ deposits grew by 7 per cent in the past 12 months, while borrowing over the same period contracted slightly by 1.4 per cent. Within business sectors, manufacturers’ borrowing expanded modestly, while construction and property-related sectors contracted.

Higher levels of repayments on credit cards is expected at this time of year as customers pay off their festive spending, meanwhile, households were careful with their outgoings as wage growth remains below the inflation rate. The increase in gross mortgage lending of almost 10 per cent compared to the same period last year, and higher than the monthly average, was a direct result of customers who took advantage of mortgage deals on offer at the end of 2017.

UK Finance suggest that business sentiment remains positive with confidence in short term trading conditions buoyed by the recovery in international markets. Investment levels remain broadly unchanged and borrowing continues to err on the side of caution, as companies adopt a ‘wait and see’ attitude to trading uncertainties, opting to use their deposits as buffers for spending decisions.
https://bakerfinancial.co.uk
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Credit card charged!

The Financial Conduct Authority (FCA) has this week published its final policy statement on new rules for the credit card market. The FCA estimates the changes will save consumers between £310 million and £1.3 billion a year in lower interest charges. The new rules are now in force, but firms have until 1 September 2018 to comply. The changes will provide more protection for credit card customers in persistent debt or at risk of financial difficulties. The changes are being introduced following a comprehensive study of the credit card market. The study analysed the accounts of 34 million credit card customers over a period of five years, and surveyed almost 40,000 consumers.

Figures show that customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing. There are a total of 4 million accounts in persistent debt and firms have few incentives to help these customers because they are profitable. Under these new rules firms will be required to take a series of escalating steps to help customers who are making low repayments over a long period, beginning when the customer has been in persistent debt over 18 months. After this time firms need to contact customers prompting them to change their repayment and informing them their card may ultimately be suspended if they do not change their repayment pattern.

Once a consumer has been in persistent debt for 36 months, their provider will have to offer them a way to repay their balance in a reasonable period. If they are unable to repay the firm must show the customer forbearance. This may include reducing, waiving or cancelling any interest, fees or charges. Firms who do not comply with the new rules could be subject to action by the FCA.

Credit card firms have also agreed to voluntary measures, which will give customers control over increases to their credit limit. Under the measures agreed by credit card firms customers can opt-out from receiving automatic credit limit increases. Customers in persistent debt for 12 months will not be offered credit limit increases, this should result in around 1.4m accounts per year not receiving such offers.
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Don’t Touch!

Net investment in buy-to-let property has fallen by 80% from £25 billion in 2015 to just £5 billion in 2017 due to excessive regulatory intervention on the sector, according to a new report from the Intermediary Mortgage Lenders Association (IMLA). The 80% slump is a steeper fall than after the financial crisis as recent tax and regulatory changes have caused a downturn in landlords’ activity, according to the report: ‘Buy-to-let: under pressure’. In response, IMLA is calling for a brake to be placed on further policy interventions on the UK’s Private Rented Sector (PRS).

The report notes the positive effect that buy-to-let has had on the PRS. It estimates that between 2000 and 2017, UK buy-to-let landlords invested £289 billion into the sector, meeting rising tenant demand by bringing 1.8 million properties into the rental market. At the same time, real rents have fallen 4.4% across the UK.

However, IMLA reports that new tax and regulatory measures introduced in the last two years, such as a 3% stamp duty surcharge and the removal of mortgage interest tax relief, have deterred some landlords from expanding their portfolios and prompted others to exit the market, with this cumulative effect referred to as ‘policy layering’. As a result of tax changes, more than a fifth (21%) of landlords have indicated that they plan to reduce the size of their portfolios.

There are currently 4.5 million people relying on the PRS in England alone. Should demand for rental property continue to increase at current rates, driven by a lack of social housing supply and inaccessibility to owner-occupation, IMLA’s report suggests that this will lead to upward pressure on rents, disadvantaging tenants in the sector.
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