tag:blogger.com,1999:blog-30029906253742987102024-03-14T07:02:45.020+00:00tony's blogTony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.comBlogger72125tag:blogger.com,1999:blog-3002990625374298710.post-4755638922680577352018-02-26T12:14:00.000+00:002018-02-26T12:14:06.859+00:00Things are better than expected. Time to put up rates!<br />
<div class="MsoNormal">
So we have accelerating wage growth and productivity was up
in the second half of last year. Luckily productivity is currently ahead of
wage growth which is a good thing, but Bank of England forecasts are predicting
wage growth to rise to 3% this year and to get ahead of productivity growth
which is not so good. The path seems set for rates to hit 0.75% and the City is
betting on this happening by May. So as the year moves closer to Brexit we
start to crank up the risk factors.<o:p></o:p></div>
<div class="MsoNormal">
We still don’t know what the Treasury model of the UK is
making of all of the conflicting inputs including a forecast of QE withdrawal.
Once this happens it should have its own impact on reducing inflation. But as Dame
Minouche Shafik, previously Deputy Governor of the Bank of England reminded us
on Desert island disks at the weekend, Economics isn’t a precise science given
that we have to consider the behaviour of people. Wise words and a timely
reminder that no matter how much the economic boffins tell us that they know
how things work… the really don’t with any degree of accuracy. So when the Bank
decides to increase rates let’s just hope that it considers the human factor.<o:p></o:p></div>
<div class="MsoNormal">
Elsewhere in Europe we have the Italian elections next
Sunday March 4<sup>th</sup>. The rise of the right and anti-immigration parties
are moving the elections towards a flash point with an engaged and angry
electorate. We also have the German SDP postal vote on their coalition with
Merkel’s CDU … and that might prove to be more important. Markets seem to be of
the view that the Merkel leadership is unassailable and that things will carry
on much as before. But that seems at best wildly optimistic. Voters are
becoming increasingly disillusioned with the increases in immigration: since
2015 Germany has received 1.38mn ‘initial asylum applications’ and in the short
term there has been a significant increase in crime according to a controversial
government-commissioned study published by the Zurich University of Applied
Sciences. So, as we continue to focus on domestic issues and the latest state
of play of Brexit negotiations, it would be easy to miss the significant issues
in Europe right now which just could have some major impacts on us. Whether we
are in the EU or not.<o:p></o:p></div>
<br />Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-85776116587005353492018-02-12T12:19:00.001+00:002018-02-12T12:19:14.138+00:00What an interesting week!<br />
<div class="MsoNormal">
What an interesting week we’ve just had and what does it
mean going forward?<o:p></o:p></div>
<div class="MsoNormal">
As a professional Treasurer and market pundit I’m supposed
to be an expert on all market moves and with a coherent theory of what’s
happening, why and what happens next. <o:p></o:p></div>
<div class="MsoNormal">
Well I’m going to let you into a secret – reading the
markets right now is pretty tough.<o:p></o:p></div>
<div class="MsoNormal">
There are so many conflicting risks and issues in the market
and the Global experiment with loose monetary policy and economic stimulus
means that no one really knows what the consequences of all this is going to
be. Don’t let anyone fool you into thinking differently. <o:p></o:p></div>
<div class="MsoNormal">
We’ve had close to zero interest rates for some time – so
long that many in market don’t realise that this isn’t normal. It isn’t! And in
the UK alone we have had £435bn of QE which many feared would stoke up asset
values and create rampant inflation. And by and large that hasn’t happened
either. <o:p></o:p></div>
<div class="MsoNormal">
Global investors have been chasing yield and this has not
been possible through Gilts or deposits and so has helped fuel the spiralling
price of equities. In the US, regardless of the political scene (some would say
because of – I’ll let you decide), the economy is now growing well and, with
almost full employment inflation, now beckons. This means rates will have to
rise more quickly. At the same time the Fed is looking to reverse out QE which
is giving fears that this will be bad for the economy and that Bull run on
equities should end. Who knows if that’s true? And all this at a time when a
new and economically inexperienced Chairman of the Fed has barely got his feet
under the desk<o:p></o:p></div>
<div class="MsoNormal">
But what of the UK? Last week the vote was to leave rates on
hold but for Mark Carney to signal that rates will have to rise sooner rather
than later. This is the Governor’s forward guidance that he is so keen on. <span style="mso-spacerun: yes;"> </span>At the same time we have a possible withdrawal
of both QE and the remaining asset purchase schemes such as TFS and all with
the backdrop of the Brexit ‘fog’. Piling on risk and uncertainty is not good
for consumer confidence or businesses trying to plan.<o:p></o:p></div>
<div class="MsoNormal">
At an international level we will have to see if the Bull run
has well and truly ended or whether this is just a temporary volatile period. Was
it just the price correction driven by market fundamentals of an overpriced
equity market or something deeper? What about the influence of High Frequency
traders using AI for algorithm based trades? No one knows! Many will argue that
fundamentals are still good and that this is just a market wobble that will
soon pass. I’m not so sure. One to watch because despite our tendency to look
inwards in the UK, we can’t escape the wider panics in Global Financial
markets…as we saw in 2007.<o:p></o:p></div>
<br />Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-33622808727372791442018-02-05T10:32:00.004+00:002018-02-05T10:32:53.797+00:00TFS - End of an era?<div class="MsoNormal">
It’s still so early in the New Year but already we have seen
the end of the Funding for Lending Scheme – a cheap source of funding to banks
and building societies.<o:p></o:p></div>
<div class="MsoNormal">
Soon, by the end of this month, we will probably see the end
of new borrowings under the ‘Funding for Lending on speed’ otherwise known as
the Term Funding Scheme (TFS). This was put in place in August 2016 at the same
time that Base Rates fell to ¼% and it was the Bank of England’s mechanism to
ensure that the rate cut was passed onto borrowers. In essence, lenders could
borrow under this scheme at Base Rate flat. Right now there’s nearly £107mn
drawn under this scheme and it was increased in size as recently as November
last year.<o:p></o:p></div>
<div class="MsoNormal">
The effect of the TFS has been to fuel mortgage lending at
subsidised rates and dampen the requirement for more conventional funding such as retail
deposits, securitisation and covered bonds.<o:p></o:p></div>
<div class="MsoNormal">
So, assuming that TFS is not extended – there’s always room
for a last minute reprieve – then what will this mean? Well for a start we will
begin to see more competitive retail deposits. Good for savers but expensive
for lenders. If a price war starts for deposits then not only will they get
more expensive as a funding source but they may well start to become more
volatile as deposits move from one bank to another chasing the best rate.
That’s not good. Expensive and unstable. Definitely not ‘strong and stable’.<o:p></o:p></div>
<div class="MsoNormal">
Securitisation and covered bonds should make a come-back.
Since the credit crisis these funding mechanisms have been decidedly muted and
we really need the large historical issuers such as Santander, Lloyds, Barclays
and Nationwide to re-start their programmes in earnest. Although this could
have the short term effect of increasing securitisation costs for everyone as
the supply and demand dynamics cut in, medium to long-term this can only be
good news as we finally get these markets back on track and focus investors on
buying them. On the whole – I can’t wait for these distorting schemes to go.
They were very important at the time and have done their job. Now we need to
get back to business as usual. Finally!<o:p></o:p></div>
<br />
<div class="MsoNormal">
And mortgage rates? Well they will have to rise to reflect
the increased funding costs. Standby for some last minute cheap deals as
lenders take their fill of remaining TFS availability. Make hay while the sun
shines!<o:p></o:p></div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-21838386921613038812015-06-11T10:52:00.002+01:002015-06-11T10:52:04.207+01:00<div style="background: white; margin-bottom: .0001pt; margin: 0cm;">
<b><span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 16.0pt;">It’s a generation thing<o:p></o:p></span></b></div>
<div style="background: white; margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">The total value of housing stock rented to 35- to 49-year-olds across
the UK has increased in value from £66bn to £363bn in the past 14 years,
according to Savills estate agency. Previously, we would have expected people
in this age group to have bought their first home. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">According to Lucian Cook, Savills’ head of residential research, more
people aged 35–64, either through choice or necessity, are now renting. “We’re
seeing the lack of accessibility to homeownership that was confined to the
under-35s move up into the next age group,” Mr Cook said. “With a finite amount
of social housing stock concentrated in older households, a lack of access to
owner occupation is not just affecting the under-35s but beginning to feed up
into the 35–49 age group’ <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">A substantial shift then in a relatively short space of time.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Further along the spectrum, Legal & General report that the shortage
of suitable housing for older people in Britain is keeping </span><span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt;">homeowners
stuck in properties worth £820bn, leaving 7.7m spare bedrooms empty. This
research suggests that almost a third of homeowners aged over-55 have
considered downsizing in the past five years yet only 7% have actually made the
move. Just 2% of the country’s housing stock is designed with pensioners in
mind.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt;">The L&G study claimed that if all 3.3m over-55s looking to
downsize could find suitable homes, the shift would unlock 18% of the country’s
property market, worth £820bn. That’s a lot of housing stock which could – <i>should</i> – be utilised.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt;">This made me realise that the issue we’re facing is not simply a
lack of housing stock, it’s a lack of the right type of housing. We need
intelligent planning that takes the changing nature of households into account.
<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<br /></div>
<br />
<div class="MsoNormal" style="background: white; line-height: 17.25pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 12.0pt;">Part of this thinking should be making downsizing an attractive
and viable option for the over-55s. While affordability issues may still be prevalent
for 35–49s in terms of buying rather than renting, it might ease supply, reduce
house prices and offer Generation Rent a few more options.<o:p></o:p></span></div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-67011165976597421742014-05-19T08:58:00.001+01:002014-05-19T08:58:56.627+01:00Don't get hung up about Help to Buy <div class="MsoNormal" style="background: white;">
<span style="font-family: Helvetica, sans-serif; font-size: 11pt;">Among many other revelations on March 16<sup>th</sup> in the
budget the Chancellor announced that the Help to Buy (HTB) scheme would be
extended for new build homes. This is the so-called Help to Buy 1 shared
equity scheme rather than the guarantee scheme. So is this a mistake, stoking
up a housing bubble further, a dastardly plot to get his hands on more stamp
duty, a shallow political scheme to get more votes or a genuine move to
continue support for a key component of the economy? To answer this you have to
consider the financial assistance that has been provided in the round. Help to
Buy is a relatively small component of this and that probably gives you a hint
about where I’ll be going with this.</span><span style="font-family: Helvetica, sans-serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="background: white;">
<br /></div>
<div class="MsoNormal" style="background: white;">
<span style="font-family: Helvetica, sans-serif; font-size: 11pt;">When the funding crisis kicked off in 2007 the UK economy, global
banking system, mortgage markets and housing markets were facing a massive
problem. Armageddon is not an exaggeration. And the Bank of England and
Government dealt with it. Eventually. Not to have provided any support
doesn’t bear thinking about and any quibbles about potential housing bubbles
are irrelevant against that backdrop. </span><span style="font-family: Helvetica, sans-serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="background: white;">
<br /></div>
<div class="MsoNormal" style="background: white;">
<span style="font-family: Helvetica, sans-serif; font-size: 11pt;">In my view the two biggest forms of support for the economy ,
mortgage and housing markets are not HTB but instead are QE – some £375bn of
which has been pumped into the system and Funding for Lending. But taken as a
whole all of the schemes including HTB have played their part. In some ways the
role of these schemes is to underpin confidence and looking at the markets and
economic regeneration underway today that seems to have been achieved.</span><span style="font-family: Helvetica, sans-serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="background: white;">
<br /></div>
<br />
<div class="MsoNormal" style="background: white;">
<span style="font-family: Helvetica, sans-serif; font-size: 11pt;">So is HTB likely to cause a bubble? I don’t think so. All of the
feedback I hear is that the majority of users of HTB are outside of the
superheated London and South East areas and are for loans of less the £300k and
so the £600k limit could easily be reduced without effect. Is the Chancellor
doing all of these things just to ensure the health of the housing and mortgage
markets or does he have ulterior motives? Well who can know with certainty but
the election is near. I stress again though, other stimuli is having a much
greater effect than HTB in my opinion. Will it all end in tears? Well I
hope not for all our sakes but there are various levers that the Bank of
England/PRA have – so called macro prudential levers and of course interest
rates. I’m sure these will be used as and when necessary and with care so as to
not cause unnecessary shocks. I don’t think the industry should get hung up
about HTB in my view.</span><span style="font-family: Helvetica, sans-serif;"><o:p></o:p></span></div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-33300035904908878092013-11-28T12:55:00.001+00:002013-11-28T12:55:51.671+00:00No More FLS for mortgage lending<div class="MsoNormal">
The Bank of England have today announced that they are
refocusing the FLS from 2014 towards business loans and away from mortgage
lending and I for one am pleased.<o:p></o:p></div>
<div class="MsoNormal">
In fact I was surprised in April when the Bank of England announced
an extension of the FLS through to January 2015 from the original January 2014
deadline. <o:p></o:p></div>
<div class="MsoNormal">
Why should FLS for mortgages go? Well it has to be
remembered that FLS was there to meet a crucial supply of credit and funding to
the markets at a time when debt capital markets were still damaged from the Global
Financial Crisis. It was necessary. But it was always the plan that this would provide
funding until markets recovered. And there is plenty of evidence that markets
are well on the way to recovery as recent debut RMBS issues from Precise and
One Savings Banks have shown. <o:p></o:p></div>
<div class="MsoNormal">
The market needs to get back to core funding: securitisation,
covered bonds and retail deposits. It needs to be weaned off FLS and other
forms of Government support and now is a good time. The UK economy is making good
progress, debt markets are repairing and UK housing market activity is picking
up. In some respects it’s all going too well and there have been signs of ‘credit
creep’ and margin compression. Signs of a buoyant market. But as the Bank of
England say today in their Financial Stability <b><i>Report “… risks may grow if stronger activity is
accompanied by further substantial and rapid increases in house prices and a
further build-up in household indebtedness, which is already elevated for some
households. These risks would be accentuated if underwriting standards on
mortgage lending were to weaken as has been the case in previous house price
cycles”.<o:p></o:p></i></b></div>
<br />
<div class="MsoNormal">
<i> </i>So together with the FLS announcement we
have other measures being taken by the Financial Stability board by way of
capital changes and credit stress tests and this shows that the markets and
economy are being very carefully monitored and managed. Frankly this should
give us confidence that the market is being managed to sustainable end shouldn't
it? It does me.<o:p></o:p></div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-63649475649655290612013-04-25T10:26:00.001+01:002013-04-25T10:32:35.126+01:00Funding for Lending Scheme 2 – the Final Story?<br />
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">As soon
as the Bank of England said that the Funding for Lending Scheme (FLS) was
temporary and would not be extended we should have known that change was on the
cards. This has happened before with the predecessor scheme the Special
Liquidity Scheme. Remember it? <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">When the
FLS was first introduced, Sir Mervyn King said it could only be a temporary
solution and must be used as a "window of opportunity" to
"restore the capital position of the UK banking system". I guess it
depends on your definition of temporary and perhaps underlies the problem we
have with the banks and the economy not being in the state they need to be
right now.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">Much has
been written about the FLS. Quite a lot of it negative in that it was a blunt
instrument, wasn’t being used as intended and should have been made available
to other lenders who might be more prepared to focus their lending efforts on
the sectors that the government really wanted served: namely lending to SMEs.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">I have
written about the FLS as well. I have defended it when others have knocked it.
I have recognised that it has done some good for all lenders whether directly
or indirectly. The amount of liquidity it has provided has allowed Libor rates
to fall to more acceptable levels without supply shortages pushing up rates.
Yes it has been unfair in not providing support to non-banks although I think
we have to recognise that the Bank is trying to provide solutions within
existing frameworks (the Sterling Monetary Framework in this case) that have
the biggest impact on the markets and economy possible without providing an
unwieldy solution.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">I have
also argued that the FLS should cease when the Bank said it would because it is
going to dampen the revival of the core funding markets – covered bonds and
securitisation - that we really do need to see re-emerging in rude health. How
will we know when to believe them when they really mean to withdraw it? Yesterday’s
news won’t help on that score.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">The
other issue that the Bank has had to work around are the State aid rules. You
can guarantee that any changes of the scheme to focus assistance to one sector or
another will be scrutinised by hordes of<i><span style="background-color: white; background-position: initial initial; background-repeat: initial initial; font-family: 'Times New Roman', serif; font-size: 10pt; line-height: 115%;"> </span></i><span style="background-color: white; background-position: initial initial; background-repeat: initial initial; font-family: 'Times New Roman', serif;">apparatchiks sitting
in</span> Europe to
determine whether this constitutes an unfair distortion to the markets.<o:p></o:p></span></div>
<div style="background: white; margin-bottom: 7.5pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="font-family: Arial, Helvetica, sans-serif;">But however they have done it, this FLS Mark 2, the “Super
Improved” version has done just that: under the <span style="color: #333333;">new deal, every pound of additional lending to small and
medium-sized enterprises (SMEs) next year will allow the lender to access £5 of
discounted funding from the Bank and in an effort to accelerate the flow of
credit into the system, each pound lent to SMEs for the rest of this year will
allow a draw-down of 10 times that in 2014. This shows how seriously they are
taking it.</span><o:p></o:p></span></div>
<div style="background: white; margin-bottom: 7.5pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #333333; font-family: Arial, Helvetica, sans-serif;">And what of the
other announcement, that non-banks can have a look-in but not directly? Well I
share some of the scepticism I have read online that this won’t work because
trying to find a bank to act as a ‘conduit’ through to the FLS is going to be
hard in practice. But better than nothing. At least there is a mechanism for
access and the more imaginative among us can work with that. We have to
remember, the Bank isn’t trying to be fair, it’s trying to find a solution that
works in the way they need it to and quickly. Inevitably that means a tweak of
the existing scheme rather than a wholesale re-write. That automatically rules
out direct access for non-banks.<o:p></o:p></span></div>
<div style="background: white; margin-bottom: 7.5pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #333333; font-family: Arial, Helvetica, sans-serif;">So having seen
the original FLS, how will the sequel pan out? One to watch. I suspect we may
not have heard the end of this one.</span><o:p></o:p></div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-31857378862646521702013-03-20T14:39:00.001+00:002013-03-20T14:39:03.071+00:00The Budget 2013 – the birth of a British Fannie Mae?<br />
<div class="MsoNormal">
Well the Chancellor seems to have done well in achieving a
balance with limited resources available. I’m sure a careful reading of the
detail will reveal if this impression is correct or not. Very little room to manoeuvre
given the deficit. Forecasts of increasing debt to GDP ratios from a current 75.9%
to the mid 85% range by 2015 isn’t encouraging and with OBR reductions in both domestic
and Eurozone GDP I think the Chancellor recognised that whilst he can’t throw
his deficit reduction strategy out of the window he must do something to address
the lack of economic growth.<o:p></o:p></div>
<div class="MsoNormal">
So it was interesting to see these initiatives mentioned: Funding
For Lending (FLS) is due to end for drawings in January 2014 but it looks as
though there may be extensions to this and also perhaps there maybe some targeting
of the scheme to key risk areas such as SMEs and first time buyers although it
will be interesting to see how this will be achieved without offending the Eurocrats
and the State Aid Rules. Then there is the question of non-banks lenders and
will they be allowed into a modified FLS? In truth, non-bank lenders are a very
small proportion of the market today but it is just possible that by allowing them
in the may have a disproportionate impact on key areas and much lobbying has
been done to include them so we need to wait and see. I’m not surprised that
the detail wasn’t mentioned today. Furious work will be going on behind the
scenes as we speak.<o:p></o:p></div>
<div class="MsoNormal">
Of mores significance to the mortgage industry will be the
two schemes launched under the “Help to Buy” banner. The first is effectively an
extension of the First Buy shared equity scheme aimed at all rather than just
first time buyers. It looks like the Government is picking up the tab for al of
this lending rather than sharing it with house builders but detailed information
is scarce as I write this. The second is the modification of the New Buy scheme
to give us our first “Fannie Mae” type of scheme whereby the Government is prepared
to provide a guarantee for mortgage loans up to 95%. Importantly this applies
to new loans, remortgages and second hand properties as well as new build. This
is potential a game changing scheme providing the banks can get capital relief
from the regulator. Is it a coincidence that this looks almost Canadian in its
structure I wonder?<o:p></o:p></div>
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The Chancellor couldn’t resist having a go at the banks: the
LIBOR fines being directed to the military should be a popular move and from a
PR perspective is a mark of genius and the levy on banks will be increased for
a sixth time to ensure lenders don’t benefit from a cut in corporation tax. Outside
of the banking markets who will complain about this?<o:p></o:p></div>
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No change to deficit reduction focus and an attempt to
stimulate growth in SMEs and the housing market make this a positive budget in
my view. Time will tell. Now we just have to wait and see whether Standard and
Poor’s and Fitch downgrade us.<o:p></o:p></div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-40156521902454038792013-02-28T14:08:00.001+00:002013-02-28T14:09:05.109+00:00Negative interest rates – is it really bad news?<br />
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<span style="font-family: Arial, Helvetica, sans-serif;">There has been an awful lot of bad market reaction to Paul
Tucker’s comments to the Treasury Select Committee earlier in the week that
perhaps banks should earn a negative rate of interest on money deposited with
the Bank of England.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">He said that a negative interest rate would mean the Central
Bank charges banks to hold their money and could encourage them to lend out
more of their funds instead of hoarding it with the Bank.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Speaking to MPs on the Treasury Committee, Mr Tucker said:<i>
"This would be an extraordinary thing to do and it needs to be thought
through carefully."</i><o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Banks have been quick to assert that if he does this then
the consumers will pay with higher borrowing costs and negative deposit rates. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Why?<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">What he is suggesting may seem radical but is not as bad
as it sounds. In my blog last summer (see <a href="http://home-funding.blogspot.co.uk/2012/06/how-central-banks-should-work.html">http://home-funding.blogspot.co.uk/2012/06/how-central-banks-should-work.html</a>)
I talked about the tendency for banks to hoard cash rather than to put it to
work as intended by the Bank of England. There is no reason to link Bank Rate
(and hence Base Rate) to the rate at which the Bank of England gives on deposits
with them. Indeed, couldn't you make a case for banks actually benefiting from
the Bank of England’s initiative? If banks and building societies don’t hoard
cash with the Bank and lend it out to companies and consumers, then aren’t they
going to be earning more than they currently are? I know there is a return on
capital issue to take into account but I’m sure banks can work that into the calculation
of the correct rate to lend at. Mr Tucker’s ‘blue sky’ suggestion is not as
daft as it may at first sound. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">We need something to stimulate the markets and shouldn't discount these ideas. We still need a cunning plan to kick-start the market in
my view!<o:p></o:p></span></div>
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Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-88130429655860126232013-02-21T13:41:00.001+00:002013-02-21T13:41:41.720+00:00Shifting sands<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
On the face of it the latest unemployment statistics look pretty good. </div>
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<st1:country-region w:st="on"><st1:place w:st="on">UK</st1:place></st1:country-region> unemployment fell in the last three months of last year while the people in work jumped to a new record. The jobless total fell 14,000 between October and December to be 2.5m.<span style="mso-spacerun: yes;"> </span>Total employment was up 154,000, up to 29.7 million. So good news. </div>
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So why is it that this is happening while the economy remains so sluggish? </div>
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As some analysts suggest, many companies are holding on to staff in the hope that an upturn around the corner. Some are even recruiting although I suspect not on any grand scale. However what is true is that redundancy rates are much lower than in the early 2000’s when growth was much higher. </div>
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Worryingly though if the number of people in work is rising and the economy remains stagnant it suggests that the British economy is less productive. So are we heading for a grim place where <st1:country-region w:st="on"><st1:place w:st="on">Britain</st1:place></st1:country-region> is becoming a lower wage lower productivity driven economy? Unlike some economists I think not. But what is very apparent is that there is a huge change in demographics going on. Perhaps driven by necessity, more people than ever are becoming self employed or turning to part time employment. <span style="mso-spacerun: yes;"> </span>The Office of National Statistics report that between October and December 2012, full time employment was 378,000 higher than in the April to June quarter of 2008, the first quarter of the recession. But part-time work was 572,000 higher compared with the same period.</div>
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In the near future I see this trend continuing. Something for economists to consider</div>
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Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-32281886924904715682013-02-05T15:03:00.002+00:002013-02-05T15:03:50.343+00:00Following the lead of the US<br />
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So the <st1:country-region w:st="on">US</st1:country-region>
economy unexpectedly shrank in the final quarter of last year by 0.1%. Bit of a
shocker since this is the first time this has happened since the end of the
recession in 2009. The Fed has quite rightly just called it a ‘pause’ due to
transitory issues. Certainly it is true to say that the steep drop in defence
spending, uncertainty over the fiscal cliff and the effects of the hurricane
that swept up the east coast in November combined to hit growth. And these
certainly are temporary measures; the US Conference Board acknowledged that
‘one-time factors put the number below the trend’. <o:p></o:p></div>
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I guess it’s interesting to see what the Fed has done about
it. For a start it has kept its record low key interest rate between 0% and
0.25%. Furthermore it said that it would continue its $85bn a month bond and
mortgage security purchases to support a stronger economic recovery. It said
the easy monetary policy ‘will remain appropriate for a considerable time after
the asset programme ends and the economic recovery strengthens’. What that says
is that we are in for the long game. We are here to give assistance until
things go back to normal. That’s what brings confidence back to the markets.<o:p></o:p></div>
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Whilst we are trying to emulate this in the <st1:country-region w:st="on">UK</st1:country-region> I’m not sure
we are going far enough. For instance the Funding for Lending Scheme which has
done much to assist the mortgage lending market in the past few months is apparent
that it is only a temporary measure and has a defined end date. Then what? We
need some measures that have some longevity.<o:p></o:p></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Some interesting lessons to learn this side of the
pond perhaps…</span>Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-52644532695766492212013-01-22T12:21:00.000+00:002013-01-22T12:21:22.588+00:00A good idea but not necessarily the panacea<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
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I see more scepticism in the press today about how effective the Government’s Funding for Lending Scheme (FLS) has been. According to recent statistics from a report by the Bank of England, lending to British companies by banks and building societies fell by £4 billion in the three months to November. Commentators are suggesting that the ‘jury was still out’ as to whether the FLS was bringing down bank loans as quickly as had hoped. What can be said of the scheme is that it has led to significant declines in the cost of funding to banks and financial institutions seem to be willing to ease borrowing rates among consumers. Availability of credit to households has increased plus rates on fixed rate mortgages have dropped so that has to be good news. </div>
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It’s not therefore lack of credit that’s an issue. It’s a much wider problem of subdued demand. Lenders report that a lack of confidence among businesses was affecting their appetite for debt.</div>
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From my previous blogs you know that I’m a big supporter of the Funding for Lending Scheme. It certainly improved mortgage approval figures at the back end of last year and will most likely have an impact on the level of gross lending going forward, driving many analysts to make bullish predictions for the mortgage market in the year ahead.</div>
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However there’s only so much this initiative can do. On its own I can’t see that it is going to solve the Chancellor’s problems as to how to unblock the corporate credit market. He has to suggest ideas that can rebuild confidence in a still very subdued market. Thinking caps on!</div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-28417495820253474532013-01-18T09:44:00.000+00:002013-01-18T09:44:14.486+00:00same old same old...<div class="MsoNormal" style="margin: 0cm 0cm 0pt; mso-outline-level: 1;">
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Once again we have conflicting data reported by commentators regarding house prices for 2012. <br style="mso-special-character: line-break;" /></div>
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You have the Office of National Statistics (ONS) suggesting house prices increased by 2.1% on the year to November against both <st1:city w:st="on"><st1:place w:st="on">Halifax</st1:place></st1:city> and Nationwide’s view reporting house prices fell by 0.3% and 1% on average in 2012. So who’s right?</div>
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Maybe this is inevitable as it is well know that the ONS, <st1:city w:st="on"><st1:place w:st="on">Halifax</st1:place></st1:city> and Nationwide have different ways of recording the data so you can argue that there are bound to be variations. Having said that, I would expect the trend to be similar amongst housing economists and I’m not sure this was always the case last year.</div>
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So house prices up or down for 2013? Well some cheery news from the Royal Institution of Chartered Surveyors (Rics) reporting that members believe that house sales will rise in the first three months. Some surveyors seem to be so bold as to suggest that in some parts of the country we are indeed ‘over the worst’.<span style="mso-spacerun: yes;"> </span>Well apart from <st1:city w:st="on"><st1:place w:st="on">London</st1:place></st1:city> and the South East which has always reflected something of a price bubble I’m not so sure that these predictions can be validated elsewhere. Whilst it’s true that unemployment is falling, the economy remains depressed with confidence running low and limited growth in wages expected. So being more realistic, I truly believe that the property market will remain tough for 2013.</div>
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<span style="mso-spacerun: yes;"> </span>Having said that I really think that the Funding for Lending Scheme is starting to do its job and increase the availability of mortgages which is no bad thing. Also lenders are starting to look at assisting first-time buyers with increasing their product ranges to incorporate higher LTV loans. So the supply is there.</div>
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<span style="mso-spacerun: yes;"> </span>I’m just not so sure if the demand will match it.</div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-46624788620754079362013-01-10T16:29:00.000+00:002013-01-10T16:29:35.260+00:00Three cheers for Barclays!<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
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I think it was way back in October last year that I wrote about the need for lenders to look at developing more innovative products in the first-time buyer arena. This was amidst a set of depressing statistics which suggested that it can take up to eight years for the average first-time buyer to save up for the required 20% deposit.</div>
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Whilst the Funding for Lending Scheme has proved to have made a positive impact in terms of increasing mortgage availability, with a 26% net balance of lenders reporting a rise in lending, it has done little to assist the more ‘risky’ high end LTV borrowers (notably first-time buyers). Lenders on the whole have admitted to ‘cherry picking', remaining cautious about who to lend to </div>
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So hats off to Barclays then for coming up with a product that really seems workable for this target market. Without going into too much detail, it means that provided parents can stump up 10% of the asking price of the property, their children will need to put down only a 5% deposit to qualify for the mortgage. The ‘Springboard’ mortgage will be available from next week and I think it will be appealing to the Bank of Mum & Dad. Why? I think the fact that to access this deal requires a significantly smaller savings vessel is attractive to the ‘squeezed middle’ unlike other schemes which have gone before which have require a much greater input.</div>
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This will hopefully open the floodgates to other schemes becoming available. After all this is the market which needs the most amount of help. </div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-16339887040906954382012-12-05T13:31:00.000+00:002012-12-05T13:31:51.358+00:00Not to be written off<div class="MsoNormal" style="margin: 0cm 0cm 0pt; mso-outline-level: 1;">
<span style="mso-bidi-font-style: italic; mso-fareast-language: EN-US;">This week has seen the Bank of England publish utilisation data under the Funding for Lending Scheme (FLS) and the almost universal verdict that the scheme hasn’t worked quite the way it should have. Well I’m not in that camp. At least not at the moment.<o:p></o:p></span></div>
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<span style="mso-bidi-font-style: italic; mso-fareast-language: EN-US;">Of all the schemes we have seen since the onset of the credit crisis, the FLS is the first one that targets lending to the real economy and incentivises banks and building societies to grow their lending overall. Unfortunately, although data has revealed a strongly growing list of participants in the scheme, latest count there are 35, net lending by FLS participants to 30<sup>th</sup> September was +£0.5bn and total FLS drawdowns from the Bank were £4.4bn. However, probably unsurprisingly, the media headlines have focussed on the six largest lenders and the conclusion is different: overall lending across these lenders fell by £1.04 billion during the period.<o:p></o:p></span></div>
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<span style="mso-bidi-font-style: italic; mso-fareast-language: EN-US;">So why is this happening and can anything be done to finesse the scheme? Firstly, falls in lending of the largest banks shouldn’t be a surprise. This group includes Lloyds and RBS, both of which are undergoing radical surgery and deleveraging. The fact that they are shrinking their loan books shouldn’t be a surprise. Secondly, many analysts claim that lending is being focussed on lower risk areas such as low LTV mortgages rather than areas that need help such as first time buyers. I am sure this is true. <o:p></o:p></span></div>
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<span style="mso-bidi-font-style: italic; mso-fareast-language: EN-US;">Can anything be done about it? Yes but with difficulty is the answer. The FLS is a compromise. It was put together in a very short time and is basically a tweaked Special Liquidity Scheme. The obvious thing to do would be to tweak it a bit further and change the incentives to focus lending activity where it is needed. Although simple in practice I think this is unlikely to happen. The tightrope that the Bank of England had to walk was to balance the needs of the market within the constraints imposed by <st1:place w:st="on">Europe</st1:place>. Yes <st1:place w:st="on">Europe</st1:place>! To focus the FLS in the way I describe would almost certainly fall foul of the European State Aid rules and would be deemed to have provided an unfair advantage over other countries. Frustrating but there it is.<o:p></o:p></span></div>
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<span style="mso-bidi-font-style: italic; mso-fareast-language: EN-US;">So the FLS is doing the best it can. It really is still early days and there are lenders coming on stream all the time. Some of the smaller lenders have already commented on the fact they are able to offer more competitive products on the back of the scheme which can’t be a bad thing. We need to give it some more time and assume that overall it is beneficial to the market. In my view we should be looking to the smaller lenders to make the difference to the key risk areas that need help and not the large banks who can’t or just don’t need to. <o:p></o:p></span></div>
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<span style="mso-bidi-font-style: italic; mso-fareast-language: EN-US;">One to watch.<o:p></o:p></span></div>
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Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-11203604767501712432012-11-23T16:15:00.001+00:002012-11-23T16:15:10.190+00:00You can’t have it both ways<br />
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I was a little surprised to see Chairman of the US Federal
Reserve, Ben Bernanke’s comments this week about how the overly stringent
lending requirements of banks are hurting the US housing recovery. He said that
‘the pendulum has swung too far from the easy lending days of the housing boom
complaining that ‘overly tight lending standards may now be preventing
creditworthy borrowers from buying homes, slowing the revival in housing and
impeding recovery’.<o:p></o:p></div>
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I’m not sure how timely these comments were given that the
US Commerce Department subsequently revealed housing starts had risen to their
high level for more than four years.<o:p></o:p></div>
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More importantly I’m not sure how helpful it is to suggest
its time for lenders to relax their lending criteria at this time. Wasn’t much
of the blame for the start of the Credit Crisis aimed at the <st1:country-region w:st="on">US</st1:country-region> for being
irresponsible and lending to individuals who hadn’t a hope in hell of repaying
their mortgage from day one? <o:p></o:p></div>
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I’m not saying Mr Bernanke is advocating lending to credit
impaired individuals but is it the right message to encourage lenders to relax
criteria, especially since there are encouraging signs from the US housing
market?<o:p></o:p></div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-91605702234135248102012-11-01T15:43:00.000+00:002012-11-01T15:43:14.565+00:00Sifting through the data - or a tale of mixed messages<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
There seems to be a fair amount of confusion out there at the moment with regard to how the <st1:country-region w:st="on"><st1:place w:st="on">UK</st1:place></st1:country-region> economic recovery is going. We have Sir Mervyn King,governor of the Bank of England saying that the UK economy was recovering at a ‘slow uncertain pace’ and it was ‘not clear if positive indicators would persist’ whilst Charlie Bean, deputy governor of the Bank of England, seems much more optimistic suggesting that there were ‘reasons for optimism’ for the UK economy with real ‘signs of progress’. <o:p></o:p></div>
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Conversely mortgage lending seem to be picking up, with the Bank of England suggesting that mortgage approvals are gathering in pace, thanks in some part to the Funding for Lending Scheme, yet house prices remain subdued with the Nationwide Building Society predicting that the housing market will take some time to gain any sort of momentum.<o:p></o:p></div>
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It’s all very confusing and it seems daily we are getting a mixed bag of messages.<o:p></o:p></div>
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For what it’s worth I think that things will gradually start to improve in the <st1:country-region w:st="on"><st1:place w:st="on">UK</st1:place></st1:country-region> economy next year and we will see more consistent data coming through. I also agree with John Cridland at the CBI who suggests that we need to get used to a ‘new normal’ of slower growth with annual expansion of 2% looking pretty good.<o:p></o:p></div>
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As for the housing market, I think that too will perk up albeit gradually. However I am concerned about the longevity (or lack of it) of the Funding for Lending Scheme. I think thus far, that it is has been a force for good encouraging banks and building societies to lend and probably assisted financial institutions to price more competitively. But what happens when the Scheme ends, currently pencilled in for 31 January 2014? <o:p></o:p></div>
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Food for thought….<o:p></o:p></div>
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Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-24484551082054999992012-10-19T14:51:00.000+01:002012-10-19T14:51:17.421+01:00Getting by with a little help<div class="MsoNormal" style="margin: 0cm 0cm 0pt; mso-outline-level: 1;">
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Interesting survey from the Yorkshire Building Society out this week which suggests that 56% of potential first time buyers are concerned about how long it would take to save up for a deposit to buy a first property. The research goes on to say that it can take up to eight years on average so probably a lot longer if you live in <st1:city w:st="on"><st1:place w:st="on">London</st1:place></st1:city>.<o:p></o:p></div>
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It also says that 7% of potential buyers plan to go to their parents to ask for extra help and almost a fifth of first-time buyers who had bought a home in the last year told the study they had had help from ‘the bank of Mum and Dad’ with their deposit compared with 13% of people who bought a property five years ago.<o:p></o:p></div>
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<br />Two things come to mind. Eight years is a long time to save up for a 20% deposit so perhaps more should be done to help this largely disenfranchised group to get on the property ladder. I think this is an area that the current Funding for Lending scheme doesn’t really address in its present form, positive though the initiative is. Maybe the scheme could be refined to assist this group - it’s a segment of the market that is presently being overlooked. Lenders should be incentivised to target the higher LTV brackets with appropriate products.<o:p></o:p></div>
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And secondly, shouldn’t we as responsible lenders look at developing more innovative products for promoting shared ownership? The market is obviously out there so it makes perfect sense to invest our time and ideas in this area.<o:p></o:p></div>
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There are shared equity initiatives which we could and should exploit.<o:p></o:p></div>
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Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-12646189502521865252012-10-10T10:16:00.000+01:002012-10-10T10:16:05.331+01:00Reasons to be cheerful part II<div class="MsoNormal" style="margin: 0cm 0cm 0pt; mso-outline-level: 1;">
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Despite the IMF’s gloomy outlook for UK GDP this year there is some good news in the funding markets.</div>
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Last week I chaired the CML annual funding conference – their 8<sup>th</sup> and the sixth of which has been held since the credit crisis kicked in. In recent times it would have been easy for this conference to take on a gloomy air, but this time we had some unequivocally positive news to discuss: Where there were some 10-20 Residential Mortgage<span style="mso-spacerun: yes;"> </span>Backed Securities (RMBS) investors a year ago (down from literally hundreds before 2008), we are now more than likely looking at 150 or so today and this number is growing. As a result of this, we now have increased demand from investors lowering costs for issuers. <span style="mso-spacerun: yes;"> </span></div>
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So investor confidence has improved. But why are investors deciding that RMBS could be a good thing? Well apart from having to find somewhere else to invest bearing in mind that gilt and cash returns are low, defaults in UK RMBS are negligible (0.01% UK RMBS defaulted)*.</div>
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Although the <st1:country -region="-region" w:st="on"><st1:place w:st="on">UK</st1:place></st1:country> economy is still in the doldrums, it has not ‘blown up’ or even threatened to do so. We now have the ability to take whatever steps perceived necessary to ensure that the right measures are taken. Having said that, the economy remains in intensive care: it is under scrutiny and active management. I expect, as does the market, that further tweaks to policy and support will be necessary. </div>
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The Funding for Lending Scheme (FLS) has played its part too in that it has eased markets considerably and brought down interbank LIBOR rates. <span style="mso-spacerun: yes;"> </span>What made this happen? Well the major banks and building societies are not issuing covered bonds or issuing securitised paper to the extent that they were because they don’t have to – they have access to the FLS. This puts banks in a more dominant position from a supply and demand level and this has driven spreads down marking a profound shifting in pricing in the last month. These developments could certainly allow the markets to function meaningfully once again. We now have the very real situation where issuance of RMBS is a cost effective funding mechanism once more and is close to the overall cost of borrowing under the subsidised FLS. Benchmark deals issued recently by Yorkshire Building Society through their Brass No 2 programme and Investec though RMS26 have shown this to be the case.</div>
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So what next for securitisation? The stigma that securitisation had is certainly fading and the track record of UK RMBS speaks for itself. Let’s hope the Bank of England sees this and gets behind these positive moves. Personally, I still think the Bank could provide more help to the market through the provision of permanent liquidity facilities to support RMBS and covered bonds. They have already shown themselves to be important components of banks funding and have been resilient in their performance despite the naysayers. And importantly, this wouldn’t cost the taxpayer a penny.</div>
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*Source: Standard and Poor’s </div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-20549304030746602562012-09-13T17:22:00.001+01:002012-09-13T17:22:23.306+01:00Reasons to be cheerful<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
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Mortgage deposit levels for first-time buyers have fallen below 20% for the first time in three years according to the Council of Mortgage Lenders. Well that’s a reason to cheer even if it has only dropped to 19%. It’s certainly a step in the right direction.</div>
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Also encouragingly the number of high LTV products on the market has jumped during August, so says Moneyfacts. Some 36 new mortgage deals with LTVs of 85% or above were launched during the month, some way away from the disappointing numbers in July which fell away to 26. And during August five new products were launched with LTVs of 95%. </div>
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So maybe the Funding for Lending and NewBuy scheme is starting to kick in. I truly hope so. However I was disappointed that if the research from Rightmove is to be believed that the public perception of the NewBuy scheme is still very limited. The survey suggested that homeowners and first-time buyers have little knowledge of this initiative – some 34% first-time buyers and 51% of other home movers.</div>
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Rather disappointing. Think what could be achieved in lending terms if we could raise awareness amongst all interested parties. I guess it’s largely up to the Government to do this but lenders and builders alike should all play a part.</div>
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After all it’s great to have some positive news to report to our beleaguered first-time buyers at last! </div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-54107080797100103942012-09-06T16:39:00.000+01:002012-09-06T16:39:30.281+01:00The return of competition<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
I read, without any surprise, that Tesco Bank has made the first set of rate reductions to its recently launched mortgage range, including their fixed and tracker mortgages. <o:p></o:p></div>
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I suppose by doing that, they are really throwing their hat into the ring.<o:p></o:p></div>
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If they want to be a serious player in the market, I guess they don’t have any other option. With the Funding for Lending scheme working now, some extra £80bn of funding is available for banks to lend direct to consumers so it’s hardly surprising that competition has returned to the market. Also, without doubt, helping competitive pricing is the record low bank base rate agreed by the Bank of England’s Monetary Committee. And this is unlikely to change for the foreseeable future – possibly until well into 2014. <o:p></o:p></div>
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So good luck to Tesco Bank. <span style="mso-spacerun: yes;"> </span>I hope it builds their market share because I really think it is healthy to have newcomers out there challenging the existing lender model. <o:p></o:p></div>
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However I do hope they have adjusted their rates within the parameters of a properly worked product pricing model. All too often I have seen lenders set their product pricing as a knee jerk reaction to what’s happening elsewhere within the market. As a generalisation, I think more thought needs to go into setting the headline rate – and not only that but the criteria sitting behind the rate plus the service standards supporting it. (It’s all well and good to have a market leading rate but do you have the back up team waiting to process the application?). And will it contribute to shareholder value?<o:p></o:p></div>
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When Home Funding Limited started originating for German Bank Westlb back in 2007 we had an innovative product pricing model which we actively looked to share with our broker partners. This enabled us to have a win/win scenario with our distributors as they were proactively involved in pricing the product. We were able to originate genuinely bespoke products which challenged the market but also enabled us, acting on behalf of the lender, to offer products which were profitable.<o:p></o:p></div>
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I believe that with the right model sitting behind you, there really is the opportunity for lenders to come up with products that build market share and that make money.<o:p></o:p></div>
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Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-3150060992065275632012-08-31T12:30:00.001+01:002012-08-31T12:30:05.800+01:00Funding for Lending – the panacea?<br />
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I’m a little worried that commentators are already judging
the success or failure of the recent Government and Bank of England Funding for
Lending scheme without giving it a fair hearing. I’m not sure what good it will
ultimately bring (but surely having this in place is better than having nothing
at all) but realistically it is early days. After all the scheme was only
launched in August and it will take time for applications, never mind
completions to flush through the system. However already I have seen various
comments from analysts suggesting that it will do little to help the first time
buyer market. Moreover there are fewer deals around for higher loan to values
than a year ago and this needs urgently addressing if we are to kick start the
housing market. </div>
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It is a pity that non bank lenders and smaller banks and
building societies will be unable to benefit from this scheme, particularly
when those are the very lenders which are likely to be the ones to focus on the
niche markets that we so desperately need to revitalise. Perhaps this can be
addressed in time and I urge the Government to think again about this omission
if they are going to get the money where it is really needed. </div>
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Whilst I agree that we need more money to flow into key
markets it is understandable that banks are being cautious. Even with extra
available funding, they are still more likely to adopt risk averse behaviour
and ration their lending to a smaller audience of borrowers as a means of
conserving balance sheets. </div>
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So then it comes back to the question as to how we help
those who have a deposit of less than 10% to put down? It is true that there is
an issue here. Average rents are increasing and we are locked in a spiral as
more first time buyers are locked out of the housing market so have to turn to
the private rental market. Maybe we should wait to see how the Funding for
Lending scheme pans out. Then if it
really fails to deliver and has done little to help this target market we maybe
need to think of providing new ways to fund these loans. After all the demand
is there. </div>
Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-42079645430876231662012-08-09T21:47:00.000+01:002012-08-09T21:47:46.884+01:00No man is an island<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
It was the Goldman Sachs analysis this week that caught my eye. It highlighted recent lending activity across regions. No surprises then that banks across <st1:place w:st="on">Europe</st1:place> have reined in cross border lending given: 1) the amount of regulation that they now have to contend with and 2) suspicions that the euro may implode in the future. </div>
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So unsurprisingly you have national supervisors compelling local banks to build up capital and liquidity at the expense of other EU countries. As one regulatory source has said:’As the crisis has deepened there has been a rationale for national regulators to make sure their own country is ok’. So a case of batten down the hatches then. Not great considering we are all part of the global market and what impacts in one country usually has a much wider knock-on effect internationally.</div>
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I suspect this comes down to confidence as banks in <st1:place w:st="on">Northern Europe</st1:place> appear to be curbing their exposure to Mediterranean countries for fear that their loans will be repaid in reintroduced national currencies. Understandable but given we live in a globalised economy we cannot afford to take this unilateral ‘I’m alright Jack’ approach. There has to be a balance between regulatory controls and a common sense attitude to cross border lending. Otherwise the markets will grind to a halt and it could go horribly wrong for us all.</div>Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-26940774522795424832012-08-03T08:49:00.003+01:002012-08-03T08:49:43.460+01:00The Great House Price Conundrum<br />
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Is it house prices up? Or house prices down? Or house prices
remain the same? Well I guess it depends on what survey you are looking at. The
recent Nationwide House Price Survey supports that view that house prices have
fallen again last month and are 2.6% lower than they were a year ago. However
the Land Registry reports that house prices have risen slightly over the year
albeit sales of £1m plus homes has dropped sharply. There certainly is a
variance of views at the moment.</div>
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I think what it is fair to say is whatever analysis you are
looking at is that the market is starting to stall somewhat. It is still early
days with the new Funding for Lending scheme so it is unclear as to what good
this will do. Early comments suggest that whilst it has been good for people
with a large deposit to put down, it is less helpful to those customers on
higher LTVs but maybe this will change over time. </div>
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So how important is maintaining a robust housing market for
the economy? Hugely important. Not only does a healthy housing market deliver
jobs in various sectors but owning your own home is still a huge aspiration for
many people living in the <st1:country -region="-region" w:st="on"><st1:place w:st="on">UK</st1:place></st1:country>.
It is also a huge lever in instilling greater consumer confidence in the economy
at large.</div>
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Whilst the IMF suggests there is a correction to be made and
we still have a house price bubble in the <st1:place w:st="on"><st1:country -region="-region" w:st="on">UK</st1:country></st1:place>, I tend to dispute this view. I
think that demand will always outstrip supply (we can’t build enough houses to
meet demand) so I don’t believe that house prices will crash anytime soon.
However I predict house prices will remain at best stagnant for the rest of
this year and the market needs as much support as possible to encourage lenders
to provide funding across the board supporting all LTV groups. Let’s hope the
Funding for Lending scheme does the job it was set up to do. </div>Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0tag:blogger.com,1999:blog-3002990625374298710.post-44033741158076890472012-07-26T15:04:00.000+01:002012-07-26T15:04:08.663+01:00Clouds on the horizon<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
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Following the disappointment of UK GDP figures released this week registering a 0.7% drop, I was heartened to think that third quarter GDP will see an improvement. The bounce back in the third quarter will relate in part to the positive impact of the Olympics and the likelihood of an increase in private sector pay deals which will outstrip RPI inflation for the first time since 2009. So with more money in our pocket, that’s great news as the assumption is that we will spend more and drive the economy back into positive territory. </div>
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However trawling through economic news today I was disheartened by news from the <country-region w:st="on">US</country-region> department for agriculture that has warned that food prices are likely to rise in the <country-region w:st="on">US</country-region> next year due to a drought gripping large parts of the <place w:st="on">Midwest</place>. It reported that this is the worst seen since 1956 and prices are expected to rise by between 3% and 4% in 2013. Corn and soybean price have already soared recently as fields dried out and crops withered.<span style="mso-spacerun: yes;"> </span>Richard Volpe of the <place w:st="on"><country-region w:st="on">US</country-region></place> department for agriculture told Reuters that ‘the drought is really going to hit food prices next year’ adding that the pressure on food prices would begin to build later this year. </div>
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So why should we be concerned? Well the <country-region w:st="on"><place w:st="on">US</place></country-region> is the world’s largest exporter of corn, soybeans and wheat and a rise in prices will impact economies worldwide.</div>
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In June, <country-region w:st="on"><place w:st="on">UK</place></country-region> food inflation fell to 3.5% from 4.3% - its lowest level in almost two years. However if the drought in the <country-region w:st="on"><place w:st="on">US</place></country-region> doesn’t end, prices could once again rise. Colin O’Shea, head of commodities at Hermes Fund Managers said: ‘If we do not get rain in the near term then corn prices and related crops will continue at these elevated price levels. As a result the Governor of the Bank of England many not get the falling inflation numbers that he so desires’. </div>
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The last thing we need is for inflation to become a problem once again. Let’s pray for rain! In the <country-region w:st="on"><place w:st="on">US</place></country-region> at least….</div>Tony Wardhttp://www.blogger.com/profile/08180086304269239910noreply@blogger.com0