Quarterly Economic Bulletin - Volume 36 Q2 2017 - Association of Mortgage ...
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Quarterly Economic Bulletin Volume 36 Q2 2017
Executive Summary The UK’s economic fundamentals remain strong with inflation historically low, growth still in positive territory and a recovered pound, now impacted by electoral uncertainty Construction starts have picked up marginally – the new government must decide soon whether it plans to extend Help to Buy past 2020 to maintain confidence in new build Even if Brexit-fuelled uncertainty weighs on consumer spending and GDP in future, market expectations for medium term-interest rates remain low Consumer indebtedness is a growing concern and one the Bank of England must give full consideration to House price growth is likely to continue to stagnate this year and early next year The endemic lack of real income growth for the younger generation is becoming problematic, and if it persists, will likely pull house prices down over the medium to longer term despite the upward tug of net migration The switch from the Funding for Lending Scheme to the Term Funding Scheme puts the onus on lenders to increase net lending – it is this that has driven lenders to pay commissions on product transfer lending
AMI QUARTERLY ECONOMIC BULLETIN Volume 36 Q2 2017
Economic Overview
remains around 16 per cent below its peak
in November last year. The flipside of this
however, is that foreign investment into the UK
A
continues to look strong, with the Bank raising
lmost a year after the UK voted to its projection for business investment growth
leave the European Union, uncertainty in 2017 from earlier forecasts.
continues. The result of this month’s
general election will set the tone for how Wage growth is suffering however and has
Britain’s exit from the union is managed, and been exacerbated by rising inflation, which hit
could even throw yet more uncertainty into 2.6 per cent in April. Figures from the Office for
the mix should there be no clear majority and National Statistics revealed that earnings fell
therefore mandate to proceed. for the first time in three years in April, while
the Bank cut its forecast for average wage
This aside, the economic fundamentals growth in 2017 from 3 to 2 per cent. It expects
underpinning Britain’s stability remain real income growth to pick back up next year.
reasonably strong. In spite of slightly lower
growth than predicted in the first quarter – the All of this precludes what happens to market
second estimate of GDP was 0.2 per cent in the confidence as Brexit begins. The Bank of
first three months of the year – unemployment England has noted that ‘monetary policy cannot
is low, the pound had begun a recovery and, prevent either the necessary real adjustment
while rising, consumer price inflation remains as the UK moves towards its new international
at historically very low levels. Electoral trading arrangements or the weaker real
uncertainty has added new pressure to the income growth that is likely to accompany that
value of sterling as Theresa May is attacked adjustment over the next few years’.
from all sides by the range of opposition parties
emanating from all corners of the less than In other words, we may be in for a fairly rough
United Kingdom. ride between now and 2019 and even further
beyond.
Consumer spending is under pressure however,
perhaps in part a reflection of people opting It is now 10 years since the previous economic
to put off large purchases until the political cycle and the only certainty facing the UK is
outlook is clearer. Economists, notably Dr that its future is uncertain. AMI is of the belief
Andrew Sentence – a former Monetary Policy that the economy is likely to suffer over the
Committee member, have raised concerns next two or three years as Brexit negotiations
relating to rising household indebtedness. take place. But we do not think this will
Consumer spending has been driven in large cause significant damage to the housing and
part by cheap debt. Borrowing on credit mortgage markets, which remain governed by
cards and through personal loans has risen the significant imbalance between supply and
considerably; over the past five years, the UK demand. This in turn is also underpinned by low
has witnessed a £12billion surge in credit card interest rates making purchase and remortgage
borrowing alone. affordable for many.
The Bank of England is forecasting that the The potential for rising interest rates is also
recent slowdown in consumer spending will low, particularly given the view held by the
continue in the medium-term, driven by a Monetary Policy Committee last month
weaker pound. In spite of a general uptick when it confirmed that under ‘exceptional
in Sterling’s value since February, the pound circumstances the Committee must balance
AMI QUARTERLY ECONOMIC BULLETIN Volume 36 Q2 2017
any trade-off between the speed at which it
intends to return inflation sustainably to the
House Prices and
target [of 2 per cent] and the support that
monetary policy provides to jobs and activity’. Construction
Q
This seems as close as the Bank is willing to uarterly output in the construction
go to suggesting that very low interest rates industry grew for the fifth consecutive
are here to stay for the medium term at least. period, rising by 0.2 per cent in the
Markets appear to trust that the Bank remains first quarter of 2017. Within these figures,
reluctant to raise rates, and measures of new housing completions were up significantly
financial market uncertainty are consequently in March, rising month-on-month by 3.8 per
low. Equity markets are also performing cent andSection up 5.4 per cent
1 Global economicon the year before.
and financial market developments
strongly, with the FTSE and S&P indices trading This is a positive picture but there are already
near all-time highs, fuelled by Sterling’s relative signs that output may be slowing back down.
weakness and the shunt this gives to larger Whether this is a temporary lull ahead of
corporate profitability. the14general election remains to be seen but In
Chart 1.5 Measures of financial market uncertainty are in its aftermath,
goods. Annual Government world export must focus on
price inflation excluding oil is
CHART: Measures of financial market uncertainty are low
low delivering the newto
estimated homeshave risen promised sharply byoverevery the past year, to 2.4%
Implied volatilities for US and euro-area equity prices party. 2017 Q1 (Table 1.B). That will push up UK import price
Differences from averages since 2002 (number of standard deviations) inflation (Section 4), as will the past fall in sterling.
2.5
CHART: Housing starts picked up sharply in 2016 H2 B
S&P 500 (VIX)(a) February Report Chart 2.7 Housing starts picked up sharply in 2016 H2
2.0 Housing starts(a) d
Euro Stoxx (V2X)(b)
1.1 The euroThousands areaper quarter (annualised) co
1.5 240
e
1.0 As the United Kingdom’s largest trading 200
partner, w
0.5
developments in the euro-area economy are important for sh
+ UK growth. Quarterly euro-area GDP growth 160 was stable m
a
0.0
– 0.5% in Q1 (Table 1.A). That was as expected in Februarym
0.5 (Table 1.C), and slightly higher than average 120 su
growth in rece
years. o
1.0
Inflation Report May 2017 80 T
1.5 e
2014 15 16 17 The recovery in euro-area growth in recent 40 years has narrotr
Source: Bank of England
Sources: Bloomberg and Bank calculations. the degree of slack in the economy. The unemployment ra re
0
2004 has 06 continued to fall12steadily 14 reaching 9.5% in March, arou
(a) VIX measure of 30-day implied volatility of the S&P 500 equity index.
08 10 16
(b) V2X measure of 30-day implied volatility of the Euro Stoxx equity index.
s CHART: Financial market prices imply that UK interest rates will stay
Chart A Financial market prices imply that UK interest Source: Bank
Sources: 2 ofpercentage
England
Department for Communitiespoints
and Local above
Governmentitsand Bank calculations. low (Chart 1.10). Im
2007–08
low for some time
rates
Chartwill
1.6stay
Thelow for some timepath for UK short-term
market-implied (a) NumberDespite
of permanent that,
dwellings four-quarter wage
in the United Kingdom started growth
by private remained
enterprises up to well belo
E
2016 UK real policy
interest ratesrate
hasand financial market estimates of expected
fallen The Conservatives
private its pastin England.
enterprises averagehave
Data are promised
rate 1.5%toinmeet
2016 Q2. Data for Q3 and Q4 have been grown in line with permanent dwelling starts by
at adjusted.
seasonally Q4. While weak productivi v
es have short-term real
International interestinterest
forward rates ten years
rates(a) ahead their 2015 commitment to deliver a million
growth (Chart 1.9) is likely to have weighed on wage growU
nomies. Per Per
centcent
7 2.0
homes bydegree the end of 2020
of spare have appears
capacity claimedtothey persist. a
al
Solid lines: May Report
6 willChart
deliver 2.8halfSurveys a million
point to morea pickupby the end growth
in export of th
Dashed lines: February Report Unitedof States
2022. Labour meanwhile is promising to build
Range model-based
estimates for UK 5 1.5 in 2017 p
icy
expected real interest
rates ten years ahead(a) 4 at least
UK exportsaDespite
million
and surveythe
new weakness
homesof and
indicators in euro-area
export boost
growth(a) the wage growth, core infla
b
3 1.0 provisionhas of risen
socialinhousing
recentPercentage
months
bothchanges toon1.2%
through in April (Table 1.B). Mu
local
a year earlier
t rates 20
The Average(a)
Federal funds rate(b) United Kingdom 2 councils of and thathousing associations.
rise is likely to have been To doerratic,this, however, reflectin C
BCC
a Labourthe Government would build 100,000
15
Bank Rate 1
+ 0.5
timing of the Easter holidays relative to 2016. Core T
flation 0
– + new social homesisaprojected
inflation year andto shelve
fall CBI theinTory
back May. 10 fl
ecline.
policy of Right to Buy. Both parties’ targets 5
ECB main refinancing rate 1
0.0 th
the
are unrealistic andconditions
impractical. Annual new remain
2
–
over UK real policy rate(b) Euro area
3 Financial in the euro area + supportive ofQ
ECB deposit rate 0.5 build dwelling growth. starts in 2016 by
As expected totalled 153,370. 0
e
pital 4 Exportsmarket
(b) contacts, – the European
During the same period, completions totalled 5
est rates
5 Central Bank (ECB) Markit/CIPSmade no changes to monetary policy re a
1993 95
2013
97
14
99 2001 03
15 16
05 07
17
09 11
18
13 15
19
17
20
1.0
140,660, a decrease of 1 per cent compared Agents e
ment and March and April meetings. As announced 10 in December 201
Source: Bank
Sources:
Sources: Bankof England
Bloomberg, Consensus Economics, HM Treasury, ONS and Bank calculations.
of England, Bloomberg, European Central Bank (ECB) and Federal Reserve. with 2015. d
reasing (a) End-month data to March 2017. The swathe shows estimates from four models. Three of the ECB EEF reduced its rate of asset purchases 15
from €80 billio
(a) the
Themodels
May 2017 and February
estimate 2017policy
the nominal curvesrate,
are estimated using instantaneous
and are adjusted forward overnight
for inflation expectations; T
index
one swapjointly
model rates in the fifteen
estimates working
nominal anddays
real to 3 Mayrates
interest and 25 January
using 2017 respectively.
RPI inflation. Nominal per month to €60 billion in April, and intends to continue
(b) interest
Upper bound of the
rates are target range.
zero-coupon ten-year forward rates derived from UK government bond 20 in
2007 these 09 purchases 11 until13 December 15 2017.17 The market-implied
prices. Inflation expectations estimates are for inflation five to ten years ahead from the
half-yearly Consensus survey, and are assumed constant in the intervening months. They are
n
but is of Chart 1.7 Equity prices have risen further globally
based on RPI inflation until 2005 and CPI inflation thereafter; prior to 2005, the estimates path
Sources: Bank for BCC,
of England, short-term interest
CBI, EEF, IHS Markit, ONS and Bankrates (Chart 1.6) and longer-te
calculations.
e
are adjusted by the difference between RPI and CPI inflation. Expected policy rates are
ttee International equity
derived by stripping out termprices (a)
premia estimated using the following four models: the government
(a) BCC measure bond
is the net percentage balanceyields (Chart
of manufacturing 1.4)companies
and service have fluctuated, howe d
benchmark model in Malik, S and Meldrum, A (2014), ‘Evaluating the robustness of UK term reporting that export orders and deliveries increased on the quarter; data are non seasonally
5 April, adjusted. CBI measure is the average of the net percentage balance of manufacturingthird of the 405,000 homes built since 2013 – 112,000 – have been bought by families
under Help to Buy. Arguably this is a higher proportion than we will see over the next
three years given that lenders have recovered their independent appetite to lend up to 95
per cent loan-to-value. However, the value the scheme offers is as a safety net for
AMI QUARTERLY ECONOMIC BULLETIN Volume 36 Q2 2017
builders deciding whether to deliver more or fewer new homes.
This is particularly important in light of recent data on house prices and activity in the
sales market. The latest numbers from the National Association of Estate Agents show the
number of house-hunters registered per estate agent branch fell to 381 in April. In March
there were 397 per branch, down from 425 in January and February. Supply also fell in
April. In March there were 39 properties available to buy per branch but in April this figure
dropped 8 per cent to 36 per branch. This is the lowest level seen since April 2016 when
agents had just 35 properties to market ahead of the referendum on leaving the European
Union.
CHART: Nationwide house price index CHART: Halifax house price index
CHART: Nationwide house price index
Source: Halifax
Source: Halifax
This may be a similar dip ahead of the general election, but given that this was announced
only recently, it is also possible that we are seeing the beginning of a wider slowdown in
the housing market. This is reflected in property prices. Both Halifax and Nationwide are
Source: Nationwide
Source: Nationwide now recording monthly falls in the average house price, with the Halifax index suggesting
that the average home is now £3,000 below its peak value, reached in December last year.
CHART: Halifax house price index London is suffering more than other areas in the country, but experience suggests that this
Delivering new homes to Britain is critical and branch. This is the lowest level seen
effect will ripple out more widely over the course of the year.
high targets are laudable but Governments since Aprilmonthly
consecutive 2016 when
fall in agents
April. RICS hadsuggests
data meanwhile just that
35buyer demand has
Mortgage lending is also subdued, with Bank of England approvals showing a third
must be practical on how they plan to achieve properties to market
indicates that mortgage approvalsahead
may remain oflacklustre
the referendum
now been stagnant or falling for five months, which chimes with the Bank’s data and
in the coming months. Buy-to-let
them. Part and parcel with this will be the Help onistreatment,
leaving the European having Union.
an effect onThis
propertymayvalues.be a
also significantly down on a year ago following the various changes to landlord tax
which is undoubtedly
to Buy equity loan scheme, which is currently similar
That said, dip
a fallahead
in propertyof the
prices general
is not likely to beelection,
severe and could but
serve to boost buyer
scheduled to close in 2020. Labour has said given that thisatwas announced only recently,
interest. It does however underline how important the Help to Buy scheme is in supporting
lenders’ confidence the higher end of the LTV scale.
it will extend this to 2027 if elected; it seems it is also Credit
Consumer possible that we are seeing the
sensible to consider an extension under a beginning
Following multipleof ahighwider slowdown
profile warnings in thedebt,
over rising consumer housing
the Financial Conduct
Authority has said it will review the sector. This covers credit cards, personal and
Conservative Government as well. market.
unsecured loans and car finance, the latter of which has ballooned in recent years with
the popularity of personal contract plans.
The latest figures from the Bank of England show that while borrowing against our homes
Builders are responsible for delivering the This is reflected
is falling back, unsecuredin property
borrowing continuesprices. Both
to grow quickly. AprilHalifax
saw consumer credit
grow £1.5 billion, pushing the annual growth rate up from 10.2 per cent to 10.3 per cent.
new homes promised by politicians and they andThis Nationwide are now recording monthlycent in March to
was largely driven by an uptick in credit card lending from 8.9 per
9.7 in per cent in April, the strongest rate since March 2006. In April the Financial Policy
are motivated by profit margin. Help to Buy falls in the
Committee average
warned housein consumer
that this explosion price,debt with thefinancial stability at
is putting
risk. Not only is the risk of arrears on consumer credit higher than in the mortgage sector,
provides them with much needed certainty Halifax
these loans index
are also suggesting
being securitised andthat
sold onthe average
to other home
investors. Indeed,
headlines in the national press have begun drawing comparisons between sub-prime car
recent
at a time when there is little else that can be is now £3,000 below its peak value, reached in
loan contagion in the US and the credit crunch in 2007.
relied upon. The figures bear this out - almost December last year. London is suffering more
a third of the 405,000 homes built since 2013 than other areas in the country, but experience
– 112,000 – have been bought by families suggests that this effect will ripple out more
under Help to Buy. Arguably this is a higher widely over the course of the year.
proportion than we will see over the next
three years given that lenders have recovered Mortgage lending is also subdued, with Bank of
their independent appetite to lend up to 95 England approvals showing a third consecutive
per cent loan-to-value. However, the value the monthly fall in April. RICS data meanwhile
scheme offers is as a safety net for builders suggests that buyer demand has now been
deciding whether to deliver more or fewer new stagnant or falling for five months, which
homes. chimes with the Bank’s data and indicates that
mortgage approvals may remain lacklustre
This is particularly important in light of recent in the coming months. Buy-to-let is also
data on house prices and activity in the sales significantly down on a year ago following the
market. The latest numbers from the National various changes to landlord tax treatment,
Association of Estate Agents show the number which is undoubtedly having an effect on
of house-hunters registered per estate agent property values.
branch fell to 381 in April. In March there were
397 per branch, down from 425 in January and That said, a fall in property prices is not
February. likely to be severe and could serve to boost
buyer interest. It does however underline
Supply also fell in April. In March there were 39 how important the Help to Buy scheme is in
properties available to buy per branch but in supporting lenders’ confidence at the higher
April this figure dropped 8 per cent to 36 per end of the LTV scale.Table 2.C Household borrowing conditions have eased in recent
AMI QUARTERLY ECONOMIC BULLETIN
years Volume 36 Q2 2017
Average interest rates on household lending and other terms on credit card
lending
Monthly averages
Consumer Credit
Table 2.C Household borrowing conditions have eased in recent
TABLE: Household borrowing conditions
2005– have eased
2009– in recent
2013– years 2017
2016 2017
years
08 12 15 Q1 April
Average interest rates on household lending and other terms on credit card
F
lendingrates (per cent)(a)
Interest
ollowing multiple high profile warnings Two-year fixed-rate Monthly averages
over rising consumer debt, the Financial mortgage (75% LTV)
2005–
5.4
2009–
3.7 2.3
2013– 2016
1.7
2017
1.4
2017
1.4
Conduct Authority has said it will review Two-year fixed-rate
mortgage (90% LTV)
08
n.a.
12
6.0
15
4.1 2.6
Q1
2.5
April
2.5
the sector. This covers credit cards, personal Interestunsecured
£10,000 rates (per cent)
loan
(a)
7.8 9.0 5.3 4.1 3.7 3.7
and unsecured loans and car finance, the latter Two-year fixed-rate
£5,000 unsecured loan 10.0 12.7
mortgage (75% LTV) 5.4 3.7 2.39.7 1.79.2 1.49.3 1.4 9.5
of which has ballooned in recent years with the
Two-year fixed-rate
popularity of personal contract plans. Other terms
mortgage (90% LTV) n.a. 6.0 4.1 2.6 2.5 2.5
Average 0% balance transfer
£10,000
term unsecured
(months)(b) loan 7.8
8.2 9.0
12.4 5.3
19.6 4.1
25.7 3.7
29.6 3.7 n.a.
The latest figures from the Bank of England £5,000 unsecured loan
Average balance transfer
10.0 12.7 9.7 9.2 9.3 9.5
show that while borrowing against our homes fee (per cent)(b)
Other terms
2.4 3.0 3.1 2.7 2.7 n.a.
is falling back, unsecured borrowing continues Average 0% balance transfer
to grow quickly. April saw consumer credit
Sources: Moneyfacts(b)
Group and Bank calculations.
term (months) 8.2 12.4 19.6 25.7 29.6 n.a.
grow £1.5 billion, pushing the annual growth (a)Average
The Bank’s
financial
quotedtransfer
balance interest rate series are currently compiled using data from up to 19 UK monetary
fee (per institutions
cent)(b) (MFIs). Data are non 2.4seasonally
3.0adjusted. 3.1
Sterling-only
2.7end-month
2.7quoted rates.
n.a.
rate up from 10.2 per cent to 10.3 per cent. (b) The average 0% balance transfer term is the average of each lender’s maximum 0% balance transfer term
available. The average balance transfer fee applies to products with these terms. Longer transfer terms and
This was largely driven by an uptick in credit Source:
lowerBank
Sources: fees of England
imply
Moneyfacts easier
Groupcredit conditions.
and Bank Whole market data, excluding values of zero. End-month data.
calculations.
card lending from 8.9 per cent in March to 9.7 (a) The Bank’s quoted interest rate series are currently compiled using data from up to 19 UK monetary
CHART: Household
financial lending
institutions (MFIs). Datagrowth has slowed
are non seasonally slightly
adjusted. Sterling-only end-month quoted rates.
in per cent in April, the strongest rate since Chart 2.5 0%
(b) The average Household lending
balance transfer term growth
is the average has maximum
of each lender’s slowed0%slightly
balance transfer term
March 2006.
available. The average balance transfer fee applies to products with these terms. Longer transfer terms and
(a)
Household borrowing
lower fees imply easier credit conditions. Whole market data, excluding values of zero. End-month data.
Percentage changes on a year earlier
20
In April the Financial Policy Committee warned Chart 2.5 Household lending growth has slowed slightly
that this explosion in consumer debt is putting Household borrowing(a)
15
financial stability at risk. Not only is the risk of Secured lending to
Percentage changes on a year earlier
individuals 20
arrears on consumer credit higher than in the 10
mortgage sector, these loans are also being Consumer
credit
15
Secured lending to
securitised and sold on to other investors. individuals 5
Indeed, recent headlines in the national press 10 +
Consumer
have begun drawing comparisons between credit
0
5–
sub-prime car loan contagion in the US and the + 5
credit crunch in 2007. 0
– 10
Concern is mounting that the underwriting 2000 02 04 06 08 10 12 14 16 5
standards applied to consumer lending are (a) Monthly data. Sterling net lending by UK MFIs and other lenders. Consumer credit consists
of credit card lending and other unsecured lending (other loans and advances) and excludes
insufficient. This is particularly worrisome given
10
2000 loans.
student 02 04 06 08 10 12 14 16
the introduction of clear affordability rules on Source: Bankdata.
(a) Monthly of England
Sterling net lending by UK MFIs and other lenders. Consumer credit consists
mortgage lending in 2014 under the Mortgage Chart
of credit card lending and other unsecured lending (other loans and advances) and excludes
2.6
student loans.House price inflation has slowed but housing
Market Review and the subsequent inclusion market activity has been broadly stable
of consumer credit lending into the FCA’s House
Chartprices and mortgage
2.6 House approvalshas
price inflation forslowed
house purchase
but housing
regulatory remit in 2014. forms
market of activity
debt
Three-month overhas the
on three-month beenlong term
broadly may reflect
stable
both stricter affordability
annualised percentage change
30House prices and criteria
mortgage approvals from lenders 140
Thousands per month
for house purchase
It is clear that the affordability standards on mortgage borrowing and a decade of little
Three-month on three-month
Mortgage approvals
required of mortgage lenders are not being to2030no real wage growth.
annualised percentage change Thousands per month 120
for house purchase 140
(a)
House prices
applied in the sale of personal and car loans, Mortgage approvals 120100
PCP and credit cards. If the philosophy that This is particularly
1020
House prices(a) acute for theforyounger
house purchase
and
sits behind the MMR rules on affordability has still
+
working generations whose incomes have100 80
010
taught the market anything, it must be that not+ been protected by the Government’s triple 80 60
–
credit scoring in isolation is an insufficient lock
10
0 on the state pension. The endemic lack of
measure of whether a consumer is able to real– income growth for the younger generation 60 40
afford to repay debt. is20becoming problematic, and if it persists, will40 20
10
likely pull house prices down over the medium
20
Increasing reliance on short-term, expensive to30longer
2004
term.
08 12 16 2004 08 12 16
20
0
30 0
Sources:2004
Bank of08
England,12
IHS Markit,
16 Nationwide
2004and Bank
08 calculations.
12 16
(a)Sources:
AverageBank
of the Halifax/Markit
of England, and Nationwide
IHS Markit, Nationwideand
house
Bankprice series.
calculations.
(a) Average of the Halifax/Markit and Nationwide house price series.be subject to revision, including those recently announced by current spending decisions; nonetheless they m
the ONS as partAMI QUARTERLY
of Blue Book 2017ECONOMIC spending
BULLETIN Volume
described below. 36 inQ2
the2017
long run, for example when pe
Over 2016, much of the fall in the aggregate sa
Chart A The household saving ratio has fallen driven by falls in non-labour income. In particu
Product Transfers
CHART: The household
Household saving
saving ratio (a) ratio has fallen
income earned on behalf of households by pen
Per cent
18 insurance companies fell sharply in Q4. By con
C
16 of labour
onsiderable noise hasandbeen
benefit
madeincome increased slightly
14 followinggenerally,
the decisionsoverbythe
multiple
past two decades, labour an
12 lenders to start paying
income procuration
has risen fees
relative to consumption, whil
Chart 3: Buyer Enquiries less Sales Instructions & House Prices on product transfers. This move is the right one
10 total household income to consumption has fa
50 80 6
in our view, but it is vital that in celebrating it
40 In other words, it is changes in non-labour inco
60 8
4 we do not give the incorrect impression that
Chart
40 3: Buyer Enquiries less Sales Instructions & House Prices
commission in driven
any waythe saving ratio lower over this period.
30
6 influences the advice
2050 80 6 2
1040
20 given to customers.
below, It has been suggested
forthcoming thatas part of Blue Bo
revisions
60 4
0 30
0
4 0 brokers withheld applications from certain
likely to mean that the saving ratio has fallen b
40
-10
20
-20 2
lenders in protest against
current their
data previous
suggest.
20 2
-20
10
-40
RICS New Buyer Enquiries less 0
-2 refusal to pay proc fees on transfers but this is
01963
categorically not the case.
73 83 93 2003 13
0
-30 -60 Seller Instructions (Adv. 5m, LHS) 0
-20 -4
-10
-40 -80 Nationwide
(a) Saving as a percentage of household post-tax income. house prices (% Forthcoming changes in Blue Book 2017
-40 3m/3m, RHS) -2
-20
-50 -100
Source:
-60 05 Bank
AMI is of the view
The that
ONSlenders
RICS New Buyer Enquiries less in fact chose
has announced -6 changes to the measu
-30 06 of07 England
08 09 10 11Seller 12 Instructions
13 14 (Adv.15 5m,
16 LHS)
17
-80
to begin payinghousehold
a fair reflection
Nationwide house prices (%
-4
incomeof the value
ahead of Blue Book 2017. Th
-40
Accounting for changes in the saving ratio created
3m/3m, RHS) by brokers on this business as a result
-50 CHART:
-100 Breakdown
Chart of consumer
5: Breakdown of credit
-6
Consumer Credit (% y/y) to have substantial implications for the aggreg
of an entirely different reason.
The majority of income for many households comes from
05 06 07 08 09 10 11 12 13 14 15 16 17
2.0 15 15 saving ratio.(1) Provisional estimates suggest th
wages, salaries or self-employment
Credit Cards income. Total labour
1.8
Chart 5: Breakdown of Consumer Credit
Personal loans (% y/y) ratio
The Funding for will be
Lending revised
Scheme up by 0.8 percentage point
brought
1.6 income, after taxes, currently accounts for a little over half of
2.0
1.4
10
15 1510 in during 2012between
operates 1997
on a fairly
and 2012 (Chart C). The size of
1.8 total household income asCredit Cards
measured by the ONS. straightforward asset for gilts swap between
1.2 Personal loans
1.6
1.0 5
10 105 lenders and the Bank of England. After several
1.4
0.8
1.2
Other people receive a substantial proportion of theirextensions
income of the funding
(1) For facility
more details, by the Bank,
see www.ons.gov.uk/economy/nationalaccou
articles/nationalaccountsarticles/impactofbluebook2017chang
0.6
1.0 from
05
lenders
government benefits or private pensions,5 0which togetherare now facing the liquidity drip being
financialaccounts1997to2012.
0.4
0.8 turned off after January 2018.
0.2
0.6 The scheme is gradually to be replaced with
0.0 -50 0 -5
0.4
06 07 08 09 10 11 12 13 14 15 16 17 the new Term Funding Scheme, introduced in
0.2
August last year, which allows banks to borrow
0.0 -5 -5
Source: Capital Economics
06 07 08 09 10 11 12 13 14 15 16 17 against their assets at very low rates from the
Chart 7: Unsecured Debt as % of Disposable Income
Bank of England. There is a catch with the new
22
20 CHART:
32
ChartUnsecured debt asDebt
7: Unsecured % of disposable income
as % of Disposable Income
32 scheme: unlike the FLS, the TFS puts the onus
18
1622 30 30
on lenders to increase net lending in order
1420
32 32
to benefit from the Bank of England’s cheap
1218
1016
28
30 30 28 borrowing rates.
8 14
6 12 26
28 28 26
4 10 The uptake figures are revealing. At the end
28
06
24
26 26 24 of 2016 just one lender – Aldermore – had
4
-2
2
-40 22
24 24 22 used the TFS while loans made by the Bank of
-6-2 England through the FLS rose to £60.8 billion
-8-4
-6
22
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
22 20
at the end of September. The latest figures
-8 20 20 show that uptake of the TFS is now rising – by
8 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
the last quarter of 2016, £20.6 billion was
e) Chart 9: Earnings & Inflation
borrowed by 21 lenders. In the first three
me)10 Source:
7 Capital Economics
Chart 9: Earnings &% Inflation 7
Average earnings (ex. bonuses, y/y of 3m. ave.) months of this year, it was up again, with a
9
10 67 CPI Inflation (% y/y of 3m. Ave.)
Average earnings (ex. bonuses, % y/y of 3m. ave.) Forecasts7 6 further £34.4 billion borrowed, bringing 28
8
9
78
56 CPI Inflation (% y/y of 3m. Ave.) Forecasts 6 5 lenders into the scheme with total borrowings
67 45 5 4 of £55.1bn.
56 34 4 3
45
23 3 2 Lenders must factor in this need to
34
12 2 1 demonstrate an increase in net lending in a
23
12 01 1 0
01 0 0
-1 -1
0 -1 07 08 09 10 11 12 13 14 15 16 17 18 19 20-1
07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources – Thomson Datastream, Bank of England, GfK, RICS
Sources – Thomson Datastream, Bank of England, GfK, RICSAMI QUARTERLY ECONOMIC BULLETIN Volume 36 Q2 2017
market where new lending remains subdued by pressure on competition. Lenders choosing
the uncertainty surrounding Brexit and ongoing to pay brokers a product transfer commission
affordability constraints for borrowers. is related to this changing landscape where
there is less incentive for brokers to actively
By AMI’s estimation, the product transfer woo existing borrowers away from their
market was anywhere between £80 billion lender’s retention deals to other more suitable
and £100 billion gross lending last year. In providers. It also fairly reflects the fact that
the context of a market that is £240 billion or where borrowers do choose to remain with
thereabouts, this section of lending is critical their existing lender, often they have discussed
if lenders are to grow net lending. They must this with their broker who has spent time
retain borrowers on their books as well as comparing retention deals with the wider
attract new customers, putting even more market to ensure it’s the best option.You can also read
