Finance

Let’s not pretend Labour has found a way to defuse the ‘mortgage timebomb’ | Nils Pratley

Published

1 year ago

June 21, 2023

Let’s not pretend Labour has found a way to defuse the ‘mortgage timebomb’ | Nils Pratley

Labour’s “five-point plan” to ease the pain in the mortgage market can be boiled down to a single idea: get heavy with the lenders – the banks and building societies – to make them play nicely with over-stretched borrowers.

One cannot call it a radical idea, however. First, it’s in the interests of lenders themselves, up to a point, to be flexible by, say, lengthening the term of the loan, granting a payment holiday or allowing a borrower to switch to interest-only arrangements for a while. Second, many banks say they already have such policies in place, even if critics say they’re not advertising them with enthusiasm.

Ultimately, though, the worst outcome for banks would be a demand-crushing crash in the value of houses. They would also definitely wish to avoid a situation in which politicians start to ask if their fabled “affordability checks” on home loans were up to scratch.

And the good news is that lenders can definitely tolerate a round of political arm-twisting that demands greater levels of forbearance. A feature of the current rate-hiking cycle that began in December 2021 is the remarkably low level of bad debts and defaults that have appeared.

On the business side of their lending books, banks did not see the pandemic-created defaults they imagined at the outset. “Resilience” is a commonly used word by banks in recent quarterly reports about commercial lending. On the mortgage and consumer side, unemployment has always been the best predictor of defaults: since we currently have the lowest levels of unemployment since the mid-1970s, the picture has also been solid there.

Meanwhile, net interest margins – the difference between what a bank pays to depositors and what it charges on loans – have been rising. So, yes, if forbearance requires banks to absorb a few costs, they can afford it. Labour is pushing in the right direction, even as it accepts “some lenders are offering similar measures” to the ones it proposes and that this is really about creating a uniform approach.

The interesting part of the plan, then, comes down to its urging of the government to tell the Financial Conduct Authority, the chief financial regulator, to issue a formal instruction to lenders that borrowers’ credit score should be unaffected, a point made by campaigner Martin Lewis. Borrowers would get a right to request a temporary interest-only arrangement or a longer repayment term; lenders would have to wait six months before initiating repossession proceedings. Measures would be reviewed after 12 months.

Would an FCA order, as opposed to the usual regulatory “guidance” to treat customers fairly, help? Possibly: borrowers could enter a conversation with their lender knowing what to expect. And the six-month non-repossession measure might offer a degree of comfort, even if lenders say a repossession process already takes longer.

But let’s not pretend that Labour has somehow discovered an ingenious way to defuse the “mortgage timebomb”. An ability to defer or smooth payments is only an indirect form of support: the interest and principal still have to be paid eventually. Like the prime minister, Rishi Sunak, and chancellor, Jeremy Hunt, Labour seems to have concluded that offering direct support for mortgage holders cannot be justified.

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Quite right too: there’s no point in having the government and the Bank of England pull in opposite directions, and direct handouts for homeowners is surely a non-starter when renters tend to be poorer. It is only a handful of Trussite Tory MPs (and, oddly, John McDonnell, Labour’s former shadow chancellor) who are flirting with the idea of reintroducing tax relief on mortgage interest.

The Labour leadership, then, is within the consensus that says help for homeowners should take the form of tweaks to mortgage terms. Still, it’s smart politics to be seen to crank up the pressure on the banks. Hunt is meeting their chief executives on Friday. The chancellor will now be under more pressure to produce something meatier than the loose “commitments” that usually emerge from such encounters.

Finance

30-year mortgage rate hits 2-year low

Published

6 hours ago

September 26, 2024

Press Room

The average rate on a 30-year fixed-rate mortgage was nearly unchanged this week but reached its lowest level in two years.

Thirty-year mortgage rates averaged 6.08% as of Thursday, down from 6.09% a week earlier, according to Freddie Mac data.

Average 15-year mortgage rates rose one basis point to 5.16%.

As mortgage rates hover around 6%, potential buyers are tiptoeing back into the market, and some homeowners who bought when interest rates topped 7% are weighing refinancing. Mortgage applications jumped to the highest level in more than two years last week, driven largely by refinancing volumes.

“Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to trim their monthly mortgage payment,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Meanwhile, many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks.”

Thirty-year mortgage rates have dropped more than a percentage point since May.

Read more: Mortgage and refinance rates today, September 26, 2024: Rates finally decrease

The Pending Home Sales Index, a measure of housing contract activity, rose 0.6% to 70.6 in August, improving slightly from July’s record-low reading, according to the National Association of Realtors. A level of 100 is equal to the amount of contract activity seen in 2001.

“Buyers are finally getting more comfortable with the rate,” said Selma Hepp, chief economist at real estate data provider CoreLogic. “I don’t think that’s going to mean a big boost for home sales this year given how low they’ve been so far, but still, it’s a little bit of improvement.”

Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.

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Finance

AI, new generations and consumer finance

Published

17 hours ago

September 26, 2024

Press Room

AI, new generations and consumer finance

Öztopçu explains that while consumers are rapidly diversifying within the financing ecosystem, there is a genuine need for new generation financing products capable of responding to this diversity: “Seizing and developing technological opportunities, especially AI, enables companies to develop new production methods and tools, do a much better job at sizing up their competitors, and build creative competitive strategies.”

Garanti BBVA, in its role as a supporter of startup growth and investment, has revealed the latest cohort of startups joining its renowned Garanti BBVA Partners Tech Program.

As Generation Z enters its peak earning years, it has become the target of all sectors of the economy, Öztopçu notes. Generation Z prioritizes convenience over everything else, and appreciates special, innovative financial benefits, such as promotions and discounts. Öztopçu reports that Gen Z’ers also do a lot of their shopping on social media, but always after doing proper research, and rarely on impulse. To help them, they browse online channels and watch videos if necessary.

According to Öztopçu, this generation looks for the same perks and promotions when they are looking for financial products, such as loans, interest rates, and payment flexibility. In fact, when offered by brands, it builds greater customer loyalty among Gen Z’ers – even more so when the brands develop financial products that are customized to meet their needs.

Öztopçu explained that if a consumer uses a product developed in collaboration by brands and financial institutions, they visit the brand’s mobile app or website three times a month on average, and these visits convert into sales. During this transition period, the use of these hybrid structures is bound to become more widespread, as they are especially good at engaging with the customer, helping brands understand their needs and guiding them.

Therefore, according to Öztopçu, if consumer finance companies or banks insist on using traditional databases, they must be ready to work harder to offer new products that can keep up with changing consumer financing trends and lending habits.

Finance

Dow retreats from record high, Micron earnings on tap: Yahoo Finance

Published

1 day ago

September 25, 2024

Press Room

Dow retreats from record high, Micron earnings on tap: Yahoo Finance

The Dow Industrial Jones Average (^DJI) is pulling back Wednesday, after reaching an all-time high in the previous session. Investors are now turning their attention to Friday’s PCE report to help assess whether the Federal Reserve will continue its aggressive rate-cutting cycle. Meanwhile, Micron Technology (MU) is in focus on Wall Street as the chip giant gears up to report it’s fourth-quarter results after the market closes.

Yahoo Finance trending tickers include Rocket Lab (RKLB), Ford Motor Company (F), and Rivian Automotive (RIVN).

Key guests include:
3:05 p.m. ET Kate Moore, BlackRock Global Allocation Fund Head of Thematic Strategy
3:30 p.m. ET Alonso Munoz, Hamilton Capital Chief Investment Officer
3:45 p.m. ET Michael Lasser, UBS U.S. Hardline & Broadline and Food Retail Analyst
4:15 p.m. ET Daniel Morgan, Synovus Trust VP and Senior Portfolio Manager
4:40 p.m. ET Daniel Lubetzky, Kind Snacks Founder and Builders Movement Founder