This week’s Personal Column features: Bank of England warns on consumer debt | Two most common forms of cancer | 12 months for the price of nine on landlords insurance
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The Bank of England has warned that high levels of debt could make consumers “vulnerable” to any economic downturn following the referendum.
The Financial Policy Committee (FPC) also said banks wouldn’t have to set aside more capital next year because economic risks were “materialising”.
The easing of those capital requirements potentially frees up £150 billion for lending, the FPC said. That could help if uncertainty causes the economy to slow down.
“This is a major change,” said Bank of England governor, Mark Carney.
“It means that three-quarters of UK banks, accounting for 90% of the stock of UK lending, will immediately – have greater flexibility to supply credit to UK households and firms,” he said.
In its six monthly Financial Stability Report, the Bank also said there were risks apparent in the commercial property market, with vital foreign inflows falling by 50% in the first three months of 2016.
It warned about “the high level of UK household indebtedness [and] the vulnerability to higher unemployment and borrowing costs” could affect some households’ ability to pay their debts. House prices could also come under pressure, particularly if buy-to-let investors abandon the market.
The FPC said that banks were now well capitalised and that the Bank of England would postpone demands for £5.7 billion of extra financing to be held on the banks’ balance sheets – known as the “countercyclical capital buffer”.
The Bank would reduce the level of the buffer – set to be introduced next year – from the planned 0.5% of a banks’ lending “exposure” to 0%. The 0% rate would be maintained until at least June next year, the FPC said. It said it made the move because “a number of economic and financial risks are materialising”.
Given that banks leverage their lending, the FPC said the buffer reduction would allow banks to increase credit supply to households and businesses by £150 billion. The FPC also said it was acting to reduce any “fragility” in the financial markets and was ready to move further if necessary.
Its report said that maintaining foreign investment, necessary to support the UK’s historically high current account deficit, could become harder following the decision to leave the European Union because of a “prolonged period of uncertainty”.
“These measures are really about Carney aligning the Bank of England’s guns in case the UK economy enters a downturn. Markets are going to be reassured by his proactivity. He’s not waiting for anything bad to happen but rather acting in case it does. It also means that both halves of the BoE: the monetary policy and financial policy are pulling in the same direction,” said James Athey, investment manager at Aberdeen Asset Management Investment.
Source: BBC News (published 05 July)
Bank of England warns on consumer debt: http://bit.ly/0807Client-article1
One in 10 over-55s still paying interest-only mortgages
Research from Homewise found that 10% of the 1.4 million over-55s homeowners who are still paying mortgages have interest-only loans. While the majority are confident of clearing the debt, substantial numbers fear they won’t be able to.
17% of interest-only borrowers over 55 admit they’ll be unable to clear the debt. The average amount owed by over-55s with interest-only mortgages is around £91,000 with one in seven owing more than £150,000.
The Council of Mortgage Lenders estimates that at the end of 2015, there are around 1.7 million pure interest-only mortgages outstanding with another 500,000 part repayment and part interest-only loans.
However, the number of outstanding interest-only loans has dropped significantly from the 3.2 million recorded three years ago.
Mark Neal, managing director at Homewise, said: “The mortgage industry has made massive strides in tackling the interest-only issue and has helped borrowers to take action.
“The good news from our research is that the majority of over-55s who’ve interest-only loans have plans in place to ensure they can pay off the capital but there are still substantial numbers who don’t appear to know what they’ll do.”
Source: Financial Reporter (published 04 July)
One in 10 over-55s still paying interest-only mortgages: http://bit.ly/0807Client-article2
Product launch – Virgin Money
Virgin Money have also produced a short animated video introducing their product transfer service
Source: Virgin Money (e-mail received 04 July)
Santander’s tip of the day
Santander’s competitive range of residential tracker deals could be of interest for buyers and re-mortgage clients as they come with the added advantage of being ERC free.
Their best selling products at the moment are:
- 39% (BBR + 0.89%), 60% LTV, £995 booking fee – purchase and remortgage.
- 59% (BBR + 1.09%), 75% LTV, £995 booking fee – purchase and remortgage.
Santander also have a number of tracker products with no booking fees offering more choice.
These products come with either:
- Homebuyer free valuation – a free standard valuation up to a property value of £2.5 million; or
- Remortgage solution – a free standard valuation up to a property value of £2.5 million plus standard legal fees paid, or £250 cashback on completion.
View our latest mortgage rates for more details.
Source: Santander (e-mail communication received 04 July)
General Insurance News
12 months for the price of nine on landlords insurance
You can rely on Legal & General (L&G) to get your clients back on track when things go wrong with their rental property. Until 27 October 2016, L&G are offering 12 months landlords insurance cover for the price of nine on new landlords insurance policies. The discounted premium is paid in 12 monthly installments and doesn’t apply to the legal expenses and rent guarantee cover option.
L&G’s landlords insurance is designed specifically for people who rent their property out to tenants, and offers benefits for landlords such as £2 million liability cover against claims from third parties. This would protect landlords if for example, a tenant was injured due to slipping on a floor tile that had become loose.
- £2 million property owner’s liability cover – to cover the landlords legal liability for injury or damage to others or for damage to their property.
- Up to £40,000 for loss of rent or for providing alternative accommodation for tenants should the property become uninhabitable following damage caused by an insured event.
- Home emergency cover up to £500.
- Trace and access cover up to £5,000 – covers the cost of tracing water or oil leaks and repairing damage caused by the investigations.
- Optional landlords contents insurance.
- Optional accidental damage and malicious damage by tenants cover.
- Optional legal expenses and rent guarantee cover.
- Portfolio cover i.e. landlords can have several properties on one policy with one common renewal date for all properties.
Source: Legal & General (published 27 April)
Getting under the skin of cancer
To find out about the two more common forms, and how their critical illness products can help customers who receive a diagnosis of skin cancer, please read AIG’s latestblog.
Source: AIG (e-mail communication received 30 June)
Welfare reform – the facts
The reality is that without enough of the right protection, most clients will struggle not just to maintain their lifestyle, but to stay in their home, pay their bills and keep their family fed and clothed. Why? Because we live to the salary we’re used to earning, and the higher the salary, the more there is to lose.
Clients may think they can rely on statutory sick pay but the government has been consistent in the message it’s sending out around the welfare state and that message is ‘don’t rely on us’.
To see the main changes and facts of welfare reform please click here.
Source: Royal London (e-mail communication received 04 July)
Just one in five have income protection
This is despite the fact that 42% reported income loss in their working lives due to serious illness.
Only 19% of respondents claim to have a good knowledge of income protection products, suggesting that more needs to be done to raise awareness of the product’s benefits – that includes access to rehabilitation, as well as financial support.
Meanwhile, over a quarter of respondents said they’d be willing to spend 5% of their income on it though such cover can be bought for significantly less.
In the absence of cover, just under half of respondents (47%) expect to rely on savings should the worst happen.
Though just under a quarter (23%) also report having savings to last them just one month in such a scenario; while 21% say they’ve enough to last them up to three months.
Meanwhile, the UK welfare system faces austerity measures with expansion of the Government’s Work Capability Assessment programme to review the eligibility of a further 1.5 million people already receiving incapacity benefit.
Unsurprisingly, over half (56%) of respondents’ preference would be for the government to cover income loss in the event of illness, followed by their employer for 37%.
Nearly half (47%) of UK respondents also reported being willing to accept a better benefits package including income protection benefits rather than higher wages, suggesting a greater role for employers in helping to protect their employees financial wellbeing.
Gary Shaughnessy, Global Life, CEO, Zurich said: “The income protection gap is a growing challenge, for individuals and their families and society as a whole. For a family, we know that the impact of the main breadwinner not being able to work through illness or disability can be devastating with financial hardship resulting in the loss of the family home for those worst hit.
“As we witness a shift in the burden of responsibility from the state to individuals, people need to take more responsibility to protect themselves and those they love. As an industry, we have a duty to continue raising awareness and help people mitigate this growing risk.”
Source: Cover Magazine (published 05 July)
Just one in five have income protection: http://bit.ly/0807Client-article3
Government told to seize control of pensions dashboard
The government must take control of the pensions dashboard to ensure bad quality providers are not allowed simply to boycott the entire project, a new report by the Centre for Policy Studies has argued.
But while the government has requested the dashboard be up and running by 2019, it’s not made participation compulsory.
Rather than calling for compulsion, the free market think tank recommended the government set up a governing board to “oversee dashboard delivery and to ensure that consumers’ best interests are served by it”.
Without such a board, it said “a minority within the industry” might view the dashboard as damaging to their business.
“A fully functioning dashboard would highlight poor performing, high charging providers, and make it harder for them to retain customers.
“Some have little interest in seeing a consumer-empowering dashboard materialise: they could choose to play chicken with the government,” it said.
Alongside a governing board, the think tank made eight other proposals.
These included hosting the dashboard on a “.gov.uk” website; setting up a central communication hub hosted by a body that was independent of the industry; and more clarity on deadlines.
It also recommended the pensions dashboard mimic Australia’s SuperStream program – a government-mandated project that standardised superannuation payment technology.
“This would require employers, pension funds, service providers and HMRC to adhere to standardised electronic pensions data and payments processing, linked by National Insurance number, to facilitate consistent messaging standards,” the report said.
The report’s author Michael Johnson went on to outline a grander vision of what the dashboard could evolve into, displaying not just pensions, but also bank balances, savings accounts and investments.
This, he said, would put consumers “a mouse click away from offsetting high cost credit card overdrafts and consumer loans against any positive cash balances (today yielding next to nothing)”.
“Thus consumers would be able to dramatically improve the return on their assets, by disintermediating the retail financial services industry, much of which we don’t need. Indeed, it’s one of the underlying causes of the UK’s poor productivity growth.”
Steve Danson, a chartered financial planner with Banks Wealth Management, said the pensions dashboard would be a very useful tool, but feared the lack of compulsion would be a problem.
“I think it should be compulsory, because the old guard providers probably wouldn’t buy into it if there was no incentive,” he said.
He said there was a real need for a service that helped people find lost or forgotten pension pots.
“I’ve seen two clients in the past fortnight who had pension pots they didn’t know about,” he said.
Source: FT Adviser (published 04 July)
Government told to seize control of pensions dashboard: http://bit.ly/0807Client-article4
Protection and Mortgage Sales Workshops
Don’t miss out, reserve your space at one of our workshops through Focus.
The events will run from 09:30 – 13:15 and include:
- Protection sales focused session.
- SolutionBuilder demonstration and sales tips.
- Mortgage sales focused session.
- MortgageSource demonstration.
Dates and Locations
Please click here to see the full list of dates and locations.
North West Regional Meeting
Our next regional meeting will take place at Cottons Hotel and Spa, Knutsford on Thursday 10 November.
The North West Regional Meeting is packed with hints, tips and support in continuing to drive good customer outcomes.
Here’s a preview of what the events will bring:
- Presentations by subject matter experts.
- Buzz sessions giving insight into various hot topics.
- An opportunity to ask questions about the latest technology advances.
- An exclusive strategy update from a member of the executive team.
- Networking opportunities with the board and other key Personal Touch staff, as well as other successful advisers.
Book your place
Registration is still open for you to book your place.
Can your smartphone really handle all your finances?
Would you be prepared to manage all your finances through your smartphone?
This is the hope of many financial technology – fintech – start-ups aiming to transform our money management habits.
They think we now trust our mobile technology enough to carry out banking, money transfers, investments and loan applications without ever stepping into a bank branch or writing a cheque.
One start-up is going a step further, bringing many financial services together onto one app so that you have complete visibility of all your cash transactions in one place.
The app, called Bud, has been developed by 26-year-old Ed Maslaveckas. He says: “Many people simply don’t have the time or expertise to track down the apps that can help them manage their money.
“So we’ve created an independent, universal banking app for my generation and anyone else who wants to make their money work harder for them.”
The idea is that customers will be able to aggregate all their bank and credit card accounts into one place and switch money between them quickly and easily, as well as make payments to other people at the click of a button.
“The Bud app fits into a wider trend in the market as banks battle it out to make their online services as effortless as possible,” says John Rakowski, director of technology strategy at AppDynamics.
But Bud has its work cut out to raise awareness, given that its own research suggests nine out of 10 young people have never even heard of fintech.
Anna Laycock, lead strategist at the London-based Finance Innovation Lab, warns that while the market is exploding with innovative ideas, those that succeed will be the ones that people can easily understand and engage with.
“Companies need to be able to articulate how their products help people,” she says. “Anything that empowers people with information they can understand and that can help their money management is a positive development.”
In June, Bank of England governor Mark Carney, said: “Fintech will change the nature of money, shake the foundations of central banking and deliver nothing less than a democratic revolution for all who use financial services.”
Banks are having to respond to the fintech challenge with innovations of their own, whether that’s voice biometrics or mobile codes for authentication purposes.
Some are experimenting with personalised video to improve customer service, while others are expanding the way they communicate, using social media platforms such as WeChat, Facebook Messenger and WhatsApp.
Others are even moving beyond banking. For example, Poland’s award-winning Idea Bank focuses on providing services to entrepreneurs, including a cloud-based space where people can work, meet and collaborate.
All this innovation should mean that, as Mr Carney said: “With time, fintech could mean a more open, more transparent, and more democratic global financial system.”
Source: BBC News (published 05 July)
Can your smartphone really handle all your finances?: http://bit.ly/0807Client-article5[/vc_c