China falls back into deflation territory; UK energy companies pay £10.8m for missing smart meter targets

       

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Newsflash: The number of mortgages in arrears has risen, partly fuelled by a jump in buy-to-let landlords falling behind on their payments.

Trade association UK Finance has reported that there were 87,930 homeowner mortgages in arrears of at least 2.5% of their outstanding balance, in the third quarter of this year.

That’s a 7% increase compared to April-June 2023, and shows that some households aren’t able to meet their mortgage payments following the steady increase in UK interest rates since the end of 2021.

The number of homeowners in the ‘lighest arrears’ (ie, behind on between 2.5% and 5% of their balance) rose by 10% in the quarter.

UK Finance also reports that the number of buy-to-let mortgages in arrears has jumped by 29% in the last quarter, with 11,540 BTL mortgages in arrears of 2.5% or more in July-September.

That’s twice as many as in the third quarter of 2022, a year ago.

UK Finance also report that 630 homeowner mortgaged properties were taken into possession in the third quarter of 2023, 9% fewer than in the previous quarter.

450 buy-to-let mortgaged properties were taken into possession in the last quarter, unchanged from the previous quarter.

Dan Osman, Head of Later Life Lending (for those aged 55 or more) at UK Moneyman, says some banks are failing to show compassion to borrowers.

This data sadly shows how the walls are increasingly closing in on many borrowers.

In cases reminiscent of 2008, we are seeing a lot of older borrowers coming to us because they are under threat of repossession. The lack of compassion shown by some of the major banks is staggering.

When challenged, some will admit to not having offered any support to the vulnerable. This is especially true in the case of widows who may never have had any involvement in the household finances and are now being left to deal with things for the first time.

Time for a recap….

The number of UK mortgages in arrears has jumped as the rise in interest rates since the end of 2021 hits households.

Trade body UK Finance reported that 87,930 homeowner mortgages were in arrears in the third quarter of 2023, 7% more than the previous quarter.

The number of buy-to-let (BTL) mortgages in arrears was 11,540, a 29% increase during the same period – or 100% higher than a year ago.

UK Finance suggested that some landlords may not be able to charge rents which will cover their mortgage, saying:

“The increases in arrears are driven by the combined impact of both cost-of-living pressures and higher interest rates.

“In particular, interest rate pressures are felt more acutely in the BTL sector, where landlords may not be able to raise rents to cover the increases in their payments.”

Separate data from the Ministry of Justice has also shown an increase in mortgage possession claims in the last quarter, and also a rise in landlords repossessing properties from tenants.

But there could be some relief for households looking to remortgage, with Nationwide launching a two-year fixed-rate mortgage priced at below 5%.

The Bank of England’s chief economist has indicated that UK interest rates won’t need to rise any higher to bring inflation down to target.

The UK property sector continued to cool last month, with property surveyors reporting another drop in sales and prices. However, the downturn may be bottoming out, the latest survey from RICS shows.

China has fallen back into deflationary territory, after consumer prices dropped by 0.2% in the year to October.

Labour has attacked the Conservatives over the speed of government efforts to upgrade Britain’s draughty housing stock, as analysis showed a leading household energy efficiency initiative was proceeding at what the party called a “glacial pace”.

Shell is suing Greenpeace for $2.1m in damages in one of the biggest ever legal threats against the group after its campaigners occupied a moving oil platform earlier this year.

Insurers operating in the Lloyd’s of London market are the world’s biggest underwriters of fossil fuel projects, research has found.

AstraZeneca is making a big push into the weight-loss drug market, striking an exclusive licence agreement with a Chinese company for an obesity and type 2 diabetes pill that is in early stage development.

Apple has suffered a setback in its battle against an order to pay an alleged €13bn (£11.3bn) tax bill in Ireland, after one of the top advisers to the European court of justice (ECJ) said a ruling in the tech company’s favour should be set side.

National Grid spent a record £3.5bn in the first half of the financial year as it accelerated work to prepare the UK’s power grids for a surge in new clean energy projects.

Shares in semiconductor designer Arm have dropped back to the levels at which they floated on the New York stock exchange this autumn.

Arm have dropped by 6% in early trading to just over $51, after its revenue forecast for the current quarter missed Wall Street forecasts last night.

Newsflash: The German governmen and Siemens AG have agreed, in principle, to provide billions of euros in project-related guarantees for troubled wind turbine maker Siemens Energy, according to Reuters.

Reuters cites three people familiar with the matter said, adding that some details of the agreement are still being discussed.

It could take some time for a formal agreement to be drawn up and approved by all sides.

It emerged last month that Berlin was in talks to provide a multibillion-euro bailout to the Siemens Energy to shore up its balance sheet amid increasing problems at its wind turbine division.

There’s drama in the precious metals market today, where palladium has fallen to its lowest level in five years.

Spot palladium has dropped below $1,000 to the ounce, for the first time since 2018, extending its recent losses.

In spring 2022, palladium spiked over $3,000 per ounce amid concerns of supply shortages from Russia after the invasion of Ukraine.

But the price of the metal, used in catalytic converters for fossil fuel cars, has dropped as the US dollar has strengthened.

Allen & Overy, the “magic circle” law firm, has suffered a cyber attack on its systems, which appear to make it the latest big corporate to fall victim to a ransomware hack.

Allen & Overy has said it has experienced a “data incident”, while social media posts have suggested it had been hacked by the Lockbit cybercrime gang.

Reuters has the details:

The attack, first reported by the Financial Times, comes after seven countries, including the U.S. and Britain, in June named Lockbit as the world’s top ransomware threat.

“We have experienced a data incident impacting a small number of storage servers,” an Allen & Overy spokesperson said in a statement.

“Investigations to date have confirmed that data in our core systems, including our email and document management system, has not been affected.

“The firm continues to operate normally with some disruption arising from steps taken to contain the incident.”

After a slow start, the UK’s FTSE 100 share index has risen to its highest level since last Friday.

The Footsie is up 40 points or 0.55% at 7441 points, the highest since last Friday.

Autotrader, the car marketplace site, are leading the way – up 8%, after reporting a 10% rise in operating profits in the six months to the end of September.

Autotrader reported that the used car market “continues to be resilient”, adding:

The volume of buyers on Auto Trader is at record levels, supported by stable consumer sentiment towards car buying and the continued availability of finance.

The supply of used cars has gradually improved as new car registrations grow; used car pricing has remained robust; and vehicles continue to sell on Auto Trader quicker than pre-pandemic levels.

Property companies are also rallying today, amid hopes that the slump in the UK housing market may be ending.

House sales portal Rightmove are up 4.2%, with housebuilder Taylor Wimpey gaining 2.6% after it lifted its earnings forecast this morning.

Over on Wall Street, shares in space travel Virgin Galactic have jumped almost 10% in pre-market trading after it beat forecasts last night.

Virgin Galactic reported that revenues rose to $1.7m in the last quarter, up from $800,000 in the third quarter of 2022, driven by commercial spaceflight and membership fees from future astronauts.

Its net loss narrowed to $105m, from $146m a year earlier.

Michael Colglazier, Chief Executive Officer of Virgin Galactic said,

“With six spaceflights successfully completed in under six months, Virgin Galactic has demonstrated the repeatability of our spaceflight system and also showcased the overwhelmingly positive experience of our Astronauts.

With our third quarter cash and marketable securities position of approximately $1.1 billion, we forecast having sufficient capital to bring our first two Delta ships into service and achieve positive cash flow in 2026.”

Back in August, Virgin Galactic’s VSS Unity, the reusable rocket-powered space plane, successfully flew three tourists to the edge of space and back to earth.

Just in: fewer Americans than expected filed new claims for unemployment support last week.

The number of initial claims for jobless support fell by 3,000 last week to 217,000, in the seven days to 4 November.

That’s a low level by historic terms, suggesting that demand for labour remains strong despite higher US interest rates.

The previous week’s data has been revised up to show there were 220,000 initial claims, not the 217,000 first reported.

However, the number of Americans unemployed for more than a week has risen again,

Seasonally adjusted insured unemployment rose by 22,000 peope in the week ending October 28, to 1,834,000.

Back in the economics world, Goldman Sachs has raised its 2024 growth forecast for China, which has just fallen back into deflation territory (see opening post).

Goldman predict China’s GDP will rise by 4.8% next year, up from 4.5% previously expected.

Its economists expect the Chinese government to “step up easing materially” in the coming months, to support the economy.

No-fault eviction claims served on tenants in England have hit their highest number in more than seven years, today’s government data shows.

Between July and September, landlords in England started 8,399 no-fault eviction court proceedings against their tenants – the highest number since the second quarter in 2016, figures from the Justice Ministry showed.

That represented an increase of 38% from the third quarter of 2022.

No-fault evictions allow landlords to end tenancies without reason.

Shelter, a campaign group which seeks to end homelessness, called on the government to deliver on its promise of reform of the rental market.

Shelter chief executive Polly Neate says:

“It beggars belief that this government is prepared to use cynical tactics to delay the banning of no-fault evictions, while record numbers of renters are being removed from their homes without cause,”

“With homelessness at record levels, there’s no excuse for putting the ban on unfair, no-fault evictions on ice.”

UK motoring bodies are unhappy that fuel pump prices are not falling in line with wholesale prices.

The Competition and Markets Authority reported this morning that there were “significant increases” in profit margins for petrol and diesel in September and October, at fuel pumps.

This followed an increase in prices in June, July and August, which can be attributed to rising crude oil prices.

The CMA says:

While the retail spread does increase and decrease in response to volatility in wholesale prices, we would expect these spreads to begin returning to normal levels.

If retail spreads were to remain at these levels for much longer, this would cause concern about the intensity of retail competition in the sector.

RAC fuel spokesperson Simon Williams says the government needs to launch a price monitoring body to keep retailers in check:

“It’s very disappointing that the CMA has found that major fuel retailers are still taking far bigger margins than they have done in the past, something we have been saying for a long time, as this means drivers are still being taken advantage of at the pumps.

While supermarket margins may have fallen in the summer, our latest data shows they have more than made up for this since then and are currently taking very large margins.

Luke Bosdet, the AA’s spokesman on pump prices, says the failure to pass on savings from cheaper wholesale energy costs to motorists is unacceptable.

“The Government needs to speed up the legislation that creates the statutory fuel price transparency scheme. The AA has been testing public responses to the profiling of cheapest pump prices across an area or along a route. The feedback from drivers is that they want more transparency.”

The Ministry of Justice has also reported an increase in landlords trying to repossess their properties from tenants.

In July-September, landlord possession claims increased to 24,938 from 21,007 in Q3 2022 (a 19% increase year-on-year). Landlord possession orders rose 17%, from 15,350 to 17,977, while warrants – which permit a bailiff or High Court Enforcement Officer to execute an eviction – rose from 8,573 to 9,753 (14%).

Repossessions increased 11% from 5,464 to 6,080.

Angela Rayner, Labour’s deputy leader and Shadow Secretary of State for Levelling Up, Housing and Communities, is concerned by the data, saying:

“These figures lay bare the devastating impact of the Tories’ abject failure to tackle the housing crisis, with a toxic mix of rising rents and failure to end no-fault evictions hitting vulnerable people.

“The indefinite delay to the promised ban on no fault evictions comes at a heavy price for renters who have been let down by this Government for far too long already, with tens of thousands threatened with homelessness and facing visits from bailiffs.

“The next Labour Government will ban no fault evictions and put an end to the Tories’ housing emergency with our secure homes plan.”

The fall in UK house prices should bottom out in the first quarter of next year, predicts Kallum Pickering, senior economist at Berenberg bank.

He explains that expectations that UK interest rates cuts starting in the second quarter of 2024 should help mortgage costs to ease, saying:

The surge in mortgage rates during the past year has likely ended now that the Bank of England (BoE) has completed its rate hike cycle.

Because c90% of the mortgage market is on fixed-rate contracts, which are priced against prospective money market rates, mortgage conditions can ease on the mere expectation that the BoE will cut rates.

In our view, that should happen in Q1 – ahead of a series of rate cuts from Q2 2024 onwards. For now, the market for overnight index swaps (OIS) is mostly buying the BoE’s “high for longer” mantra. Whereas we expect bank rate to finish 2024 at 4.0% with five 25bp cuts starting in Q2, the OIS market currently prices in just two 25bp cuts to 4.75% (up from just one 25bp cut last week).

Demand should pick up as falling mortgage rates make it less difficult for new buyers to enter the market and for existing homeowners to move up the housing ladder.

The “mortgage charter” agreed by chancellor Jeremy Hunt with lenders this summmer is helping to prevent people losing their homes, says Myron Jobson, senior personal finance analyst at interactive investor.

Following this morning’s data showing an increase in mortgage arrears, Jobson says:

“The figures suggest that the Mortgage Charter is doing its job in preventing repossessions and arrears from rising to dangerous levels that threaten a property crash or financial stability. But the 7% uptick in homeowner mortgage in arrears from Q2 underlines the harsh reality that many are struggling to meet their monthly mortgage repayment obligation.

“Lenders have readied themselves for a tsunami of customers seeking assistance with their home loans amid the uptick in mortgage rates and broader cost of living pressures on household budgets. Most lenders agreed to a set of standards, under the Mortgage Charter, to help struggling borrowers – including lower monthly costs by switching to interest-only payments for six months, or extending a mortgage term.”

Buy-to-let landlords are being hit hard, he adds:

“It is clear that the 14 consecutive interest rate hikes have hit many landlords hard – especially the smaller ones. Those who haven’t been able to pass on the heightened cost burden to their tenants or cover it out of the own pocket have been forced to have a radical rethink of their business model.

“There have been reports of a growing number of landlords selling up because of the double whammy of higher mortgage rates and also the end of mortgage interest relief since 2020, which has curtailed profitability. The sale of rental property could have a telling impact on the balance of supply and demand in the housing market.”

Craig Fish, director at London-based broker, Lodestone Mortgages & Protection, is concerned by the 29% jump in buy-to-let mortgages in arrears in the last quarter.

Fish fears there will be a horrible ending for the buy-to-let sector, with some landlords struggling to get tenants to cover their higher costs, saying:

“The buy-to-let sector has been hit harder than any of late. As if the taxation changes weren’t bad enough, we now have higher interest rates and stress testing causing untold pain.

When it comes to remortgaging, many landlords are finding that they are unable to do so, due to insufficient rental income and are having to stick with their current lender on higher-priced products.

This results in landlords increasing the rent they charge, which in turn has a knock-on effect on the tenants who are unable to pay, resulting in rental voids. Historically, before the tax changes, landlords would have had surplus funds with which to weather this storm, but due to higher taxation, those reserves are now depleted and so mortgages go unpaid.

This Catch-22 situation is seen in these worsening numbers in the buy-to-let sector. Worse is yet to come, and it seems there is no solution. Lenders seem like they don’t want to lend, and the Government just want the tax income. I predict a horrible ending.”

In a relief for struggling home owners, a two-year fixed-rate mortgage priced at below 5% has gone on sale for the first time since early summer.

Mortgage brokers called Nationwide’s decision to launch the fixed deal, priced at 4.99%, a “watershed moment” that would give the property market a “shot in the arm”, as well as offering borrowers hope that things were heading in the right direction.

More here.

New figures from the Ministry of Justice show an increase in mortgage possession claims in the last quarter, as borrowers fail to meet their payments.

They show that compared to the same quarter in 2022, mortgage possession claims increased from 3,681 to 4,185 (14%), orders rose from 2,480 to 2,923 (18%), and warrants increased from 2,473 to 2,289 (7%).

However, repossessions by county court bailiffs decreased from 758 to 622 (18%).

This is a clear signal of the rising financial pressure on homeowners, says Charlotte Nixon, mortgage expert at Quilter:

Navigating through the financial headwinds of the current economic climate, homeowners and renters are confronting stark realities, with increasing legal actions reflecting a surge in housing insecurity.

Mortgage possession actions, indicative of lenders seeking to recover properties from borrowers who have fallen behind on payments, have escalated. Specifically, mortgage possession claims, which are initial filings by lenders to obtain court permission to foreclose on properties, increased by 14% to 4,185.

This uptick is a clear signal of the rising financial pressure on homeowners. Meanwhile, mortgage possession orders, the court’s judgment that lenders may proceed with foreclosure, have risen by 18% to 2,923, underscoring the gravity of the situation for those struggling to pay their mortgages.

However, in a contrasting trend, actual repossessions, have decreased by 18% to 622. This suggests some homeowners are finding ways to avert the final act of losing their homes, possibly through renegotiated payment arrangements or other forms of assistance. Potentially initiatives like the Mortgage Charter have helped to decrease repossessions providing a sliver of hope that there may be a growing cushion against the ultimate displacement from one’s home, despite the uptick in initial legal proceedings.

  

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