Capital Markets Corporate

February 22, 2019

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

The AI Police

Insurance fraudsters will soon meet their match thanks to AI software designed to assess the credibility of insurance claims by interpreting emotion and linguistics. Designed to be able to spot when someone is stretching the truth about a claim or policy, it is one of 40 AI projects backed by the UK government through £13 million in funding. According to Business Secretary Greg Clark, the government is investing record levels in research and development of AI, in a move to innovate professional services. (From Insurance Business UK, 18 February)

Metro Bank On Top

Metro Bank came out on top of an industry-wide customer service survey – assessing whether customers at the UK’s 16 largest current account providers would recommend their bank to friends and family – knocking long-reigning champion First Direct off the top spot. This is despite an earlier accounting error which has hit shares in recent weeks. (From City A.M., 15 February)

Banks Back Cashback

Lloyds Bank is planning to pay small shopkeepers to provide cashback to customers in areas where bank closures have led to ATMs vanishing. The goal is to encourage shoppers to frequent struggling local shops, such as newsagents, greengrocers and butchers. Lloyd’s scheme represents the first time a bank will pay small stores to offer cashback. (From Daily Mail, 19 February)

Marie Kondo Your Wealth

Marie Kondo’s Netflix show has led to a global cultural phenomenon, prompting mass decluttering and joy-seeking worldwide – and her organising tips are now being applied to finances. Moira O’Neill lays out rules similar to Kondo’s when it comes to investments, such as gathering an up-to-date assessment of what you have and putting them in a spreadsheet, seeing if your investments bring you joy and “compartmentalising” your investments. (From Financial Times, 20 February)

“Nudge” Reminders Encouraging Women to Invest More

Online reminders and updates encourage women to invest more through an online website or app, according to research from Fidelity International. Nearly half (49%) of the women surveyed said they would choose to invest online, while 25% of women who had invested for the first time in the past 12 months had also topped up their investments after prompts from an app. (From Professional Adviser, 19 February)

The Best of Times and Worst of Times for First-Time Buyers

This week UK Finance revealed the number of people who were able to get a foot on the housing ladder in 2018 reached a 12-year high. But millions of Britons are still languishing in rental or parental home limbo – what’s going right and wrong with the housing market?

In 2018, 370,000 new first-time buyer (FTB) mortgages were completed, a 1.9% increase on 2017 and the highest number since 2006 (402,800).

The reasons for the healthy FTB sector are numerous – notwithstanding the continued success of the government’s Help to Buy (HTB) scheme, which has helped more than 420,000 people buy a new home. Large new build developers estimate a third of their reservations are coming from people who have signed up to HTB.

FTBs are also enjoying very low and competitive mortgage rates. For those who do get accepted for a home loan, even those with only a 5% deposit have been able to find attractively priced mortgages. But for those with a slightly higher deposit, rates are even more appealing – average rates at 90% LTV are around 0.7% cheaper than those at 95% LTV.

So good news all around for those at the bottom of the housing market? Unfortunately not. While the funding side of the property sector has many options for those with a deposit, those who do not have the average FTB deposit of £44,0000 are currently firmly shut out from homeownership.

In fact, as house prices continue to rise, the age when most adults can afford a deposit and become homeowners has been delayed by at least eight years since 1997. It now takes until the age of 34 for more than half of the population to own their own home. So it’s not surprising that a million more people are living with their parents than was the case ten years ago. The Bank of Mum and Dad now accounts for 8% of FTB deposits, a three-fold increase from 2007.

And all this pent-up demand is causing desperation – a recent survey found half a million millennials would live in a caravan if it meant they’d eventually be able to get onto the property ladder.

Worryingly, the drivers of FTB success might be coming to an end. HTB will run in the current form until 2021, with a scaled down version running until 2023, when the government plans to shut down its new build support. Mortgage lenders are also taking a closer look at mortgage profitability as the current competitive market squeezes banks’ profits.

Regardless of Brexit, the mortgage sector faces tough challenges, not only in continuing to maintain a competitive FTB market, but to find solutions to help millions more take advantage of today’s favourable borrowing conditions without building up risks for the future.

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