Encouraging mortgage lending trends expected to continue into 2016

Commenting on the CML lending figures for January, Charles Haresnape, group managing director for mortgages at Aldermore, said:

“Data released today shows that the overall level of activity in the housing market ended 2015 stronger than when it started, and with gross mortgage lending levels up 21% year-on-year and the annual arrears rate at its lowest for more than a decade, we expect to see these encouraging trends to continue into 2016.

“A positive aspect to highlight is the broad-based spread of the data, with first-time buyers, movers and remortgage customers all seeing strong year-on-year growth. With the Government’s plans for 400,000 new affordable homes and proposals to streamline planning approvals for developers, we hope to see a rise in construction levels over the coming years that should help to ease the supply pressures currently present in the market, leading to a more sustainable level of property price increases.”

London’s corporation tax bill to rise by 64% over next 10 years

Businesses in London will see their corporation tax bill rise by an estimated 64% over the next 10 years to £18bn with small and medium enterprises contributing the lion’s share.

According to London chartered accountants Perrys of the 294,000 businesses paying Corporation Tax in the capital small and medium enterprises combined make up approximately 99% of the contributions to HMRC.

Stewart Pope, CEO at Perrys Chartered Accountants in Central London, said:

“We estimate that small to medium businesses in the capital are paying an average annual corporation tax bill of £37,000 each, which is set to rise to £62,000 each by 2026.”

However, it is not all doom and gloom. Stewart added:

“The higher contributions also reflect the increase in profits that businesses are generating, which is a positive indication that the capital continues to remain a great place to do business.”

Last year the chancellor announced a decrease in corporation tax rates from 20% to 18% by 2020, which will be a welcome relief for many SMEs.

New research shows UK online alternative finance market grows to £3.2bn in 2015

In 2015 the UK online alternative finance sector grew 84%, facilitating £3.2bn in investments, loans and donations, according to a joint report published by the Cambridge Centre for Alternative Finance at the University of Cambridge and UK innovation foundation Nesta, in partnership with KPMG and with the support of CME Group Foundation.

This is a significant increase in volume, but growth of the online alternative finance market is slowing down, with the annual growth in 2014/15 being nearly half the 161% growth from 2013/14. “Although the absolute year-on-year growth rate is slowing down,” the report said, “the alternative finance industry still recorded substantive expansion across almost all models.”

The report also highlights the rapid expansion of donations-based crowdfunding, the perceived risk of fraud and malpractice by the industry, and increasing institutionalisation – as around a quarter of P2P (peer-to-peer) loans are now funded by institutional investors, including traditional banks and government through organisations such as the British Business Bank.

Pushing Boundaries – 2015 UK Alternative Finance is the latest in an annual series of reports from Cambridge Judge Business School and Nesta, which track the size and development of online alternative finance, such as P2P lending and crowdfunding, in the UK.

Key findings of Pushing Boundaries, a survey of 94 crowdfunding and P2P lending platforms, include:

Increased share of the market for business finance: in 2015 it is estimated that online alternative finance platforms provided the equivalent of over 3% of all lending to SMEs (small and medium-sized enterprises) in the UK. For small businesses – those with a turnover of less than £1m a year – P2P platforms provided an amount lending equivalent of 13% of all new bank loans.

Institutionalisation is taking off: 2015 saw increased involvement from institutional investors in the online alternative finance market. The report shows that 32% of loans in P2P consumer lending and 26% of P2P business lending were funded by institutional investors.

Donation-based crowdfunding is the fastest growing model: although starting from a relatively small base (£2m), donation-based crowdfunding is the fastest growing model in the 2015 study, up by 500% to £12m.

Real estate is the single most popular sector: in 2014/15 the most popular sector for online alternative finance investments and loans was real estate, with the combined debt and equity-based funding for this sector reaching £700m in 2015.

The equity market is growing fast: the second fastest growing area of the alternative finance market is equity-based crowdfunding, up by 295% – from £84m raised in 2014, to £332m in 2015. Excluding real estate crowdfunding, in 2014/15 the equity-based crowdfunding sector contributed to £245m worth of venture financing in 2015 – equivalent to over 15% of total UK seed and venture equity investment.

The industry is generally satisfied with current regulation: when asked what they thought of existing regulation, more than 90% of P2P lending and equity-based crowdfunding platforms stated that they thought the current level was appropriate.

The biggest risk to market growth is fraud or malpractice: when asked what they saw as the biggest risk to the future growth of the market, 57% of P2P lending and equity-based crowdfunding platforms cited the potential collapse of one or more of the well-known industry player due to fraud or malpractice.

Robert Wardrop, executive director of Cambridge Centre for Alternative Finance said:

“The substantive growth of alternative finance in the UK last year is not surprising, given that these new channels of finance are increasingly moving mainstream. One of the key drivers underpinning this development is the growing institutionalisation of the sector. The Cambridge Centre for Alternative Finance is proud to shed light on this fascinating and dynamic industry, to help inform policymakers, regulators and the general public about how these areas of finance are increasingly becoming part of our everyday economic life.”

Stian Westlake, Nesta’s executive director of policy & research said:

“2015 has seen another year of remarkable growth for Alternative Finance in the UK. Little more than a collection of plucky startups just six years ago, the sector now does £3.2bn of business a year. As the sector grows and matures it is sure to face challenges – investors will be keen to see returns, and another financial crisis would certainly test the robustness of P2P lending. But, as Nesta’s continuing research into the industry has found, the ability of platforms to harness the power of the crowd to connect savers, borrowers and businesses has been powerful. We look forward to seeing how the sector advances and changes again in the year ahead.”

Warren Mead, global co-lead of Fintech at KPMG, said:

“After years of pushing boundaries, 2016 will be the year where ‘alternative’ financial options finally join the ranks of the mainstream. From the recognition of regulators, to industry pioneers being bestowed with New Year’s Honours: it’s clear the market has come of age as an integral part of the lending landscape.

“But while this evolution gives the industry the platform to grow, it also brings its own set of challenges. Being part of the financial establishment doesn’t sit well with its original social purpose. Incumbents are also playing catch up with their own digital investment, and are closing in on the disrupters’ lead. Meanwhile, platform failures within these growing networks are inevitable. So the question is, will the hard won enthusiasm for these platforms start to wane?”

Jim Oliff, chairman of CME Group Foundation, said:

“Today’s research offers a detailed snapshot of how the emerging alternative finance sector in the UK is driving growth and creating opportunities for business and individuals alike. The Foundation has a long track record of supporting cutting edge research initiatives relevant to the financial industry which uncover and promote future trends to help move the sector forward.”

The report was led by Bryan Zhang, a director of Cambridge Centre for Alternative Finance, and Peter Baeck, principal researcher at Nesta. It has been supported in part by funding from audit, tax and advisory service KPMG and CME Group Foundation, the foundation affiliated with CME Group, the world’s leading and most diverse derivatives marketplace.

Strong start to year for online retail sales

According to the latest figures from the IMRG Capgemini e-Retail Sales Index the online retail sector has started the year on a high, recording a solid 15% annual growth in January (excluding travel); more than double the 7% recorded in January 2015. The strong performance suggests that the Black Friday effect – which appeared to influence a lingering downturn in sales growth in Q1 of last year – has not been repeated this year.

If the positive performance is continued, it may be that the Black Friday effect was a blip last year due to the surprising scale of the event, or it could be that other factors – such as uncertainty around the election and strength of Sterling – also played a significant role in supressing growth in early 2015.

The positive performance of the overall Index was felt across many of the individual sectors, including the sale of clothing and electrical items, both of which recorded a 15% Year-on-Year (YoY) growth; the highest annual growth for the electrical sector since November 2014. January also saw the travel sector’s usual annual peak, recording an impressive 188% increase on December, and 11% on the same period last year.

Not all sectors enjoyed such a strong start to the year however. Dry January resulted in alcohol sales experiencing its weakest performance since February 2014. The sector saw a 2% fall on January 2015, and a 65% decrease on December’s results. Similarly, the Accessories sector recorded its lowest ever annual increase of just 12%, the first time it has dropped below the growth of the wider Index.

The Index also highlighted an emerging trend in terms of the growing performance disparity between sales made via smartphones and those on tablet devices – with annual growth for tablets up just 13%, while smartphone growth was up 96%.

Richard Tremellen, retail insight and data specialist, Capgemini, said:

“As we settle into the New Year, with the busy festive period behind us, the retail sector will be relieved to see such impressive results. It’s a strong indication that consumer confidence is continuing to grow and puts us in a good position for a strong 2016.

“The sustained growth of sales via smartphones in January also demonstrates the progress retailers have made in developing the customer experience on their mobile platforms.”

Tina Spooner, chief information officer, IMRG said:

“The latest Index results reveal a strong start to the year for the UK online retail industry, with annual growth reaching the second-highest rate recorded over the past 14 months. The 15% growth in January is more than double the growth rate observed in the same month last year, when the knock-on effect of Black Friday continued into the early part of 2015, and is ahead of IMRG and Capgemini’s 2015 growth forecast.

“The divergence between the use of mobile devices is becoming increasingly apparent – growth rates via smartphones surged 96% year-on-year, with confidence in using them for shopping most likely boosted by the design shift toward larger screens, together with improved retailer mobile sites. Conversely, growth in sales completed on tablet devices fell below the overall online growth rate for the first time since we started tracking it – up 13% from January last year.”

UK households show dramatic change in interest rate outlook

Commenting on the UK household finance survey data, expert from Markit, Chris Williamson, said:

“Households are feeling less downbeat about their finances, but this appears to be largely a reflection of expectations of interest rates staying low for longer and subdued inflation rather than any pick-up in pay growth. However, modest growth of incomes in recent months also meant households’ need for credit has stabilised for the first time since the recession, leading to a further winding-down of debt.

Rate hike expectations pushed back
“The latest HFI (Household Finance Index) survey provides the first snap-shot of actual household finance trends in February. The representative poll of 1,500 households showed a dramatic change in expectations of when the Bank of England will hike interest rates for the first time since the financial crisis, with the proportion of respondents expecting a hike in the next year dropping below 50% for the first time for over two years, plunging from 71% in January to 46% in February, its lowest since October 2013.

“The proportion of households expecting a rate hike in the next six months almost halved from 40% to 22% between January and February, also its lowest for over two years.

“At 8%, the proportion expecting the bank’s next move to be an interest rate cut meanwhile edged up to the highest since data were first collected in July 2013.

“The more ‘dovish’ interest rate outlook no doubt in part reflects gloomier rhetoric from the Bank of England. Much of the survey data were collected after the release of the Bank’s latest Inflation Report, which painted a darker picture of both future economic growth and the inflation outlook.

“The survey also accompanied news that all nine members of the Monetary Policy Committee voted for policy to remain on hold, after Ian McCafferty fell back into line after voting to hike in previous months.”

Low inflation outlook
The pushing-back of the Bank’s next move on interest rates was also accompanied by a lowering of inflation expectations. Households’ expectations of future inflation, although up on the lows seen last year, remained very low by historical standards in February.

On the plus-side, households recognised the benefits of lower prices and borrowing costs. The lowered outlook for interest rates and inflation helped lift households’ views on their current finances to one of the highest this side of the recession, with views on future finances also turning more optimistic.

Low pay, but busier workplaces
Rising incomes are also helping lift the consumer mood, though pay growth remained frustratingly weak, especially in relation to how busy people were at work. Workplace activity rose at one of the fastest rates seen for over a year in February, income from employment continued to show only modest growth. Although the survey shows incomes to have been rising for over two years, the rate of increase has failed to accelerate substantially, adding to worries that that low inflation is restraining workers’ abilities to negotiate higher pay rates, therefore further darkening the outlook for inflation. The benefit, of course, is that the combination of rising workplace activity and meagre pay growth suggests that productivity is rising.

Despite the low pay growth, the survey brought good news on debt. Households’ need for unsecured credit showed no growth for the first time since the financial crisis, suggesting existing incomes are sufficient to support living standards. Debt levels meanwhile continued to fall, sustaining the downward trend seen over the last year and a half, and savings showed one of the smallest deteriorations yet recorded by the survey.

Other key survey findings included:

– Job security collapsed in financial and business services, presumably linked to the recent drop in banks’ share prices.
– Sharp increases in savings (and lower debt) at the upper end of the pay scale contrasted with falling savings (and rising debt) at the lower end.
– Better weather appears to have led to a big increase in construction and entertainment services activity compared to January.

Gemini adds new early warning system to reduce lending risk

HPD Software has announced the launch of Gemini 2.0, their automated customer account data gathering and analysis solution, which now includes a new early warning system for lending risks.

For many finance providers, identifying, predicting and reacting quickly to risks or breaches is a continuous challenge. This is particularly time consuming where large quantities of client data need to be rapidly analysed and understood. To address these demands, HPD Software has implemented a major update to Gemini.

Gemini now provides the ideal solution for reacting faster to lending risk, with instant ‘twelve month’ trend analysis over multiple data categories and continuous monitoring of every client against risk and breach limits.

Dramatically clearer, easy to use, graphical displays make it much easier to monitor and react to daily changes to each client’s accounts receivable position. Early warnings are delivered both on-screen and by e-mail notification. New display panels show historic ledger data, with simplified summaries of sales and purchase ledger totals, disapprovals and cash totals at both client and portfolio levels.

Glen Powell, product director for Gemini at HPD Software said:

“Gemini 2.0 provides our clients with an instant assessment of risk levels with new ‘easy to understand’ graphics. Breach alert functionality based on multiple category limits, delivers improved risk monitoring. New, simple graphical displays visually identify priority risks for the client manager, enabling better business controls and greater client understanding. In a fast moving world with huge amounts of client information to interpret, Gemini 2.0 provides the ideal solution for finance providers to manage this data and deliver a first class service to their clients.”

Lending for remortgaging is on the mend

Commenting on the December CML lending figures, Andy Knee, chief executive of LMS, said:

“Despite a dip in remortgaging activity in December – which can be attributed to a seasonal lull – the overall trend suggests remortgaging is gradually on the mend. Total 2015 lending for remortgaging, while still far short of levels witnessed before the recession, has bounced back and is at its highest value since 2008. We therefore start 2016 cautiously optimistic, but remain aware that there is still more to be done before it is back to full health.

“It’s been a volatile start to 2016 and there are a number of challenges facing the remortgage market. The global financial markets in particular are causing mounting speculation and concern. The early part of this year will also be dominated by the topic of a potential Brexit and what that could mean for the UK economy. This uncertainty looks set to impact activity and confidence in the property market, with fluctuating lending expected until the outcome appears more certain.

“Although a base rate rise looks further and further off, this is no reason to become complacent since remortgaging can provide homeowners with substantial savings to reduce their outgoings.”

London prevails as European City of the future in foreign direct investment rankings

Germany’s North Rhine-Westphalia claims top spot among Europe’s regions.

In a study of the most promising investment locations in Europe, fDi Magazine – a Financial Times publication – has named London and North Rhine-Westphalia in Germany as respective winners of the European City and Region of the Future 2016/17 titles.

London, which has held the position since 2006, is a beacon to investors and has performed particularly well in this ranking, also being named Northern City and Major European City of the Future for 2016/17. London’s ability to attract the highest number of foreign direct investment (FDI) projects of any European city helped to shape this year’s results, with it bringing in more than 1,600 projects between 2010 and 2014.

Among Europe’s regions, North Rhine-Westphalia performed well in multiple categories, also being named Western European Region of the Future 2016/17 and coming first in the Large European Regions ranking.

Cologne, a large city in Germany’s North Rhine-Westphalia state, ranked second of all large European cities in the Connectivity category. German cities took five of the top 10 places in this category, while the country performed well.

London saw off stiff competition from Paris, which was ranked second, and Dublin in third. Paris was also named Western European City of the Future and ranked second in the Major European Cities category.

France’s Île-de-France, home to capital city Paris, ranked second. It also placed second among all western European regions, while claiming the top spot in the Connectivity category for Large European Regions.

The Spanish city of Barcelona came first in the continent for FDI Strategy. Its policies for attracting investors top fDi’s ranking for major cities, ahead of London and Stockholm.

Courtney Fingar, editor-in-chief of fDi Magazine, commented:

“These are the most established and high-profile of fDi Magazine’s rankings and we are proud to present this year’s results. Cities and regions that perform well in our league tables should be proud and we applaud their success.”

Highlights include:

– Software and IT services was the largest sector for inward FDI into London, commanding 40% of all investment in the city, up from 35% in the previous ranking.
– Dublin’s standing improved in the 2016/17 ranking, increasing from fifth position in 2014/15, to third this time. The city is becoming a hotbed for investment in software and IT with the sector attracting more than 45% of all Dublin’s inward FDI between 2010 and 2014.
– Munich ranked top for outward FDI, with more companies from the city investing abroad than from Berlin and Frankfurt.
– The UK’s South East England region, the most populous of all UK regions, rose nine places on its 2014/15 position to finish in third place overall.
– Kiev Oblast in Ukraine had the most cost-friendly labour cost levels of all European regions analysed, across three skills sets, helping it reach the top 10 for Cost Effectiveness among Mid-sized European Regions.
– Scotland is the leading region for FDI Strategy in the European Cities and Regions of the Future 2016/17 ranking. The region received the highest number of expansion projects per 100,000 people of all European regions analysed.
– North Rhine-Westphalia has ranked second among all large European regions for FDI Strategy, followed by Lombardy in third – the largest region in Italy.
– Of all 39 UK local enterprise partnerships (LEPs) analysed, London generated the highest GDP by purchasing power parity (PPP) in absolute terms, as well as per 100,000 people.
– Greater Manchester was judged first in the FDI Strategy category for LEPs. The internationalisation strategy in place in the LEP provides three-year plans for target source countries.

The US retail sales data – boost from falling fuel prices

Commenting on the US retail sales data, expert from Markit, Chris Williamson said:

“Official data showed US retail sales rebounding in January after a disappointing end to 2015. Core sales were 0.6% higher after declining 0.3% in December and the best rise since last May, according to official data from the Commerce Department.

“The sales rebound provides some much-needed good news to provide reassurance that the economy retains some solid underlying growth momentum. As such, the data keep alive the possibility of a further rate hike in March, albeit with a very low probability attached.

“Total retail sales were up a more modest 0.2%, though this was mainly due to lower gasoline receipts resulting from the cheaper oil price.

“While lower oil prices hit the revenues of gasoline stations by some 3.1% in January, the plus side is that households appear to be using some of the windfall from lower fuel bills to boost other expenditures, especially spending on cars and clothing.

“The official data therefore confirm survey data indicating that robust demand for consumer goods continued to act as an important prop to the economy in January as households benefit from falling prices and improving wage growth.

“However, both survey and official data also show that demand for consumer services has waned after showing strong growth last year. Consumer services firms sank to the bottom of Markit’s PMI survey growth rankings in January, after riding at the head of the table alongside consumer goods producers throughout last year.

“The Commerce Department likewise showed sales at bars and restaurants were down 0.5% in January to show the largest decline since the start of 2014.

“It remains to be seen whether this is a weather effect after extreme weather hit parts of the economy at the start of the year, or something more worrying. Investors are perhaps fearing the worst, positioning themselves for disappointing corporate results for consumer services firms. Shares from the sector are currently the most shorted behind only oil & gas and basic materials firms.”

Sterling still unpredictable

A currency market update from Charles Purdy, director of Smart Currency Exchange.

More sterling unpredictability
Another unpredictable day for sterling on Friday, with recovery from a 13-month low seen against the euro. With no economic data of note released from the UK on Friday, sterling movement was largely dictated by events elsewhere. Profit-taking against the euro saw sterling make up ground against the single currency, whilst better-than-expected retail sales data from the US saw sterling fall against the dollar. At the start of trading we have seen a “gap” upwards for sterling against the euro which may be a consequence of Draghi making a speech later today and worries over what he may say to undermine the euro.

Despite a quiet start to the week, UK inflation data will be a key figure when it is released tomorrow. With negative inflation fresh in the memory, investors are likely to take a positive view of sterling should inflation reach the 0.3% forecast throughout January. Wednesday’s average earnings index will also be closely watched, with positive wage growth indicative of a positive economic climate. On Friday we have retail sales figures for the past month which are expected to show a strong rebound from the 1% contraction experienced in December. We also have the Public Sector Borrowing Requirement which will be very carefully scrutinized given that January is a key month for tax collections and we have a UK budget coming up very soon.

We also expect further “revelations” on the in/out vote of Britain’s membership of the European Union with regard to timing and as to what concessions have been negotiated with its other members. This will have an effect on sterling.

Will news and data for the Eurozone help the euro to regain ground?
The euro ended up having a disappointing day on Friday as it lost ground across the board. Preliminary data showed that growth figures for Germany came out as expected, at 0.3% in the fourth quarter of 2015, with the year-on-year figure also bang in line with expectations at 1.5%. However, there was a separate report showing that the Eurozone’s industrial production fell by 1% in December in comparison to expectations of a 0.3% gain.

This week is expected to be much busier than last. Mario Draghi delivers his quarterly testimony to the Economic and Monetary Affairs Committee of the European Union which will be very carefully analysed in an attempt to identify as to what could happen at Marchs ECB meeting. Then on Tuesday we have German ZEW business confidence data released; this is expected to fall from the previous month from 59.7 down to 56.5. Given the recent shaky ground that currencies like the euro have been trading, any events elsewhere could potentially cause significant movement for the euro.

Mixed sentiments for US dollar
It was a mixed day for the US dollar on Friday as retail sales showed positivity for the first time in two months, backing up further strength for the US currency. However, consumer sentiment data released later in the day dropped slightly to its lowest figure in five months, which could have been seen from the recent personal spending data, which also lacked any growth.

This week we can look forward various inflation releases with Wednesday’s Producer Price Index (PPI) expected to remain at a negative figure, as well as Friday’s Consumer Price Index. Beyond this, it will be the US Federal Reserve Meeting minutes that investors will be keeping a keen eye on for any comments centred on possible interest rate rises in the next meeting in March. US Federal Chair Yellen recently downplayed claims advising that it is way too early to think about rises in March.

New Zealand dollar looking to recoup its losses
After a torrid Friday for the New Zealander economy, which saw it fall over 1% against most major currencies, New Zealand will be hoping that the data early this week will offer some relief. Its retail sales figures are out later tonight and are expected to be slightly lower than last month’s figure. Its quarterly Producer Price Index (PPI) release is on Wednesday. Last quarter saw the greatest growth in this area for nearly three years, and similar results on Wednesday could push nearer to the New Zealand dollar-sterling six-month high that we briefly touched on Friday. Any surprises, whoever, could spell trouble for the New Zealand currency, particularly in light of the recent global stock market slides.

We also had disappointing growth figures out of Japan released this morning which showed contraction at -1.7% for the fourth quarter of 2015 against an expectation closer to -1%. Worries over low wage inflation at home and the state of the world economy are making it very difficult to get Japanese consumers to spend money, especially as the goods they buy should be getting cheaper.