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Mortgage arrears would soar by 30% over the next three years in the event of a no-deal Brexit, data modelling by specialist mortgage lender Kensington Mortgages has found.
The number of problem borrowers would be almost one third (30%) higher than it would if Britain were to remain in the European Union, the modelling predicts.
This would mean that by spring 2022 there would be 70,296 Britons more than three months behind on mortgage repayments, compared to 52,755 if Britain were to remain in the EU.
Mark Arnold, chief executive at Kensington Mortgages, said: “Leaving the EU with no deal in place would, according to our model, see more homeowners struggle to make their monthly payments.
“Our expectation, however, would be that if we did end up exiting without a deal then the Bank of England would step in, as Mark Carney has hinted recently, and stabilise the market.
“Yet that would come at a cost to the taxpayer, with the public finances propping up homeowners at other people’s expense.
“The data shows that more and more people are struggling to get on the housing ladder, with the number of mortgages falling every year since 2008.
“If there was an intervention it would mostly benefit existing home owners by inadvertently artificially propping up prices, to the detriment of would-be first-time buyers.
“So, there would likely be some collateral damage under a no-deal scenario, and the number of mortgages may fall further still as a result.”
Using its proprietary risk modelling tool, Vector, Kensington’s analysts tested a series of scenarios based on a representative data set of 750,000 loans (with an outstanding value of £97.2bn) across the mortgage lending market.
Working on the assumption of a no-deal Brexit, with no government intervention, the model shows that there would be a sharp increase in the number of borrowers who would likely fall more than three months behind on their repayments.
Repossessions would also rise by about 10%.
The model also forecasts that, five years after a no-deal Brexit, an extra one million Britons would still be repaying a mortgage who, under current conditions, would have either refinanced away from their existing lender or taken outright ownership of their home.
This phenomenon would be driven by an expected decline in house prices and reduced mortgage finance availability, that would impact the amount of equity in the typical mortgage account.
Over the same five-year time frame, new mortgage lending would drop by about 17% relative to what would be expected without a British departure from the EU, and comparatively benign housing market conditions.
The economic assumptions used in the base case analysis, which assumes a no-Brexit scenario, are similar to the official models used by the Office of Budget Responsibility (OBR) and assume that house prices would grow 18% in the following five years and unemployment would remain flat.
Kensington’s Vector tool, which tracks the performance of loans over the past 20 years, predicted detailed information on loan repayment patterns and a borrower’s ability to repay debts when presented with forecasts for house price movements, unemployment levels and other macro-economic inputs.
Kensington also modelled what would happen in a no-deal Brexit ifthe Bank of England launched a large-scale intervention in financial markets, offering emergency liquidity to the banking sector and a reduction in market interest rates.
Under this scenario, the impact on homeowners would be substantially reduced. On some measures, homeowners would be better off in this scenario than they would if Britain were to remain in the EU – although this gain would come at the expense of the public finances.
With a large-scale Bank of England operation in place, the model suggested that the number of borrowers more than three months behind on payments would be 3.7% lower than it would if Britain remained in its current trading position with Europe. The level of defaults would be unchanged.
The post A no-deal Brexit would cause arrears to soar by 30% over three years appeared first on Mortgage Introducer.
Despite the number of homeowners making improvements dropping by 10% since 2016, the amount spent per home has increased by 16% to £14,015, Post Office Money has found.
Homeowners spent £295bn in the last five years renovating their home, with home improvements like garden landscaping and new kitchens having the biggest return on investment.
Chrysanthy Pispinis, director of Post Office Money, said: “Over the past few years, house price growth has slowed, so homeowners have turned to other options to add value to their homes – with renovations being a clear opportunity.
“Making the right changes to your home can increase its market value significantly; if improving your home’s asking price is your priority, it’s important to keep in mind the cost of the improvement and the value it could add.”
Some three out of five (64%) homeowners made improvements to their homes.
Those who have made changes to their home estimated that the improvements increased the value of their property by £40,000, from an average of £210,000 before the improvements to £250,000 afterwards.
Analysis based upon the median asking price of a three-bed semi-detached home in the UK (£286,000) found that homes with improvements such as a new kitchen, garden landscaping, extension or walk-in wardrobe were on the market for more than 10% higher than the median asking price.
While only 5% made improvements to their home with the express intention of moving, one in four improvers (28%) did so because they thought it would be a good investment and would add value to their property.
The most popular reason for making home improvements was to improve the look of a home (59%).
Over the past two years, house price growth has slowed in much of the country, however only 5% of homeowners said they had recently put their plans to move on hold due to changes in local property prices, and only 7% said it was due to wider economic uncertainty.
In order to fund these renovations, three quarters (74%) of homeowners used their savings to fund their renovation, one in five (18%) used a loan or credit card, while one in 15 (7%) used equity release or mortgages to fund their improvements.
Pispinis added: “Home improvements are not all about making changes which add value for re-sale; 63% of the homeowners we polled had no plans to move.
“Renovations allow homeowners to create homes that reflect their needs and tastes, with the potential added benefit of adding value in the long term.”
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