Month: June 2014


NACFB holds its largest Expo to date

At the NACFB’s largest Commercial Finance Expo to date, the association announced that for the first time in seven years its brokers have exceeded the £1 billion mark in monthly SME lending.

Within the Annual Conference at the expo, Marcus Grimshaw, Chairman of the Association announced that NACFB brokers had exceeded £1 billion of monthly SME lending, with May this year being the first £1 billion month. It was also revealed that for the first time, the turnover of the NACFB broke the £1 million barrier.

The conference saw members discuss whether Consumer Credit Authorisations should be compulsory to being an NACFB member. A significant 96 per cent of NACFB brokers have registered for interim permissions.

When asked if brokers without CC permissions should still be allowed to be a member of the NACFB, only one person voted yes. A solution is set to be debated in November’s AGM with the possible concept of a two tier option mentioned.

One strong voice within the meeting came from compliance expert Suzanna Walker of Bridgebank Capital. She clarified that as the action of credit broking falls under the Consumer Credit Act it is a regulated activity, therefore attracting the relevant permissions to conduct that sort of business. Furthermore, she explained that even if the product being sold falls under the exemptions of the act, the activity of credit broking is still a regulated activity and therefore permissions to trade in that area should be gained.

The association also revealed that it currently has the highest level of patrons to recent memory, currently resting at 115.

According to the Chairman, 14 or 15 patron applications were rejected as the association felt the applicants were just not ready.

The show had 102 exhibitors, and required an extension to be made to house all of the stands.

[Bridging & Commercial]

Bank of England moves to avert housing boom

The Housing Boom

A cap on the proportion of home loans that can be lent at high multiples of income has been proposed.

The plan was outlined by the Bank of England as governor Mark Carney said the housing market could be a threat to the UK economy’s stability.

Under the proposal, lenders will not be allowed to lend any more than 15% of residential mortgages at more than 4.5 times a borrower’s income.

Affordability checks on borrowers will also be strengthened.

The Bank’s Financial Policy Committee (FPC) has a remit is to tackle any threat to the stability of the UK’s economy and the measures aim to prevent the housing market getting out of control in the future.

The key recommendations are:

  • Ensuring lenders check mortgage applicants can cope with a three percentage point rise in interest rates – slightly tougher than current affordability checks
  • Limiting risky lending by putting a 15% cap on the number of mortgages that banks and building societies can give to people who want to borrow more than 4.5 times their income
  • A separate Treasury pledge that bans anyone applying for a loan through the Help to Buy scheme borrowing any more than 4.5 times their income


The Bank said that the plans would not have an immediate effect on the current housing market, and would not suddenly harm a potential buyer’s ability to get on the property ladder.

“These actions will have a minimal impact in the future if, and it is an important if, if the housing market evolves in line with the bank’s central view,” Mr Carney added.

“The 15% cap… could quickly become relevant if house prices grow more than we expect, if incomes grow less rapidly than we expect, or if underwriting standards slip.”

Mr Carney said that the Bank was acting in a proportionate and graduated way, acting early, and putting in place “a fire-break” on riskier lending.

Lenders said this cap would have an impact primarily in London.

“Nationally, 9% of new loans are at 4.5 times income or more, but the figure is 19% in London,” said Paul Smee, director general of the Council of Mortgage Lenders.

However, Mr Carney said the 15% limit could be reached nationally within a year.

Some lenders, notably Lloyds Banking Group and RBS, have already limited mortgage lending to four times income for loans worth more than £500,000. The average new mortgage for a house purchase is £135,200.

The action by Lloyds and RBS was specifically aimed at curtailing “inflationary pressures” in the London housing market.

The latest official figures on the housing market showed an annual property price increase of 18.7% in London, where a small proportion of buyers pay in cash.

Baroness Jo Valentine, chief executive of London First, which represents various property firms, said: “If anyone thinks these tighter rules on mortgage lending will somehow make London prices more reasonable then they are mistaken.”

Excluding London and the South East of England, the cost of a home was 6.3% higher in April than 12 months before, the Office for National Statistics (ONS) said last week.

But various surveys have suggested that the heat might be coming out of the market, with mortgage approvals – a sign of future sales – having slowed in recent months. Some areas outside of London and the South East have seen relatively little increases in activity among buyers and sellers.

Affordability checks

Lenders are already using new affordability checks – known as the Mortgage Market Review – which test people’s ability to repay were interest rates to rise.

This will be added to, under the Bank of England’s plans, as lenders will need to assess if borrowers could still afford to repay their mortgage if interest rates were three percentage points higher, during the first five years of the term, than at the time the loan was approved.

Mortgage brokers said that relatively few people would be affected by these changes.

Mr Carney said the threat to economic stability was not imminent, but lending could turn from responsible to reckless very quickly.

In light of the bank’s move, the government has said that no applicants for the government’s Help to Buy scheme would be able to borrow at more than four-and-a-half times their income.

Shares in house-builders rose during trading shortly after the Bank’s announcement.

Persimmon shares were up 6.5%, Barratt Developments shares rose by 5.5% and Bovis Homes shares were up by 3.7% within an hour of the announcement.

“Any lack of a real targeting of the housing market would be a positive for the house-builders,” said Richard Perry, analyst at Hantec Markets.

[BBC News]

Banks should have final say on mortgage lending

Ross McEwan, RBS chief, said lenders should be “thinking about [the safety of our bank] before any regulator asks”

Royal Bank of Scotland has told Mark Carney that lenders should make decisions about mortgage policy, on the eve of the Bank of England introducing new rules intended to cool the housing market.

Ross McEwan, chief executive of the taxpayer-backed lender, said: “We should be thinking about [the safety of our bank] before any regulator asks.”

Mr Carney, the Bank’s Governor, is on Thursday expected to announce new measures clamping down on risky home loans at the biannual Financial Stability Review.

The Bank of England’s Financial Policy Committee (FPC) has the power to introduce measures such as a cap on the value of mortgages as a multiple of incomes or compared with house values, and could take other measures such as stricter affordability tests for borrowers.

House prices have risen 9.9pc in the past year, and Mr Carney has called the housing market the biggest threat to the economic recovery. Sir Jon Cunliffe, his deputy Governor for financial stability, referred to the sector as the “brightest” of the warning lights the Bank looks at.

When asked about potential new measures at RBS’s annual general meeting, Mr McEwan suggested that banks could be trusted to control their own mortgage lending. “We don’t think there’s a big problem out there, our preference is we make the move,” he said. “We are not going to do that [put ourselves at risk], we should be thinking about that before any regulator asks.”

His comments came the day after the British Bankers’ Association (BBA) cautioned against the FPC introducing drastic measures, saying today’s review “comes against a backdrop where the housing market is itself showing signs of moderating”. Data from the BBA released this week showed that mortgage approvals have fallen for four successive months, which it said suggested the new tests introduced by the Mortgage Market Review were working.

RBS and Lloyds, 80pc and 25pc owned by the taxpayer respectively after their 2008 bailouts, have both introduced their own loan-to-income caps on high-value mortgages.

Mr McEwan’s comments came after the bank’s shareholders almost unanimously backed its pay policies, in contrast to many other banking groups’ AGMs this year.

Speaking to shareholders in Edinburgh, three months before the Scottish people decide whether to remain part of the UK, RBS chairman Sir Philip Hampton admitted the debate is generating a “great deal of uncertainty” but refused to take sides on the matter.

“We are not taking one side or the other, and we will continue to maintain that neutral position,” Sir Philip said. He insisted that in the event of a “yes” vote in September, the bank – which employs 12,000 people in Scotland and has been based in Edinburgh since its foundation in the 18th century – would have time to make a decision.

“If there is a Yes vote there would be a period of time between the referendum and Scotland actually becoming independent when the UK and Scottish governments would enter negotiations,” he said.

Sir Philip added that a programme of branch closures would “inevitably” continue as consumers switch to using internet and mobile phone banking, saying that branch transactions had fallen by 30pc since 2011. He promised that RBS would maintain a significant branch network with “more branches than Asda and Sainsbury’s stores combined”.

Just 0.34pc of votes at the meeting were cast against the bank’s remuneration policy at the meeting. RBS had been forced to drop proposals that would have allowed it to pay bonuses equivalent to 200pc of salaries when the Treasury said it would not back the proposals, and Sir Philip defended the bank using controversial “share allowances”, seen by critics as a way for banks to circumvent an EU bonus cap.

“The more challenged the bank, the more you need the top talent, because you have the day job of running a bank and sorting out the legacy problems,” he said.

“I don’t think it’s realistic to get top people to do top demands if they’re paid significantly less than the market.”


Bank of England Interest Rates

Bank of England should not ‘hold back too long’ on raising interest rates, warns MPC member

The Bank of England (BoE) should not “hold back too long” on raising interest rates, warned a member of the Monetary Policy Committee (MPC).

Ian McCafferty is the latest in a string of senior BoE policy makers to strike a more hawkish note.

This view is at odds with Business Secretary Vince Cable who warned on Wednesday that raising rates prematurely could put the recovery “in jeopardy” by choking off business lending.

Mr McCafferty, an external MPC member, said that solving the “productivity puzzle” is “critical” for the timing of decisions on interest rates.

“A fuller understanding of why productivity has remained so weak, and to what extent it is therefore likely to recover, is critical for the path of interest rates as the expansion continues,” he said in a speech on Thursday.

Mr McCafferty added that people would be “hoping for too much” if they expected a more “rapid recovery” in productivity over the next couple of years.

The former chief economic adviser to the Confederation of British Industry (CBI) said that the MPC’s decisions would “depend critically” on data over the next few months.

Standard Life Investments said on Thursday that the time is approaching for the BoE to move away from its emergency policy setting, or risk greater volatility in the future.

James McCann, UK and European economist at the global investment manager, said that the Bank should “flex its muscles sooner rather than later”.

Deriding the Bank’s current policies an “intoxicating mixture”, he advised: “The Bank of England can lead with macroprudential measures in the first instance, but should raise rates later this year if spare capacity continues to shrink and financial conditions do not tighten sufficiently.”

Mr McCafferty is the latest in a string of policy makers to comment on the timing of an interest rates hike, raising the possibility that it will occur later this year.

Martin Weale, a notoriously “hawkish” member of the MPC, said on Wednesday that he expects wages to rise at twice the rate of inflation once the economy has fully recovered.

He predicted that wages would rise by 4pc a year once unemployment and worker productivity return to normal levels, which is double the Bank’s 2pc target for inflation.

Kirsten Forbes, the American economics professor who will join the MPC next month, appeared to be singing from the same hymn sheet as her future colleagues.

She told MPs on the Treasury Select Committee on that a delay in rising interest rates could lead to more abrupt hikes in the future.

Andrew Haldane, another MPC member, highlighted the challenge of estimating “slack” and therefore the timing of an interest rate hike.

The minutes released from the Bank of England’s June 4-5 meeting on interest rates showed that Governor Mark Carney is not alone in considering a hike in interest rates sooner than previously expected.


Car Production falls

Car production falls 10% in May

The fall comes after car manufacturers closed down their plants for several days in May, a month later than usual, for upgrades to production lines.

UK car production dropped almost 10pc last month as manufacturers closed down their plants for several days in May, a month later than usual.

Car manufacturers regularly close their plants for 4-5 days in spring, usually April, to allow for production lines to be upgraded.

This year several manufacturers chose to have their spring shutdown in May, which resulted in a 9.8pc fall in production to 116,655, according to the Society of Motor Manufacturers and Traders (SMMT). While a dip was expected the numbers were slightly worse than analysts’ forecasts.

Mark Fulthorpe, director at IHS Automotive, said the fall in production last month was “not cause for concern” and added that the “fundamentals for the car industry remained in place”. He said he expected the sector to grow 2.1pc more this year than in 2013.

Year-to-date car production is still up 3.5pc compared to 2013, SMMT said. Mike Hawes, chief executive at the motor industry’s trade body, said he also expected production to grow as demand and investment in the sector picked up.

“The prospects for the coming months and years, however, are still bright; new UK-built models will benefit from growing demand across Europe, while significant investments in UK manufacturing operations are moving closer to production readiness,” he said.

The automotive industry is a vital part of the UK economy accounting for more than £60bn turnover and has been a key driver of the recovery, as car manufacturers look to increase their production of vehicles in the UK.

Nissan last year announced it would create 400 new jobs to allow 24-hour production to begin in Sunderland from this year, while Jaguar Land Rover also announced 1,700 new jobs at its Solihull factory.

[The Telegraph]

What is Asset Finance?

A Guide to what is Asset Finance

Small business asset finance explained: the different financing options and their benefits, the costs involved and the variables lenders consider

In order for your business to grow, it is likely that you will need to make a significant investment in a new asset. This could include the purchase of new computer equipment and software, new machinery and equipment, or a new motor vehicle such as a van.

As a start-up or small business you are probably looking at the price of your new asset and wondering how you are going to afford the one off, large payment required to make your purchase. This is where asset finance can help.

Leasing and hire purchase

With asset finance packages, hire purchase and leasing, you can breakdown the payment of your assets into monthly bite-sized chunks. This makes the investment much more affordable and has less of an impact on your cashflow.

What is leasing?


With leasing, you are paying for use of the asset and do not own it at any point.

Advantages of Leasing:

  • At the end of the contract you can simply renew the lease contract, or you may be offered to purchase the asset so you become the owner.
  • You will be able to always stay up to date with the latest version of your asset, for instance after an 18 month contract, when your machinery is out of date and the contract comes to an end, you can take out a new lease with the latest machinery that is available. This may significantly impact on the quality of your product/service you can offer to your customer.
  • Some leasing agreements also offer a full service package which can include repairs and replacements, saving you money and time when things go wrong as the leaser will have responsibility for the asset’s upkeep.

What is hire purchase?


Once the contract is fulfilled, you are the owner of the asset.

Advantages of hire purchase:

  • You do not need to take out a loan, overdraft or favour from your family to find the cash lump sum you require up front to pay for an asset – you will be able to pay for the asset in affordable monthly repayments.
  • You do not require any security or collateral to secure an asset finance deal such as hire purchase.
  • Once the contract is paid off, you will be the owner of the asset. This means you can later sell the asset for a lump sum. Remember though, the price will likely be less than you paid throughout the entire hire purchase facility as depreciation occurs and new models of the asset will subsequently have been released. However, you will at least receive some return for your investment in the asset, unlike leasing.
  • Finance charges for assets are tax deductable which effectively means that the tax man is financing some of the asset for you.

What are the costs involved in asset finance?

As highlighted previously, leasing usually only consists of a single cost – the monthly lease. This makes it simple to calculate in your accounts. Hire purchase, on the other hand, consists of a deposit, plus an interest charge which will be calculated and included in your monthly payments.

Poor Awareness Of Asset Finance

A “lack of basic awareness” of asset based lending among small businesses is costing the UK economy billions every year, says Susan Allen, chief executive of Royal Bank of Scotland’s asset finance arm.

asset financeLast month the Government opened its Funding for Lending Scheme (FLS) to providers of asset finance and leasing, which allow businesses to release cash from machinery. This was a welcome move to provide attractive rates of borrowing to companies which urgently need to update ageing equipment, or obtain new technology.

Lombard, which is RBS’s asset finance arm, has conducted research for the second year running on usage and awareness levels of asset finance. Our survey of 600 UK companies, mainly small and medium-sized companies, exposes worryingly low levels of investment. UK firms have limited awareness of asset finance, and the consequences are stark. Companies are turning down business because they do not have the right machinery or technology in place. A conservative estimate of the loss of potential business to SMEs in the UK is upwards of £5.4bn.

A lack of basic awareness of this form of lending – our survey shows two-thirds of companies do not know of its existence – needs to be urgently addressed. Information direct from lenders, as well BIS and the industry’s body, the Finance and Leasing Authority (FLA) needs to be targeted to the right SMEs. But there is also a role for the accountants and advisers, who are often the main source of financial information for small companies.

There is also a need to update the image of asset finance to meet the requirements of today’s customers. The traditional image of capital goods – plant and machinery – paints only part of the picture. Though manufacturing remains the biggest sector we finance, and we have seen lending increase in this area by 66pc over the past year, IT and technology is the area of highest demand amongst the companies we surveyed. Innovative finance options are developing to cater for this demand, such as a recent software deal to protect a company’s intellectual property rights.

We also recognise that banks need to improve how we reach out to customers. At RBS, for example, we are piloting a scheme to streamline the guidance and processes for customers to provide access to the wide range of finance options available. This is crucial because our survey shows that nearly two-thirds of businesses are paying for capital expenditure from their own funds. This will be the right option for some, but in many cases alternative sources to finance assets are less risky and better value for money.

This matters because the profits in companies which are investing are growing or remaining stable. Meanwhile, UK companies which are turning down contracts rather than investing in capital assets, are finding themselves with higher maintenance bills, and unreliable machinery.

One of the biggest barriers we need to overcome is a lack of confidence in the economy, which leads to caution. Companies are often choosing to sit on their cash, and protect what they have. This protects jobs, which is welcome, but it does not create new ones, or get the economy moving.

To achieve this concerted effort is needed across the board from the industry body, banks and advisers. This includes ensuring that awareness levels are raised, as well as facilitating take-up of time-sensitive policy measures designed to encourage capital investment. In addition to bringing asset finance under the FLS, the Government has recently increased the Annual Investment Allowance to £250,000 on capital expenditure until 2015, meaning companies get generous tax breaks for investing. We need to make sure companies and their advisers are familiar with the advantages these measures offer.

The IMF’s latest annual health check on the UK economy warns that the long-term stagnation in the economy risks “a permanent loss to productive capacity”. Should companies use outdated equipment for too long, not only does the machinery eventually wear out, but the experience and skills associated with new technology are lost too. Contracts which could have catapulted a business to the next level and helped them access new markets may be permanently lost.

It is not just Germany which is investing far more than us – it is Turkey, Mexico and Italy. Many countries easily outstrip the UK’s rates of investment in specialised production machinery and the competition is fierce. We need to get from the back foot to the front foot – and fast, which means everyone playing their part to stimulate the growth that the economy desperately needs.

Susan Allen is chief executive of RBS’s Customer Solutions Group.