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Buy-to-let mortgages on the increase in the UK

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topchart bankingAs is the case with many sectors of the UK economy, since 2008 the property market has experienced, at best, mixed fortunes. The number of people buying properties outright or with standard mortgages has fallen thanks in no small part to sky-high prices, while those looking to make money from selling homes and office space are left wondering whether they can make profit at all.

At the moment, buying property simply to sell on for a higher price is one of the riskiest things that any business owner could do. The property sector isn’t a seller’s market right now, as resale values for homes and commercial properties aren’t what they were during the housing boom which ground to a halt towards the end of the last decade.

Letting to the rescue?
Banks and building societies who are struggling to sell mortgage products to either businesses or homeowners may have found that while demand for buying property is at a pretty low level, the opposite can be said for renting. As many small firms and house-hunters don’t have the means to even pay a deposit for a mortgage, renting a property is the only option they can afford.

The surge in demand for rental properties has given many property investors large and small a lifeline in the form of a buy-to-let mortgage boom. Banks, unsurprisingly, are among those most likely to benefit from a rise in demand for buy-to-let mortgages, not least because many people looking to become business owners find that being a landlord can be lucrative.

Growing demand
The demand for rental properties, whether commercial or residential, has provided aspiring landlords with a good reason to get into business. On the face of it, buy-to-let mortgages are offering people an opportunity to become a landlord without having to spend too much money on deposits or monthly payments, especially with the Bank of England base interest rate so low.

There are questions over whether the surge in demand for buy-to-let mortgages can be sustained. The main one could depend on whether houses, offices, warehouses and other types of property become more affordable if the UK economy is to grow faster than it is at present. Also, a rise in the base interest rate may render mortgages in general to be more expensive.

Finishing what it started?
Prior to the downturn which started back in 2008, there were fears that the banking and property sectors would combine to cause a crisis, but few experts predicted that such a crisis would last as long as it has. Many blame overheating in the housing market, while the government’s bailout of many banks including RBS and HBOS hadn’t helped.

Ever since the housing boom began in the early 1990’s, prices for property have risen massively to a point where mortgages were only affordable through low interest rates. Many people who didn’t have the means to pay for mortgages helped to leave banks offering cheap credit in a difficult situation, as they couldn’t get all their money back.

Bailout
This led to the bailout of many of the UK’s major banks, which in turn affected confidence from the markets, while it helped to force the current coalition government to implement austerity measures. Basically, the recessionary climate which began five years ago and still hangs over the country like a dark cloud was partly down to an overheated property market and cheap credit.

Fortunately, the boom in buy-to-let mortgages may provide a little short to medium-term joy. Banks, building societies and other lenders are likely to gain from the demand for such products, while landlords who have buy-to-let mortgages approved can, assuming they market their new properties correctly, can expect to get regular income from renting it out to residents or businesses.

Walking a tightrope
Having only narrowly avoided a ‘triple-dip’ recession, the UK economy has been in limbo since the climate as we know it today first became apparent. Although the economy is growing again, it’s at a pretty sluggish rate and isn’t nearly enough to make up for the losses incurred throughout that period, and recent forecasts make for further grim reading.

The UK economy over 2013 is forecast to grow by 0.8% this year, which is higher than the initial 0.7% but still pretty disappointing. The predictions for 2014 aren’t too good either, with growth expected to be in the region of 1.5%. Although any growth is seen as good, especially in light of events in the past few years, it’s still not sufficient enough for many peoples’ liking.

Income provided by buy-to-let properties can help to keep landlords ticking over, and at a time when property prices seem to be stubbornly high, becoming a landlord seems to make good business sense. A spokesperson from Totally Money commented:

“It’s no surprise that buy-to-let is booming. Low interest rates are here to stay for at least a couple more years, meaning mortgage payments will stay low while savers suffer – the average savings yield is an abysmal 1.09%.

“With rental yields soaring upwards of 6% in parts of the country, it seems that buy-to-let is starting to look like a smart investment. If you have the capital then the rewards are very attractive – there are few other investments that come with an expectation of inflation-busting income as well as capital appreciation”, they added.

The future
The housing market is likely to pick up slightly in the near future. According to the Nationwide, house prices rose on average by 0.4% in May, which hints that after some turbulence, the market is about to pick up, while prices are expected to remain high, making it difficult for first-time buyers.

For the housing market to see any sustained growth, a wider rise in living standards is needed. Many people looking to buy rather than rent find that, with low interest rates, it’s hard for them to save money necessary to afford to pay for a deposit, which puts lenders in an awkward position.

 

 

 

 

 

 

 

 

Investing

Investment Roundtable: Live with Jim Bianco

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With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.

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Key themes:

  • Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
  • Identify important intermarket relationships he is watching with respect to Global Equities
  • Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.

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Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.

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Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election

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Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election 1

By Rupert Thompson, Chief Investment Officer at Kingswood

Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.

At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.

The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March.  As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.

These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.

The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term.  A rise in the unemployment rate to 8% or so later this year still looks quite likely.

Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.

Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.

Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.

It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.

All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.

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What Investors are Looking for in the Next Fintech

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What Investors are Looking for in the Next Fintech 2

By Shaun Puckrin, Chief Product Officer, Global Processing Services

Are investors getting pickier when it comes to fintech? It’s hard to say for sure, but there are recent developments that point towards a shift in investor interests.

Firstly, research from Innovate Finance shows that investment in UK fintech dropped by 39% in the first half of 2020, compared to the same period in 2019. In H1 2020, $1.8bn of venture capital was invested in 167 startups compared to H1 2019, when $3bn was invested in 263 startups.

However, it’s worth mentioning that the $1.8bn UK fintech investment earlier this year was still a 22% increase over the second half of 2019, when funding totalled $1.5bn. Therefore, all signs suggest that investors will make significant increases in capital investments during the rest of the year.

Secondly, it appears that the current investor appetite is for more mature, later-stage fintechs: more than half of the $1.8bn went to just five companies: Revolut, Checkout.com, Starling Bank, Onfido and Thought Machine. Perhaps it is the ongoing economic uncertainty surrounding the COVID-19 crisis that is prompting inventors towards perceived “safer bets”, but what we do know for a fact is that early-stage fintechs raised just 8% of the total investments.

Is there a silver lining? The coronavirus crisis has rapidly accelerated the digitisation of financial services, with lockdown restrictions encouraging those previously resistant to engage with digital financial services. The stage is set for fintechs to thrive and deliver offerings that meet shifting consumer demands. To be in with a shot of wooing investors, fintechs will need to demonstrate certain qualities that set them apart from other companies.

So, what are the four things investors are looking for in the next big fintech?

  1. A strong, differentiated proposition

The fintech marketplace is crowded and filled with mature innovators setting a high standard for everyone else. Against this backdrop, “challenging the incumbents” is, unfortunately, no longer a USP.

To really catch the attention of investors, you must be addressing a clear, pressing market need that no one else is tackling. Not just that, your proposition must be easily articulated and backed to the hilt with market research that proves the opportunity is worth pursuing.

Ultimately, investors are going to ask the question: why you? What are you doing that’s unique? What do you have that means you – and only you – can do this? They will also want to know how defendable that proposition is once you’ve built it.  What is your moat? Getting this right means a foot in the door with investors.

  1. A path to profitability or exit

This is an extremely pertinent point, especially given recent news surrounding the financial results for many of the big challenger banks, and how they show the route to profitability for challengers isn’t necessarily straightforward or easy.

In the current environment, an attractive fintech must be able to demonstrate a concrete, long-term plan for the financial viability of the business. There are different paths for investors to make their returns, be it a trade sale or IPO, but the fundamentals of securing a successful outcome are usually the same. By being able to demonstrate how you can plot a course to attract and serve your customers for less than you can monetise them will be at the route of any subsequent valuation, no matter how its outcome is achieved.

Whatever the goal, you need a plan to support your ambitions. You need to demonstrate an understanding that building a scalable and sustainable fintech is likely to require significant capital – you must invest in the right people, partners and technology to make money. Developing competitive services, attracting customers and, crucially, monetising your offerings, requires hard work and the ability to adapt to your customer’s needs.

  1. Strong leadership and core team

Ultimately, securing investment is about building relationships and what often tips the scales is having the right people in the room. This is why a great team is crucial.

A great team means many things: Strong leadership with the vision to build something revolutionary. The skills and expertise to turn that vision into reality. The experience to traverse the pitfalls and opportunities you’ll face. And finally, the ambition and determination to make the business successful no matter what.

Building the right team with the right qualities is often what convinces investors that they’re putting their money in the right place.

  1. The right partnerships

Partnering with the right organisations can give you strategic access to the solutions that will help build and scale your offering. Their expertise and experience are often invaluable; many partners have been in the game for years and may have already solved problems you might be encountering for the first time.

From an investor’s perspective, seeing that you’re working with credible partners and proven tech helps build confidence. It shows that you’re a less risky investment, and that you respect their investment and are going to be using their money to build real value.

Fintech investment is not dead

After this recent blip, we expect the amount of investment into fintech to continue to be significant, at least in relation to other industries. But there’s no avoiding the fact that investors will be looking to stress test potential investments much more than before.

By creating a differentiated proposition, planning a clear route to profitability, building a strong team, and finding the right partners, fintechs will be in with a shot of securing the funding they need to make their grand vision a reality.

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