News Update: Mortgage Rates, Consumer Debt Trends, and Economic Impacts

This is Credit Shift News Update, where host Paul Sweeney navigates the latest stories in the credit industry.

This week we closer look at the record high mortgage rates, wages and inflation in the UK, and how these are affecting consumers' ability to manage their debt. We explore the impact of these economic challenges on everything from car finance to student loans, and discuss the government's plan to launch a nationwide fuel finder scheme. We also delve into the measures banks are taking to protect themselves from an increase in arrears, and ponder whether people will opt for interest-free or interest-only mortgage repayments.

 We wrap up with an analysis of current economic news and how the government's efforts to reduce inflation are influencing various economic activities. We share our insights on protective buffers that might help prevent bad debt and late payments from becoming a problem. Plus, we reveal some exciting developments in AI and chat GPT, and discuss how they're transforming the world of credit. Listen in for this informative episode and get a better understanding of these pressing financial trends.

 The General Industry News

• The average two-year fixed deal has risen to 6.66% on Tuesday (11th July), up from 6.63% the previous day, leaving mortgage rates at their highest for 15 years.
• Commentators are betting that the central bank will push mortgage interest rates past 7% which would be a 25 year high.
• Wages in the UK are rising at a record rate, amid stubbornly high inflation at 8.7%. The office for national statistics said wages, excluding bonuses, rose buy 7.3% in the three months to May, matching the highest rate since 2001.
• With unemployment rates at record lows, workers have been able to secure some pay increases. The "soaring wage growth... gets us into the kind of wage price spiral dynamics that central banks absolutely hate and usually do anything to avoid" said Neil Wilson, chief Markets Analyst at Markets.com    
• Homeowners who are renting out properties will also be tempted to pass on their higher mortgage costs to tenants.
• Previously we reported that UK consumers were overcharged at the petrol pump to the tune of nearly a billion pounds, so the UK's Competition and Markets Authority (CMA) intends to establish a nationwide fuel finder scheme that would allow motorists to find the cheapest fuel locally. The government are bringing forth legislation that will force retailers to publish their prices to power the service.

Reporting from The Treasury Committee this week gave us a peek at future reporting of impairment from the big banks

• There hasn’t actually been a large increase in arrears, with Nationwide reporting them as relatively stable, with only one basis point (1%) increase in customers who are in three months of arrears in their repayments, and this is more pronounced among buy-to-let customers. But customers are also taking action to protect themselves from higher mortgage rates by over-paying or through term extensions.   
• Many people who took out two year mortgages during the stamp duty holiday in the pandemic, and soon need to remortgage. But as many people will have paid off some of the capital they borrowed, the amount they need to remortgage will have fallen. Many of these homeowners have also benefited from double digit house price growth in the pandemic so the equity in the homes has risen
• Mortgage arrears are particularly highly correlated with unemployment so while the unemployment levels are low, people will still have more options.  
• Will customers take up this new option to go on interest only mortgage payments? Some banks are unsure that customers will be attracted to this option as it still has financial impacts for the customer, and people are worried that it affect their credit score.

In other industry News

• The Bank of England says Mortgage payments will rise to at least £500 for nearly one million households by the end of 2026. Reporting that some mortgage holders may struggle with their replayments but said lenders are strong enough to withstand customers defaulting.  
• Stepchange is reporting a marked increase in the consumers with car finance debt seeking debt advice. It found that between January 2020 and March 2023 the proportion of clients accessing debt advice who had a car finance debt had riseny by 14.8% while the average balance of a clients car finance debt has increased by more than 20% from £8,077 to £9,705.
• In other news, UK Student Loan Statistics, currently 20bn a year is loaned to around 1.5m students in England each year. The value of oustanding loans at the end of March 2023, has reached £206bn. The Government forecasts the value of outstanding loans to be around £460bn by the mid 2040's.
• The Citizens Advice Scotland reveals that around 11% of people always run out of money before payday, with a further 14% saying that this happens to them "most of the time"... Hey that’s around a quarter of people in Scotland.

 The Company News

• Thames Water secured £750m from investors to save it from being nationalised, but it will require significant refunding right through to the end of the decade.
• Webio Raised a further £2.5m Venture Capital to bring it’s AI driven conversational vision to the market. This is timely for Webio in that the world has woken up to the power of technologies like chatGPT and AI is now widely seen as being the next platform shift.       
• As we see other technologies winning funding rounds to address the Credit space, we will bring you the word of them and give you our ear to the ground take on what they might indicate.

For more information visit:

Webio.com

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