Homebuyer debt hits 5 year high – business news 9 August 2021
James Salmon, Operations Director.
Homebuyer debt hits 5 year high, experts insist outlook for growth is still strong. Pandemic spurs entrepreneurship and inspires surge in employee ownership. UK needs to improve export support schemes and more.
Homebuyer debt hits 5 year high
Soaring house prices mean UK buyers are having to borrow a greater proportion of their salary to secure property, with analysis by Mazars finding 12.6% of mortgages taken out in the first three months of the year were by homebuyers borrowing at least four times their income. This was up from 11.4% last year and was the highest since 2016. Mortgage companies have been keen to increase lending, which has also driven up borrowing levels, but Paul Rouse from Mazars warns that some borrowers may have over-extended themselves: “If the exit from the lockdown is bumpier than expected, this could lead to significant job losses [and] higher levels of personal insolvency.”
Experts insist outlook for growth is still strong
What shape will the UK’s economic recovery will take in light of recent indicators? Output in areas such as construction has been stifled by supply issues while services growth slowed in July.
Thomas Pugh, UK economist at RSM, thinks “international goods shortages should ease over the next year” while Yael Selfin, chief economist at KPMG, believes the consumption boom still has legs: “Although we expect a significant portion of [household savings] to be invested and spent over a long period of time, spending should also benefit in the short term.”
The upward pressure on prices caused by shortages is causing a dilemma for businesses, which risk losing customers if they pile too much of the extra costs onto them. However, with spiralling inflation and weaker demand, companies will be reluctant to hire the staff needed to ease shortages. The UK will publish its latest output figures this coming Thursday, Barnett says. “All eyes will be on whether they buck the trend of recent data and indicate the economy is still on the right path.”
Pandemic spurs entrepreneurship
Research by UHY shows more than 725,000 new firms were created in the UK in 2020 – 110,000 more than the previous 12 months. Figures from HMRC also show that in March this year, more firms were created than in any other month since records were first kept in 1989.
Martin Jones, a partner at UHY, said: “Entrepreneurs have really used the pandemic as a springboard to start businesses. It’s exciting to see people find the positive in the past 18 months. The entrepreneurial spirit in the UK is undimmed.”
Meanwhile, the Centre for Entrepreneurs, a leading UK foundation, said the surge in new business ventures showed evidence of what it called an “emerging Covid economy”, with marked increases in new companies. dealing with disinfecting services (a 400% rise), the production of workwear (up 227%) and the manufacture of cleaning products (178% higher). “These figures should be welcomed,” added Matt Smith, the centre’s director of policy and research. “The pandemic has unleashed a wave of entrepreneurship across the UK, with people testing new ideas and responding to new demands”.
Pandemic inspires surge in employee ownership
There could soon be a surge of small companies moving to the employee ownership model, the Times reports. Entrepreneurs have, like many others, reassessed their priorities through the pandemic and amid a growing general appreciation that business needs to do more than just make a profit the employee-owned sector grew by 30% in 2020.
Aided by the threat of an increase in capital gains tax, the first three months of 2021 represented a record quarter for transitions to employee ownership trusts.
Deb Oxley, chief executive of the Employee Ownership Association, believes that the sector must now “seize the moment” and capitalise on a time where there is a “more general move towards more inclusive business, employee participation and stakeholder capitalism”. She adds: “We are seeing accountants, lawyers and funders who are better placed to advise business owners. But we are still a way off where it’s common to speak to your accountant and have them say, ‘Oh yes, we have done lots of transitions to employee ownership.’”
Now, a joint initiative between Co-operatives UK and the Employee Ownership Association, the trade groups, will support business owners, advisers and local business leaders to increase employee and worker ownership in their areas and to try to create a million employee and worker owners in Britain by 2030.
UK needs to improve export support schemes – FSB
The Federation of Small Businesses (FSB) has called on the Government to replace the Tradeshow Access Programme with a better, more generous scheme. The FSB said the UK should learn from other support schemes, says Mike Cherry, the FSB’s national chairman, who adds: “If our international competitors have better schemes than us, it is only right to look afresh at what more can be done to put ‘Made in the UK’ on other nations’ shelves. Ministers now have a chance to make the UK’s export support truly world class in a tough global race.”
Scientists confident the end of lockdowns has come
There is optimism within the scientific community that restrictions such as enforced social distancing or lockdowns will no longer be required as Britain witnesses the first clear drop in coronavirus cases outside of lockdown. Although an increase in cases in September is widely expected, experts say this should be manageable for the NHS and will not require crisis measures.
Employment uplift brings shortage woes
BDO’s latest employment index rose 1.57 points to 107.62 in July, from 106.05 in June, lifted by the reopening of pubs and restaurants. Kaley Crossthwaite, partner at BDO, said that the surge in employment was “a timely boost and shows how quickly the relaxation of restrictions has impacted the economy.” She continued: “It now appears that one of the biggest problems faced by employers will be filling roles, as both the pandemic and Brexit give rise to staff shortages. Combined with a material shortage caused by pandemic disruption and disruption at the border because of Brexit, businesses are not yet out of the woods.”
US Economy
The US Economy added more jobs than expected in July as employment rose by 943,000. There were gains in sectors including leisure and hospitality, education and professional services. Forecasts for jobs created last month had varied widely from 350,000 to 1.6 million, but the consensus figure was 870,000. The hiring helped lower the unemployment rate by 0.5 percentage points to 5.4%. The disclosure of very strong US non-farm payrolls, +943k confirmed the US recovery as generating high labour demand. The consensus had been for a rise of 865k. The unemployment rate fell to 5.4% down 0.3%.
Unsecured HMV creditors face shortfall
Unsecured creditors of HMV, who are owed £46.8m, are facing a shortfall of between £21m and £24m, according to the latest progress report from administrators. The administrators at Interpath said: “We envisage a minimal distribution of less than a penny in the pound will be made to the unsecured creditors [of the retail business].” They added that “there are insufficient funds to enable a distribution” to the unsecured creditors of HMV’s ecommerce division. Meanwhile, current owner Doug Putman, the owner of Sunrise Records, wants to open as many as 70 HMV stores in the next couple of years. The Times reports that the expansion is fuelled by a revival in vinyl sales, which have increased 108% in the first six months of this year.
Virgin
Virgin Atlantic Airways is said to be considering a public offering on the London stock exchange as the company gears up its business for recovery from the pandemic
Wm Morrisons
Wm Morrisons says it has agreed to a revised takeover offer worth £6.7bn, up from £6.3bn, from a private equity consortium led by Fortress Investment Group. The increased offer, worth 272p a share, comes after some key investors rejected a previous 254p a share offer. Their approval is also needed for this fresh offer. The protracted battle for Morrison took another turn as Fortress lifted its all-cash offer to 272p in a move described as attempting to pre-empt, or put off an expected revised approach from Clayton, Dubilier & Rice. This is above the level (270p) that its largest shareholder Hambro, said it would consider as a decent exit price.
Broadbent: Home working will continue to support house prices
Property prices are likely to be supported in the long term by the shift to working from home, despite the ending of the stamp duty holiday, the Bank of England’s deputy governor Ben Broadbent has said. He pointed out that throughout the world trends show growth in house prices, with no changes in taxes and activity particularly strong outside cities. Halifax’s regional figures underlined Mr Broadbent’s comments, with London showing the weakest annual house price growth of any area in the UK at just 2.5%. The capital’s tepid growth contrasted with double digit growth for properties in the North-west, South-west, Wales and Yorkshire. Russell Galley, managing director at Halifax, said: “We expect the housing market to remain solid over the next few months, with annual price growth continuing to slow but remaining well into positive territory by the end of the year.”
Philip Morris
Philip Morris has increased its cash offer for asthma drug manufacturer Vectura to 165p per share lifting the value of the offer to £1.022bn as it looks to move away from Tobacco.
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