BANKING
Average two-year mortgage fix exceeds 6%
A typical two-year fixed mortgage deal now has an interest rate of more than 6%. Data from Moneyfacts shows that the average rate for a two-year fixed-rate mortgage has hit 6.01%, while a typical five-year fixed rate is now at 5.67%. The two-year rate has risen from 5.98% at the end of last week, while the five-year deal has increased from 5.62%. A total of 4,683 mortgages are currently on the market, down from 4,923 on Friday. Elliott Culley, director at Switch Mortgage Finance, notes that if customers have a good credit score, there are 2-year fixed rates below 6%, but notes that this “is in stark contrast to just two to three weeks ago, when you could get a 2-year fixed rate under 5%." The full impact of higher borrowing costs is yet to be seen by homeowners, with data from UK Finance showing that 800,000 fixed-rate mortgages will need to be refinanced in the second half of this year, with a further 1.6m loans seeing their fixes end in 2024. Meanwhile, the Prime Minister has ruled extra support for mortgage holders. Rishi Sunak said his priority is to bring inflation down, insisting that this is “the best and most important way that we can keep costs and interest rates down.”
Bank of England launches first system-wide stress test
The Bank of England has launched its first system-wide stress test of the financial sector to better understand how shadow banks could amplify financial shocks during a period of market stress. Shadow banks include a variety of financial institutions that provide similar services to banks but without equivalent regulation. The survey will include institutions like insurers, central counterparties, and a wide variety of investment funds alongside traditional banks. The Bank of England's stress test will evaluate the financial sector's resilience and stability, and uncover shadow banking's risks and vulnerabilities. A final report on the findings is due to be published in 2024.
Interest-only mortgages fall by 8%
The number of interest-only mortgages outstanding has fallen by 71% since 2012, according to UK Finance. The stock of outstanding interest-only mortgages fell by 8% in 2022, compared with the end of 2021, as customers continued to repay their loans on or ahead of schedule. Within the latest total, there were 702,000 “pure” interest-only homeowner mortgages and 222,000 partial interest-only mortgages.
TSB temporarily removes mortgages from sale
TSB has temporarily removed some of its mortgages from sale, including two-, three- and five-year fixed house purchase and remortgage products. Several lenders have temporarily removed mortgage products before putting them back on sale in recent weeks, as mortgage rates have increased.
Zopa delays flotation plans
Jaidev Janardana, the chief executive of Zopa, says its float is likely to be further delayed because public markets are effectively suffering from a “temporary closure.” He said the bank “needs more capital in order to grow,” but “given our investors are supportive and willing to put more capital into the business, we don’t see a reason to rush a flotation.”
PRIVATE EQUITY
Private equity frenzy fails to materialise
A predicted surge in deals involving private equity firms in Europe has failed to materialise this year, with rising interest rates hitting the appetite for debt-fuelled takeovers. Investment data firm Pitchbook predicted the wave of take-private deals could top $30bn (£23bn) this year, but analysts have pulled back on the prediction after a “miserly” 14 deals in the five months to the end of May, with these totalling €1.7bn. Pitchbook analyst Nalin Patel said: “Surging interest rates have reduced the desire to use leverage for private equity dealmaking, leading to less activity and fewer potential take-private targets in the space.”
INTERNATIONAL
Rothschild & Co expects net income to halve in 2023
Rothschild & Co expects net income to more than halve this year due to a sharp fall in dealmaking. The bank forecasts full-year net income of around €280m, compared with €606m in 2022 and €125m for the first half of 2023. Operating income is seen at €540m in 2023 compared with €967m last year. The bank's sales from M&A advisory tumbled by 29% in the first quarter. Global mergers and acquisitions activity shrank to its lowest level in more than a decade in Q1.
UBS faces hit of hundreds of millions of dollars over Credit Suisse’s Archegos failings
UBS faces large penalties over Credit Suisse’s mishandling of Archegos Capital, with this one of several unresolved legal and regulatory issues UBS has taken on in buying its rival.
AUTOMOTIVE
Canadian car dealer network eyes Lookers
Alpha Auto Group, a privately owned Canadian car dealer network, has agreed a £400m deal to buy UK car dealership Lookers.
FINANCIAL SERVICES
Watchdog receives 43 sexual harassment reports in 5 years
Analysis shows that the Financial Conduct Authority has received 43 reports by whistleblowers over sexual harassment within financial services in the past five years. Caroline Field, a partner at law firm Fox & Partners, says financial services firms must have effective corporate governance controls, arguing that a “culture which tolerates misconduct completely undermines the purpose of an oversight function.” She added: “Firms must have measures in place to prevent victimisation and those blowing the whistle must be empowered to do so without fear of retribution.”
FCA rules set high standards for crypto firms
Matthew Long, the Financial Conduct Authority’s (FCA) crypto lead, says regulators cannot ignore “the harms that exist” in the market and must be vigilant of the risks that crypto poses to consumers. This comes with the FCA set to roll out tough new rules on crypto marketing that Mr Long says will give people “the time and the right risk warnings to make an informed choice ahead of purchasing crypto.” He added that the City watchdog will be imposing a high standard on crypto firms, saying: “I will be unwavering in that firms must operate to a high standard … Cryptoasset markets are no exception.”
Odey loses ‘fit’ status for dealing
Crispin Odey has lost his status as a “fit and proper” individual in the City of London, with the Financial Conduct Authority’s register showing that the fund manager is no longer certified by Odey Asset Management (OAM) to perform a role dealing directly with clients. This follows allegations of sexual misconduct that have seen him ousted from OAM, the hedge fund he founded. The scandal has seen banks that had acted as the firm’s prime brokers move to sever their links with it, while investors have rushed to pull out money, forcing OAM to suspend withdrawals from five of its funds.
HEALTHCARE
AstraZeneca drafts plans to carve out China business
AstraZeneca is considering spinning off its business in China and listing it in Hong Kong or Shanghai to shield the multinational drugmaker from geopolitical tensions.
REAL ESTATE
UK tenants spend over 28% of pay on rent
UK tenants are facing financial stress as the average rent for new lets has risen by 10.4% in a year, according to property portal Zoopla. The average UK tenant now spends over 28% of their pay before tax on rent, which is the highest in the last 10 years. Rents have been growing faster than wages in the UK for nearly two years, making the affordability of renting at its worst for a decade.
RETAIL
Next raises sales and profit guidance
Next has raised its sales and profit guidance for the year, citing warmer weather and customers receiving inflation-based pay rises. The company reported that full-price sales in the first seven weeks of the second quarter were up 9.3% versus the previous year, beating guidance for a fall of 5%. Next upgraded its full price sales guidance for the full 2023-24 year by £137m to £4.67bn and has increased its full-year profit expectations by £40m to £835m.
Frasers Group acquires 9% stake in Currys
Mike Ashley's Frasers Group has acquired a 9% stake in Currys. It comes a week after it formed a strategic partnership with rival AO World. Frasers took a 19% shareholding in the group that it increased to just over 21% later in the week.
Kurt Geiger agrees £150m funding agreement
Kurt Geiger has agreed a £150m new funding deal from Wells Fargo Capital Finance UK and from Blazehill Capital, a UK-based private credit fund, to refinance its debt and support its expansion in Europe and North America. Dale Christilaw, chief finance officer at Kurt Geiger, said the fresh funding would provide “significant flexibility”.
OTHER
Underinvestment puts growth in a ‘doom loop’
Analysis by the Institute for Public Policy Research (IPPR) suggests that underinvestment by the Government and business has left Britain’s economy trapped in a growth “doom loop.” The think-tank said business investment is lower in the UK than in any other country in the G7, and 27th out of 30 OECD countries. It also found that Britain has ranked below the G7 average for spending on infrastructure, research and development, skills and training since 2005. The report says that had the UK maintained its position at the G7 average since that date, the private sector would have invested an extra £354bn in real terms. Had public sector investment also held that position, the Government would have invested an additional £208bn between 2006 and 2021. George Dibb, an associate director for economy at IPPR, said: “If the economy is the engine of a country, investment is its fuel. But the UK’s tank is running on empty and it’s harming economic growth, driving inequality and slowing progress towards net zero and energy security.”