Aurelia Butler

Nationwide, the UK’s largest building society, is to distribute £340mn to members as rising rates boosted profits by nearly 40 per cent.The UK lender on Friday posted pre-tax profits of £2.2bn for the year to April 4, an increase of 39 per cent year on year. Revenues for the year were £4.7bn, a 20 per cent increase.Like other lenders, Nationwide has benefited from rising interest rates. The Bank of England increased the base rate to 4.5 per cent last week, the highest level since 2008.However, the chief executive of the mutual, which is owned by its members, warned that higher interest rates were also impacting customers, particularly when coupled with high inflation. Nationwide is forecasting arrears to tick up.“The transition to higher interest payments is a challenge for households as they adjust their expenditure priorities,” said Debbie Crosbie. “We will continue to support those borrowers who face payment difficulties.”As a result, the building society said it would distribute a “fairer share payment” after the results, giving eligible members £100 each with a total value of £340mn.“We see this very much as something we’d like to repeat and maintain,” said Crosbie, adding that it was contingent on the financial health of Nationwide to ensure that it was affordable. On Wednesday, BoE governor Andrew Bailey admitted that the UK economy was suffering from a wage-price spiral and pledged to lift interest rates as far “as necessary” to tackle persistent inflation.Nationwide’s provisions for bad loans for the year were £126mn, compared with a release of £27mn the previous year, which the lender said stemmed from “a deterioration in the economic outlook during the year”. Chief financial officer Chris Rhodes said that customers were changing their lifestyle as a result of pressures on their finances. “The average spend is not increasing,” he said. “They are clearly changing what’s in their basket and what supermarkets they go to.”The warning echoes comments on Thursday by Robin Budenberg, chair of Lloyds Banking Group, that inflation, the rising cost of living and interest rate rises would continue to dog customers throughout 2023.Robert Gardner, Nationwide’s chief economist, added that the lender expected the housing market to remain subdued in the near term.“It reflects the fact that household budgets are still under pressure because mortgage rates are well up from those in 2021,” he said, although rates were significantly down from the highs of late 2022 as the shock of September’s disastrous “mini” Budget had played through the market. Nationwide expected “modestly lower house prices”, he added. The group’s base scenario assumes a house price fall of 4.5 per cent during 2023. More

The amount of housing equity tapped by the UK’s older homeowners jumped by 28 per cent to £5.2bn in 2022, according to official figures that underscore concerns pensioners are using equity release mortgages to cover rising living expenses “without properly understanding the costs”. The value of lifetime mortgage sales — equity release loans — among the over-60s rose from £4.1bn in 2021 to £5.2bn last year, according to figures from the Financial Conduct Authority obtained via a Freedom of Information request by advisory firm Bowmore Financial Planning. Inflation remains at double-digit levels in the UK, while interest rate rises have led to big increases in the costs of borrowing. The FCA this week highlighted the difficulties being faced by borrowers of all kinds, with 10.9mn people struggling to meet bills and credit payments at the start of the year, up from 7.8mn in May 2022. Separately, repossessions of mortgaged homes were up 50 per cent to 750 in the first three months of 2023 compared with the previous quarter, according to figures published on Thursday by lobby group UK Finance. Equity release allows homeowners to take out money from the value of their home and remain in it, as the loan is repaid from the sale of the property only when the borrower dies or moves permanently into a care home. Interest on the loan is rolled up and paid back, along with the capital sum, when the home is sold, though providers now offer the ability for borrowers to make overpayments. The FCA last year issued a warning to the industry about the risks of poor-quality advice, the need for customers to be treated fairly and for fair value on fees.

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Writing to lenders in June 2022, it said it was particularly concerned that consumers in financial stress “may be more susceptible to the purchase of unsuitable equity release products. We expect firms in this portfolio to consider how the cost of living crisis is likely to impact consumers and take the necessary steps to support consumers and mitigate harm.”Bowmore said the jump in equity release sales suggested more borrowers were using it to shore up their finances during the cost of living crisis. But it warned that higher interest payments could more quickly eat into the equity remaining on their property.Mark Incledon, chief executive at Bowmore Financial Planning, said: “Equity release is often advertised as a ‘no-brainer’ that gives elderly borrowers the buffer they need to tie them over in the short term. Unfortunately, many of them will find they have tied themselves into a long-term commitment without properly understanding the costs.”The average interest rate charged on an equity release loan is 6.17 per cent, including both fixed and variable deals, up from 4.81 per cent in May 2022, according to finance website Moneyfacts. However, average rates have been coming down since November 2022, when the turmoil of the “mini” Budget sent them spiking to more than 8 per cent. The option for homeowners to make part-repayments on equity release loans — and therefore retain more of their equity — was adopted by the Equity Release Council, the industry body, as a standard for all providers last year. It said the number of these penalty-free repayments rose by 48 per cent in 2022 on the previous year, reducing the value of loans by £102mn. The average equity release plan was £133,216 in 2022, according to ERC figures. It said this sum would support a “moderate lifestyle” for a single pensioner for 12 years. However, the average taken out dropped sharply in the first quarter of 2023 to £61,785, a six-year low, as the higher interest rate environment activity curbed demand, the council said. More

SINGAPORE (Reuters) – The dollar firmed near a six-month peak against the yen on Friday on the back of rising U.S. Treasury yields, as optimism over debt ceiling talks in Washington raised expectations of higher-for-longer interest rates.President Joe Biden and top U.S. congressional Republican Kevin McCarthy earlier this week underscored their determination to strike a deal soon to raise the government’s $31.4 trillion debt ceiling, with hopes of finalising a deal after Biden returns from the Group of Seven meeting in Japan on Sunday.The news helped calm fears of an unprecedented and economically catastrophic American debt default, leading markets to revise their expectations of where U.S. interest rates could go.At the same time, data pointing to a still-tight labour market, with the number of Americans filing new claims for unemployment benefits falling more than expected last week, also reinforced expectations that the Federal Reserve could deliver another rate hike next month in a bid to tame inflation.Two Fed policymakers also said on Thursday that U.S. inflation does not look like it is cooling fast enough to allow the Fed to pause its interest-rate hike campaign.The dollar stayed elevated in early Asia trade on Friday and last bought 138.40 yen, having risen to a near six-month high of 138.75 yen in the previous session.The greenback was eyeing a weekly gain of nearly 2% against the Japanese currency, its largest since February. Similarly, the U.S. dollar index was last at 103.46, flirting with Thursday’s two-month high of 103.63, and was headed for a second straight weekly gain of more than 0.7%.”Optimism about the debt ceiling (talks) has contributed to a repricing for the Fed … the fact that (a deal) would remove a big weight on the economy, effectively,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY) (NAB).”It does remove one obstacle to the Fed continuing to raise rates.”Money markets are now pricing in a 39% chance that the Fed could raise rates by another 25 basis points next month, compared with just about a 10% chance a week ago, according to the CME FedWatch tool.Traders have also pared expectations on the scale of rate cuts expected later this year, with rates seen just above 4.6% by December.U.S. Treasury yields have climbed on the back of the hawkish Fed repricing and amid a pick up in risk sentiment. Yields rise when bond prices fall.The two-year Treasury yield, which typically moves in step with interest rate expectations, last stood at 4.2581%, edging away from a low of 3.964% at the start of the week.The benchmark 10-year yield was last at 3.6476%, having risen nearly 20 bps this week.In other currencies, the euro rose 0.06% to $1.0777, but languished near the previous session’s close to two-month low of $1.07625.Sterling gained 0.05% to $1.2415, having fallen about 0.6% on Thursday.The Aussie edged 0.17% higher to $0.6633, having slid on Thursday against a stronger dollar and on data showing that Australia’s employment unexpectedly dipped in April.In Asia, Japan’s core consumer prices rose 3.4% in April from a year earlier as price hikes broadened, data showed on Friday, casting doubt on the central bank’s view inflation will slow back below its 2% target later this year as cost pressures dissipate.”I do think that the numbers do mean that the June and July meetings are live for a possible YCC tweak,” said NAB’s Attrill, referring to the Bank of Japan’s controversial yield curve control policy. More

Led by independent Bernie Sanders, who caucuses with the Democrats, the 11 lawmakers said while they appreciated Biden’s efforts to find a bipartisan deal to lift the debt ceiling, Republicans in Congress were “not acting in good faith.”“We write to urgently request that you prepare to exercise your authority under the 14th Amendment of the Constitution, which clearly states: ‘the validity of the public debt of the United States…shall not be questioned,'” they wrote Biden, a fellow Democrat.”Using this authority would allow the United States to continue to pay its bills on-time, without delay, preventing a global catastrophe,” they said. Biden is continuing negotiations with House of Representatives Speaker Kevin McCarthy during his trip to the G7 Summit in Japan this week, ahead of the June 1 date when the U.S. Treasury has said the government could start running out of funds if the debt ceiling is not lifted.The periodic lifting of the federal government’s borrowing limit allows the government to pay for spending Congress has already authorized. More

“There’s a chance it would cause turmoil in various markets … and affect a vast array of financial transactions,” Ueda told parliament, when asked by a lawmaker of the impact if Washington fails to agree on extending the U.S. debt ceiling.”The Bank of Japan will strive to maintain market stability based on its pledge to respond flexibly with an eye on economic, price and financial developments,” he said. More

WASHINGTON (Reuters) – U.S. Senator Elizabeth Warren is questioning federal bank regulators on their decision to sell First Republic Bank (OTC:FRCB) to the nation’s largest bank, JP Morgan Chase (NYSE:JPM).In a letter sent to the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation Wednesday, Warren said the deal was “deeply troubling,” and sought details on how the agencies decided to arrange that particular sale, allowing JPM to grow even larger.”The net result of these machinations is that…the nation’s biggest bank – already too big to fail – got a bargain deal on a failing bank that made it even bigger. This is a troubling outcome, leaving me with numerous questions,” she wrote. The FDIC announced this month it had seized First Republic and sold it to JPM in a deal that it estimated would cost its deposit insurance fund $13 billion. Spokespeople for the OCC and FDIC declined to comment. A JPM spokesperson did not respond to a request for comment.Among other items, she asked regulators to provide details on how they analyzed bidders for the failed bank and what additional restrictions JPM should face as a result of its larger size.Warren also pressed the matter with Michael Hsu, the acting Comptroller of the Currency, at a hearing Thursday. She noted that the FDIC is bound by law to sell a bank to a bidder at the least cost to its deposit insurance fund, but the OCC should consider other factors, like financial stability, before signing off on such a merger. Hsu said the OCC has to consider a range of factors in assessing a merger with a failed bank, with a focus on maintaining stability and “coordinated and timely” government action. More