According to a report in The Times newspaper, the Bank of England's Prudential Regulatory Authority (PRA), which regulates UK banks, building societies and insurers, is considering allowing the banks to re-start dividend payments next year.

In March, the PRA asked the banks to suspend dividends and buybacks until the end of the year and said it expected them to withhold cash bonuses to senior staff in the meantime.

In June, the regulator said it understood the importance of dividend to shareholders and would assess firms’ distribution plans beyond the end of 2020 ‘based on the current and projected capital positions of the banks’, taking into account ‘the level of uncertainty on the future path of the economy, market conditions, and capital trajectories prevailing at that time’.

Under a plan being considered, the PRA could end its ban on dividends provided the banks maintain a given level of capital ratio – the current floor is 13% for the big firms – and they continue to lend money to support the economy.

Against a weak market, shares in NatWest Group (NWG) gained 2.2% to 125p, Lloyds (LLOY) added 1.5% to 29.7p and Barclays (BARC) added 0.8% to 112.5p.

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Last week the Financial Times reported that the high-street banks had actually been tightening their lending standards on new home loans, turning away mortgage applications and putting up interest rates as they sought to improve returns.

In contrast to the cut-throat competition at the start of the year when mortgage offers of up to 95% of the value of a property were common, many banks and building societies have reduced their loan-to-value offers to 65% or 75% and have increased their lending rates despite the Bank of England holding its base rate at a record low of 0.1%.

According to the Moneyfacts website, average interest rates on two-year fixed mortgages at 65% loan-to-value have increased from 1.66% in July to 1.96% this month and rates on five-year fixed rates have jumped from 1.77% to 2.19%.

The housing market has soared since re-opening this summer with many agents reporting record transaction volumes and building societies such as Halifax and Nationwide registering record home prices due to pent-up demand among home-buyers, a desire to relocate as more people are able to work from home and the stamp duty ‘holiday’ on properties up to £500,000 in value.

As a result, banks have been inundated with mortgage requests and service times have lengthened, not just for first-time buyers but for those at every level of the property ladder, raising fears that some people may not be able to complete their house purchase before the stamp duty holiday ends in March.

 

 

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Issue Date: 26 Oct 2020