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Wed 01 Apr 2015

April News

As the election looms there is huge talk of deflation and the debate has opened up over whether interest rates are likely to rise or fall over the next few months. The consensus remains that rates are more likely to go up than down, but recent inflation reports, stating prices have remained stagnant and inflation is at zero, have caused much speculation throughout the media. We note that Mark Carney the Governor of the Bank of England came out a few days ago and indicated rates are more likely to increase than decrease, however this puts him at direct odds with the bank's Chief Economist Andy Haldane who also told investors last week that the recent sharp slowdown in inflation meant the Bank was as likely as not to cut rates - a view that had been previously rejected by Carney. It is clear there will be no consensus this side of the election. The low interest environment has proved beneficial to many of our customers and rates are still being offered by lenders from as low as 0.99% fixed for 2 years.

Here is our round up of this month's news

Optimism returns to the UK housing market

The future for property purchase is looking bright, with over one third (36%) of people saying that now is a good time to buy, the BSA's March Property Tracker survey has identified. The rebound since September is particularly marked by a substantial drop in the number of people who think now is a bad time to buy. Taken together, the Property Tracker index has bounced back from a 9% low in September 2014 to 23%.Regardless of potential uncertainties such as the General Election, results show that optimism has returned to the market after the mid-2014 dip. This coincided with the introduction of new mortgage regulations and the announcement by the Financial Policy Committee of actions to limit lending in the housing market. Results now indicate that transaction volumes may begin to slowly pick-up after cooling off late last year.

Carney says Bank of England rates likely to rise, contrasts with Haldane

The Bank of England expects its next move in interest rates to be an increase not a cut despite record low inflation, Bank of England Governor Mark Carney said on Friday, underscoring his difference of view with the Bank's chief economist. "We're still in a position where our message is .... that the next move in interest rates is going to be up," Carney said during a panel discussion at a Bundesbank conference in Frankfurt. BoE chief economist Andy Haldane surprised investors last week when he said a recent sharp slowdown in inflation meant the bank was as likely as not to cut rates - a view that had been previously rejected by Carney. Several other top policymakers at the BoE have left Haldane looking isolated in recent days. On Friday, one of the Bank's deputy governors, Ben Broadbent, also played down the sharp fall in inflation which touched zero in February. He said Britain was unlikely to suffer from a long bout of deflation.

Indebted homeowners rush to withdraw equity

There has been a sharp rise in equity withdrawal through remortgaging as homeowners increasingly feel the pinch. The average amount of equity withdrawn almost doubled year-on-year to £26,862, as people remortgaged to pay off debt or generate much-needed extra funds, according to new research from LMS. Despite this, the average LTV actually fell by 4% due to healthy house price increases in 2014. LMS figures showed the value of monthly gross remortgage lending fall to £3.5 billion in February, down 16% from January's figure of £4.1 billion. It estimates the number of remortgage loans also fell by 10% to 23,135 in February, after a strong start to the year in January. But the average equity withdrawal leapt 41% in a month and 94% year-on-year to £26,862. The total amount of equity withdrawal from remortgaging in February stood at £621 million, an 80% increase from the previous year. The average remortgage loan fell slightly to £149,143.

Subdued gross mortgage lending in February

The Council of Mortgage Lenders estimates that gross mortgage lending reached £13.4 billion in February. This is 9% down on both January and on last February, in both of which months £14.8 billion was advanced. This is the lowest monthly estimate for gross mortgage lending since April 2013 when lending totalled £12.4 billion. Commenting on market conditions, CML chief economist Bob Pannell says: "Earlier soft approvals data meant that weaker February lending has not come as a surprise. Seasonal factors tend to weigh on activity at the start of the year, but looking through these, the underlying picture appears to be stabilising. We expect lending to improve in the coming months, as employment and earnings continue to pick up and the impact of recent stamp duty reforms start to feed through."

Interest rates could be slashed to zero to battle deflation

Britain's record-low interest rates could fall even further, Bank of England policymaker Andy Haldane said yesterday, arguing that a shock rate cut could help boost inflation and growth. Rates have been held at 0.5% for the past six years, with the authorities worried that cutting it further would devastate banks by crushing returns on loans. But now banks are stronger, and Haldane believes they will be able to withstand lower rates. "A case can be made for policy easing today. With the lower bound set to zero, the optimal path for interest rates would involve them being cut in the short-run towards zero for around a year, before then roughly following the market yield curve," monetary policy committee member Haldane told an audience in Rutland. That would result in rates falling at first, but Haldane believes the resulting rise in inflation would lead to rates ultimately rising more quickly than if rates are held at 0.5% for the whole period. Sterling dropped on his speech, as markets priced in the chance of lower interest rates.

UK unemployment falls to1.86m

UK unemployment has fallen by 102,000 to 1.86 million in the three months to January, official figures show. The unemployment rate remains at 5.7% but the number of people in work is at an all-time high, the Office for National Statistics (ONS) said. The number of people claiming Jobseeker's Allowance also fell to 791,200, its lowest level since 2008. Average earnings in the three months to January, including bonuses, rose 1.8% compared with a year earlier. Regular pay, which excludes bonus payments, rose by 1.6%, in the same period compared with a year ago. It means earnings continue to outstrip consumer price index (CPI) inflation, which official figures showed fell to a record low of 0.3% in January.

TSB sold to Spain's Banco Sabadell for £1.7 billion

TSB has agreed to a £1.7 billion ($2.5 billion) takeover by Banco Sabadell in one of the largest cross-border banking mergers since the financial crisis. "Sabadell are offering to buy all of our shares at 340p a share and when that transaction is complete, it will mean that we, TSB, will become part of Sabadell banking group," Paul Pester, TSB's CEO, said in a statement that has been posted on YouTube.

Mortgage fraud continues to bite

Mortgages saw the highest number of fraudulent applications of any financial product, research from Experian suggests. The Financial Times says according to Experian's annual fraud report, tighter affordability rules under the Mortgage Market Review may be driving the number of false mortgage claims. Mortgage fraud was the most common type of fraud last year, with 84 cases identified per 10,000. This is relatively flat from 87 in 2012. Experian director Nick Mothershaw says there has been a rise in the number of false mortgage application claims made by the self-employed. He says: "most of it is individuals bending the truth to try and get a mortgage they're not entitled to." On the rise in false claims from the self-employed, Mothershaw says: "It doesn't mean they're not going to pay for the mortgage but they're making out that they are an employee of a business rather than a self-employed sole trader."

British house prices pick up more than expected in February - RICS

British house prices rose more than expected in February, according to a survey that suggested a growing shortage of properties might herald the end of a slowdown in the market. The Royal Institution of Chartered Surveyors (RICS) said its monthly house price balance rose to +14 in February from +7 in January, above all forecasts in a Reuters poll of economists. The index measures the assessment of surveyors of whether house prices have risen or fallen on an annual basis over the previous three months. Britain's housing market has been slowing since mid-2014, when regulators required banks to make closer checks on whether borrowers would still be able to afford mortgage repayments if interest rates rise sharply.

For our Expat Savers in over 100 countries
Skipton International re-launched its popular International Premier 150 earlier this month.  The 150 day notice savings account pays interest at variable rate of 1.50% gross p.a / AER for deposits over £10,000. The account requires a minimum balance of  £10,000 and savers can invest up to £5million. Funds must be placed on 150 days' notice before withdrawals can be made.  There is no early access allowed with this savings product.
They are also offering easy access, 100 + 150 day notice accounts and a Fixed Rate Bond (paying 2.20% gross p.a / AER), fixed until 31 May 2018.  For further details of all Skipton International's new saving products, call them direct on 01481 732267 (Emma Kelly) or see here for full details of savings rates
https://www.skiptoninternational.com/savings. Being a small bank without an extensive branch network allows Skipton to keep costs down and pass the benefits to customers.

Skipton serves Channel Islanders, UK Expatriates and others around the world. They meet the expat savings needs of Channel Islanders and British Expatriates resident in over 100 countries. Based in Guernsey, one of the world's most reputable and well established financial centres, Skipton International Limited is supervised by the Guernsey Financial Services Commission & is a participant in the Guernsey Banking Deposit Compensation Scheme

Asset rich and cash poor?

2014 was the best year ever recorded for equity release lending - £1.4 billion was loaned into the market and the number of new customers also reached its highest level for six years. New data from the Equity Release Council shows the value of equity release lending totalled £365.7 million in Q4 2014: an increase of 18% from £310.2m in Q4 2013. By all accounts 2015 is only likely to see this trend continue as both the market and the amount of product innovation continues to grow. So what is driving this equity release resurgence? Well, as we know people are living longer and this increased longevity is presenting new challenges when it comes to funding retirement. In the 1970s men in OECD countries spent an average of 11 years in retirement and by 2012 this had increased to 18 years. With advances in medical science and a generally healthier population this trend will continue. Many retirees find themselves "cash poor but asset rich" with far more wealth tied up in property than other investments.

UK interest rates mark six years at record low of 0.5%

UK interest rates have been kept unchanged again by the Bank of England, meaning they have now been at their record low of 0.5% for six years. Rates were first cut to 0.5% in March 2009 as the Bank sought to lift economic growth amid the credit crunch. Recent growth in the economy has prompted speculation that rates will start to rise again in the near future. However, continuing low inflation, now at 0.3%, gives policymakers little reason to raise the cost of borrowing. The bank also kept the size of its quantitative easing (QE) programme unchanged at £375bn. Inflation is expected to remain low, and could even turn negative briefly, thanks largely to a near-halving in the price of oil since last summer. Bank of England governor Mark Carney has even talked about lowering interest rates further to a new record low, should prices remain near flat for longer than expected. However, Mr Carney has said prices are likely to rebound around the turn of the year. Most developed economies are used to prices rising. The fear is that if prices do start to fall, consumers will put off buying goods in the hope of further price falls. With the economy around 70% dependent on consumer spending, any slow down could have a harsh impact on overall economic growth.

More than half of UK first-time buyers had help with deposits in 2014

More than half the 300,000 first-time buyers who bought a home in 2014 are likely to have got help from "the bank of mum and dad", despite government schemes that reduced the amount needed for a deposit. Analysis by the Council of Mortgage lenders shows 48% of purchases by new buyers were "unassisted", with the rest likely to have had funds provided by parents and grandparents. This is a higher proportion than in the years immediately following the credit crunch, suggesting that government schemes to boost lending have made it easier for borrowers with small deposits to get loans.