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Mon 17 Aug 2015

August News

It's been an interesting month in the mortgage and finance world and the big story has been around Mark Carney, the Governor of the Bank England and  his recent indications on when rates will increase. It has now been over six years since the last Bank rate move and a whopping eight years since the last increase. Many of our clients have never experienced a Bank of England rate rise. Unsurprisingly some do not really fear it and very few expect it to rise by much when it does.


Whilst we have enjoyed a solid recovery in the UK, this is still fairly fragile and far from evenly spread. For many households, even a 1% rate rise, can be the difference between being comfortable or really struggling and this is potentially why we are seeing more customers seeking protection in our fixed rates as the outcome is much more uncertain.


Here is our monthly summary of finance news...


Carney sets out how and when rates will rise

Interest rates could rise as early as the turn of the year, Bank of England governor Mark Carney has hinted. In a speech yesterday, Carney said rates will increase slowly and gradually from their current level of 0.5% to around 2.25%. He said the 'equilibrium' rate of interest - the rate needed to keep the economy at its potential and inflation on target - will be lower than the historical average interest rate of 4.5%. Carney said: "It would not seem unreasonable to me to expect that once normalisation begins interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historical averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year." He said the increase in rates will not be "linear or pre-determined". Carney said the Monetary Policy Committee will consider three major factors when deciding when and how to raise rates: the pace of economic activity, household debt and core inflation. 


Annual house price growth at two-year low, Nationwide says 


The annual rate of house price growth fell to a two-year low last month, the Nationwide Building Society has said. Annual house price inflation fell to 3.3% in June from 4.6% the month before, it said. Just a year ago, prices were rising by 11.8%. However, house prices in Wales and Scotland have actually fallen over the last year, according to Nationwide. Between May and June prices across the UK fell by 0.2% taking the average cost of UK property to £195,055.

Robert Gardner, Nationwide's chief economist, said: "House price growth continues to outpace earnings, but the gap is closing, helped by a pick-up in annual wage growth, which moved up to 2.7% in the three months to April from 1.9% at the start of the year. The slowdown in house price growth is not confined to, nor does it appear to be driven primarily by, developments in London."   


Largest annual increase in rents for two years 


Private rental prices paid by tenants in Great Britain rose by 2.5% in the last 12 months to June 2015, according to the Office for National Statistics' Index of Private Housing Rental Prices. Private rental prices grew by 2.5% in England, 2.1% in Scotland and 0.8% in Wales in the 12 months to June 2015. Rental prices increased in all the English regions over the year to June 2015, with rental prices increasing the most in London (3.8%). 


House prices up 2.5% across the EU

House prices across the European Union have risen 2.5% in the first quarter of 2015 compared to a year ago, official statistics show. Eurostat, the statistics office for the EU said that prices within the eurozone increased by a more modest 0.9% over the same period. Compared with the fourth quarter of 2014, house prices rose by 0.3% in the euro area and by 0.6% in the EU in the first quarter of 2015. Ireland had the highest annual increase in house prices across the EU member states that provide data, with jump of 16.8% followed by Sweden at 11.6%, Hungary at 9.7% and the UK in fourth position with a rise of 8.5%. The largest annual falls were in Latvia, where prices dropped by 5.8% year-on-year, Italy, where prices were down by 3.3%, France, with a fall of 1.6% and Slovenia with a 1.4% dip. The highest quarterly increases were recorded in Romania, up 4.1%, Sweden, up 3.9%, Hungary, up 3.7% and Denmark, up 3.5%. The largest quarterly falls were in Belgium, Cyprus and Croatia, which all saw a drop of 2.8% compared to the last three months of 2014.


FTBs still outpace rest of market despite H1 drop

There were an estimated 139,500 first-time buyers in the first six months of 2015, a 7% reduction in purchases compared to the same period in 2014, and the first annual decrease since the first half of 2011. However, with the exception of 2014 it was still the highest total for the first six months of the year since 2007, and was 92% higher than the market low recorded in the first half of 2009 (72,700) according to the latest Halifax First-Time Buyer Review. And despite the decline in purchases by FTBs this year as a proportion of all mortgage financed house purchasers the proportion remains steady (also down 7%). In fact, the number of FTBs has increased more rapidly than the number of subsequent buyers over the past few years, from 38% in 2011 to 47% in 2015.



6 major lenders sign up to offer Help to Buy ISA

Six of the UK's biggest lenders have signed up to the Government's Help to Buy ISA scheme. Barclays, Lloyds, Nationwide, NatWest, Santander and Virgin Money, will offer the new savings product from 1 December. Launched by the Government in the March Budget, the scheme offers savers a 25 per cent bonus if they use those savings to buy their first home. A maximum of £200 can be saved each month, with the Government contributing up to an additional £50. The maximum Government contribution will be £3,000 per ISA. The bonus is available on homes up to £450,000 in London and £250,000 outside London. Chancellor George Osborne says: 'This Government is determined to help working people, and encouraging the aspiration to home ownership is central to that".


Demand for ability to borrow in retirement

29% of over-55s expect to be in debt in retirement or are unsure whether they will have paid off all their financial commitments, according to research from equity release lender More 2 Life. Around 60% of those surveyed had applied for some form of credit within the last two years, including 58% of those aged 65 and above, but one in eight have been turned down with some reporting that their age was a factor in the decision: 18% of those aged 65 and over said they were refused credit on the basis of their age. The lender claims its nationwide study underlines the growing need for increased flexibility from lenders as well as a recognition that increasing longevity and rising housing prices mean more people owe money on their mortgages past traditional retirement ages. More 2 Life believes there is growing demand - and a need - for lending solutions aimed at over-55s who may need to borrow past traditional retirement ages. Its research suggests there is strong demand for credit among the over-55s with more than 58% borrowing in some form in the past two years. There is also demand to borrow into retirement with nearly two-thirds of those questioned welcoming the ability to borrow in retirement without necessarily wanting to use it.

Tug of war: Half-year results show banks are losing share to smaller lenders

The top six lenders are losing market share to smaller players as they have been slower to relax their criteria post-MMR, say brokers. In the months leading up to the MMR, in April 2014, there was a general tightening of criteria across the market, especially in areas like interest-only, self-employed and lending into retirement. However, in recent months many smaller lenders have loosened their criteria in these areas, which has seen them steal business off the bigger lenders. This has been highlighted in the half-yearly reports published so far. Overall, lending was down from £97.6bn in the first six months of 2014 to £96.6bn in the first half of this year.  And of the results released so far, it is evident the bigger lenders are losing ground to smaller market participants. Brokers believe smaller lenders have been quicker to loosen their criteria post MMR and are reaping the rewards for doing so.

FTBs forgo electricity to buy home

One in five first-time buyers claims they'd be willing to live in a run-down property with no water, electricity or central heating just to secure a foot on the property ladder, research suggests.  An opinion poll from Your Move and Reeds Rains estate agents found that while 20% of first-time buyers were prepared to go without electricity, working plumbing and central heating a massive 77% of would-be homeowners would accept dated décor, a sub-par and an out-of-date bathroom. Only 9% of respondents claimed they were unwilling to make any significant compromise when buying their first home - below the proportion of first-time buyers willing to accept a property with dry rot (12%) or one with a leaking roof (14%). Adrian Gill, director of estate agents Your Move and Reeds Rains, said: 'As demand in the property market remains strong, first-time buyers are willing to accept a home in less-than-perfect condition. While the stats seem alarming at first glance, they're a good sign for the housing market overall. The figures show that most would-be first-time buyers haven't given up on the dream of property-ownership. Instead, they are sensibly adjusting their expectations and preparing themselves for some of the short-comings that may be present in a first home.'

Inflation fears led MPC to hold base rate

Fears of uncertainty generated by the Greek debt crisis led the Bank of England's Monetary Policy Committee to maintain the base rate this month. Minutes from the MPC's July meeting showed that "a number" of MPC members were concerned of the risk of inflation rising above the Bank's 2 per cent target. The Bank says: "For these members, the uncertainty caused by the recent developments in Greece was a very material factor in their decisions: absent that uncertainty, the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced. "For most members, even before accounting for the recent increase in uncertainty in the external environment, the current stance of monetary policy remained appropriate to balance the risks of inflation around the target in the medium-term. For all members, the policy decision this month was clear-cut." Earlier this month, the MPC voted unanimously to maintain the base rate at 0.5 per cent as well as keeping quantitative easing at £375bn. CPI figures showed the inflation dropped from 0.1 per cent to 0 per cent in May.

Pensioners found on 'suckers list'

Nearly 200,000 people - with an average age of 74 - have been seen on so-called "suckers lists" circulated by fraudsters. The potential victims have been identified by trading standards teams investigating fraudulent mail. Some 10,843 of them have lost money already, being tricked out of an average of £1,184 each. Suckers lists are drawn up by con-artists who find people who have been caught out by a con. They also include those who have the potential to be caught out. The lists are sold between fraudsters. Trading standards teams are urging people to look out for relatives or neighbors who may be vulnerable to mass marketing scams. The National Trading Standards Scams Team estimates that it has saved consumers more than £5m over the last three years by tackling the issue.

FCA appoints HSBC chief exec as head of practitioner panel

The chief executive of HSBC has been appointed as the chair of the Financial Conduct Authority's (FCA) independent practitioner panel. Antonio Simoes takes over as head after sitting on the panel for two years. The panel is an independent statutory body which is made up of members from the financial services sector who represent the interests of the industry within the regulatory framework. He succeeds Alsion Brittain, the former group director of retail finance at Lloyds Banking Group, who announced she was leaving the financial services sector in May.


Gross Lending Up

Gross mortgage lending in June (not seasonally adjusted) showed a significant rise compared to the previous month, according to the Council of Mortgage Lenders. It rose by 29% compared to May to an estimated £20.5 billion. In addition to the month-on-month rise, there was also a year-on-year increase of 15% on the £17.8 billion of lending undertaken in June 2014. Gross lending in the second quarter of 2015 came to £52.2 billion which was up 17% from the previous quarter's £44.5 billion, and was a modest increase of 1% on the second quarter in 2014 when it totalled £51.7 billion. Forward indicators of lending suggest an upturn will be felt in coming months, as CML's revised forecasts suggest. CML economist Mohammad Jamei said: "Activity is picking up after a slow start to the year. Our lending figure for June may be flattered by the end of political uncertainties related to May's general election, and the underlying picture is likely to be one only modest recovery. This should be supported by favourable conditions in the economy, though it will be limited by rising house prices and affordability pressures."

Monthly rise in rents of 1.4%

The latest Buy-to-Let Index from Your Move and Reeds Rains has found that average cost of renting a residential property in England and Wales has accelerated, to rise more quickly in June than in any month previously on record. Rents across England and Wales reached a new record high at £789 in June, standing 1.4% higher than the £778 recorded in May and up 5.6% on an annual basis since June 2014. This is despite consumer price inflation falling to 0.0% in June, and underscores a new trend since the beginning of 2015 by which rents have risen out of line with the rate of inflation. This is also the first month since July 2013 where rents are rising more quickly than house prices for comparable properties, with this annual rate of house price growth standing at 4.5% over the twelve months ending June 2015.

Martin Wheatley exits FCA

Martin Wheatley is to stand down as chief executive of the Financial Conduct Authority with effect from 12th September 2015. Tracey McDermott will be taking over as acting chief executive from 12th September while the search for a permanent chief executive takes place. It is understood that the Treasury told Wheatley to go or they wouldn't renew his contract. Chancellor of the Exchequer George Osborne said: "Britain needs a tough, strong financial conduct regulator. The government believes that different leadership is required to build on those foundations and take the organisation to the next stage of its development." Wheatley has been at the head of the regulator for four years, establishing the FCA following the demise of the Financial Services Authority in April 2013. Wheatley will continue to act as an adviser to the FCA board until 31st January 2016 with a particular emphasis on the implementation of the Fair and Effective Markets Review, which he co-chaired.

HMRC rakes in £27bn from tax avoidance clampdown

HM Revenue and Customs (HMRC) collected £26.6 billion from its continued crackdown on tax avoiders. The taxman's revenue in 2014-2015 totalled £517.7 billion, a 2.4% or £12 billion, increase year-on-year, and was also buoyed by economic growth and falling unemployment. In its annual report and accounts, HMRC reported that it had prosecuted 1,289 cases predominately for tax-related crimes, which resulted in individuals receiving a collective 407 years in prison sentences. Total revenues from compliance was up from around £18 billion in 2011-12, while successful litigation protected £9.79 billion in tax.

The Bank of England's Monetary Policy Committee at its meeting on 8th July voted to maintain Bank Rate at 0.5%.

The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.

Government to reform planning permissions

The government plans to reform brownfield planning permission rules in a bid to boost house building across the UK. Automatic planning permissions are set to be granted on all "suitable" brownfield sites under a "zonal system" as part of the proposals. In a 90-page blueprint called 'Fixing the Foundations: Creating a more prosperous nation', which will be released today, proposals will include stronger compulsory purchase orders to build on brownfield land, while extra powers will be devolved to the Mayors of London and Manchester. The government also plans to grant itself the power to penalise local authorities that make fewer than 50% of planning decisions on time. In London homeowners will no longer need planning permission for upwards extensions up to the height "of the adjoining building", Chancellor George Osborne is expected to say today: "Britain has been incapable of building enough homes. The reforms we made to the planning system in the last parliament have started to improve the situation: planning permissions and housing starts are at a seven-year high. But we need to go further and I am not prepared to stand by when people who want to get on the housing ladder can't do so. We'll keep on protecting the green belt, but these latest planning reforms are a vital part of a comprehensive plan to confront the challenge of our lifetime and raise productivity and living standards. This will not be achieved overnight and will require a truly national effort by government, business and working people. But with this productivity plan, I believe that we have taken the vital first step towards securing the prosperity and livelihoods of generations to come."

Haldane cautions against early rate rise

Bank of England chief economist Andy Haldane has given another sharp warning against an early interest rate rise, saying any such move could be "self-defeating" Speaking yesterday at the Open University, Haldane said that recent strong wage data had not changed his view about the dangers of tightening policy too soon. According to the most recent data from the Office for National Statistics (ONS), wages have risen at 2.7%, the fastest rate in five years. But Haldane said yesterday that the other major economies were suffering from "lasting and durable" psychological scars from the recent recession, which could hold back growth and keep rates lower for longer. "A policy of early lift-off could be self-defeating," Haldane said. "Looking ahead, I have no bias on either the size of the direction of future interest rate moves," he added. Haldane's comments diverged from recent statements from other Bank of England officials, such as Monetary Policy Committee (MPC) member Martin Wheale, who said last month that stronger wage growth should be taken as a sign that interest rates may need to rise sooner rather than later. The market predicts the first interest rate rise will come in May or June 2016, but the consensus of economists recommend March for a rise.

Wise up to scams, and call time on phone fraud

The Financial Ombudsman Service is urging people to talk to vulnerable relatives, friends and neighbours this summer about the risk of being scammed. As it publishes new research suggesting people over the age of 55 could be four times more likely to be caught out by "vishing" or a "no hang-up" scam. In the report, the ombudsman reviewed 200 cases involving a no hang-up" scam - where fraudsters pose as the police or banks to deceive consumers. The report finds: 

  • 80% of the consumers conned out of their cash were over the age of 55. One in five was over 75.
  • The cases looked at within the report involved losses of over £4 million.
  • 38% of people had lost between £5,000 and £14,999, 20% between £20,000 and £49,999, and some more than £100,000.
  • People living in London and the South East were most likely to have brought a complaint about a no hang-up scam to the ombudsman.
  • 37% of complaints were upheld.

Vishing, like many scams, can leave people feeling powerless, as often there's little people can do to get their money back. However, in 4 in 10 cases, the ombudsman did find the bank's response to the fraud had fallen short so the customers were compensated. In the remainder of the cases, the bank had done all that it could - but the money had been stolen and the ombudsman could not find the bank at fault.

Owner (and under) occupied homes: what do the numbers show?

People renting their home were nearly four times more likely to live in overcrowded conditions than owner-occupiers, according to data emerging from the 2011 census. Newly-published figures from the Office for National Statistics (ONS) showed that only 2.3% of owner-occupiers were living in homes that were overcrowded. But for those renting the proportion rose to almost 9%, with little difference between the private and social rented sectors. The census found that, despite a combination of persistently low housing construction rates and rapid population growth, the majority of households in England and Wales - 16.1 million or 69% - were under-occupied in 2011. The data showed that for owner-occupied homes the proportion was 80%, Half of privately rented homes were under-occupied, with the proportion in the social rented sector dropping to 40%.

Prudential Regulation Authority (PRA) announces changes to depositor protection

The PRA has announced changes to deposit protection provided by the Financial Services Compensation Scheme (FSCS). For the majority of depositors currently covered by the FSCS, the existing level of deposit protection (£85,000) will be maintained for six months before changing to £75,000 after 31 December 2015. The PRA is required by the European Deposit Guarantee Schemes Directive to recalculate the FSCS deposit protection limit every five years and set it at a sterling amount equivalent to €100,000. The process and timing is specified by the Directive and is not at the PRA's discretion. The FSCS currently protects deposits up to £85,000 in the event of the failure of a bank, building society or credit union. This compensation limit was set in December 2010, based on the sterling equivalent of €100,000 at the time.