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Fri 08 Aug 2014

Monthly Mortgage & Finance Update

There has been plenty of news in the press this Summer regarding house price rises, bank base rate changes and lots of views over whether the Scots will say 'Aye' or 'Ney' in next month's referendum. The spectacular conclusion of the Commonwealth Games ending this weekend is felt to have given the Yes camp a spur, but all remains to play for. The uncertainty will soon be settled and we hope for a positive result and a return of the many lenders who have pulled out of the Scottish market for fear of  Scotland having to operate a dual currency, quickly returning.  Here is our rund-up of this month's news....

Interest rate hikes edge closer 

Some members of the Bank of England's Monetary Policy Committee are edging closer to voting for an increase to base rate, according to minutes from its latest meeting. While all nine MPC members voted against increasing rates at their July meeting, the minutes show some members are getting closer to voting for the first rate rise since March 2009. The minutes say: "The committee agreed that no increase was warranted at this meeting, although for some members the decision had become more balanced in the past few months than earlier in the year." The minutes also reiterate the Bank's message that when rates do eventually rise, it will be gradual. The markets currently expect base rate to be around 2.5% within the next three years. Capital Economics senior UK economist Samuel Tombs says it is likely that base rate will not be increased until next year. But he adds: "But the risk of a 2014 hike is growing and it seems likely that one or two members will be voting to raise interest rates within the next few months."

House price inflation hits 10.5%, says ONS

Annual house price inflation hit 10.5% in May, the highest rate for four years, according to the Office for National Statistics (ONS) That is up from 9.9% in the previous month. Once again, the market was in large part driven by London, where house prices rose by a record 20.1% over the year. But excluding London and the South East, prices rose by a much more modest 6.4% across the UK. Prices were up in every region, except for Northern Ireland, where they fell by 0.7%. In England, prices rose by 11%, in Wales prices were up by 6.5%, and in Scotland they rose by 3.6%. According to the ONS index, the average price of a house across the UK is now £262,000.

Bank of England states that housing market poses the 'biggest risk' to the UK economy.

Sir Jon Cunliffe, deputy governor of the Bank of England has told the BBC that "...a big increase in the amount of debt in the economy and  prices rising faster than people's incomes' is a particular threat. Last week, the Bank of England announced a raft of further measures to try to prevent the housing market overheating. Sir Jon, told BBC Radio 5 Live. '...it's not the risk around house prices as such, it's the risk that we get a sustained rise in house prices... .'

'Risk of debt peril' when interest rates rise

A "relatively benign" rise in interest rates still has the potential to double the number of households facing debt problems, a think tank has said. A report by the Resolution Foundation said the UK had failed to deal with a "debt overhang", leaving the economy vulnerable to rate rises. It predicted that by 2018, 1.1 million households could be in "debt peril", compared with 600,000 now. This means more than half of their post-tax income goes on repaying debt. It also suggested that households spending more than one third of their income on mortgage repayments could rise from 1.1 million to 2.3 million by 2018, equating to about one in four households with a mortgage. 

Middle-aged lodgers on the rise

Nearly twice as many homeowners have a lodger now compared to five years ago, a new study shows. According to the research from LV= Home Insurance, the average age of lodgers has also risen to 31, with 20% of lodgers now aged between 36 and 50. Demand for rooms is now so high that the average spare room is being let within just eight days of being advertised. Although house prices are rising fastest in London, a study conducted among landlords suggests that rooms in the North East are easiest to fill. Rooms there are being snapped up in just three days on average - followed by those in East Anglia and the South East. Although there are potentially high rewards for being a landlord, there are also risks. 1 in 12 landlords (8%) are owed rent by their present lodger or a previous tenant, finding themselves £307 out of pocket on average. Nearly a third (31%) of those landlords say their lodger simply left without paying, while the same proportion say their current tenant never pays on time. Less than half (44%) of all landlords ask for a deposit, with the majority (79%) of those who don't ask for one, saying it is because their lodger is a friend or relation.

Over-60s get largest pay rises

Since 2011, workers over the age of 60 have seen their earnings rise faster than any other age group, according to new analysis by Prudential. The insurer's analysis of the ONS Annual Survey of Hours and Earnings (ASHE) shows that between 2011 and 2013, the average annual income for over-60s in work rose by 6.1% to £17,250. This was the biggest rise of any age group and well ahead of the average 3.8% increase in earnings for all age groups. Prudential's analysis also shows that among the over-60s women have been the big winners in terms of pay rises, with average earnings increasing by 11.4% compared with 4.2% for men.

Scottish independence: RBS concerns over Scots independence 

Royal Bank of Scotland has reiterated that Scottish independence could have a "material adverse effect" on its business. The Edinburgh-based bank, 80% owned by the taxpayer, said a "Yes" vote in the 18 September referendum could cause uncertainty and hit credit ratings. RBS said independence could also affect the fiscal and monetary backdrop under which the bank operates. The bank's comments came as it announced its half year results. 

Help to Buy Statistics - Home Builders Federation reaction

The stats. show that 4,357 households bought new build homes through the equity loan scheme in June - the highest monthly total since the scheme launched in April 2013. Stewart Baseley, executive chairman of the Home Builders Federation said; "Help to Buy is allowing people across the country to buy new build homes and if people can buy, builders can build. Indicators suggest increases in house building activity in the region of 25% and the past year has seen the steepest increase in new housing starts for around 40 years. The industry has recruited thousands of people in recent months and is working with its supply chain to ensure the capacity is there to sustain increases - all of which is giving the country a huge economic boost. To ensure increases are sustainable, central and local Government need to ensure the planning system responds accordingly and can meet demand in the long term."

More choice of buy-to-let mortgages than ever for investors

The number of five-year fixed-rate buy-to-let mortgage products available to borrowers has more than doubled in two years, according to the latest research. In the second quarter of 2014 there were an average of 128 such products available compared to just 50 in 2012, according to the report produced by specialist broker Mortgages for Business. Managing director David Whittaker said the findings were a welcome development. "Recent feedback from out landlord customers identified that 34% would currently choose five-year fixed rates - not only because they are competitively priced but also to protect themselves against pending rate rises." The research found the increase in the number of longer-term products has been at the expense of one-year rates. In 2010 one-year products accounted for 18% of the market, but by the second quarter of 2014 this figure had dropped to just 1%. With rates likely to increase steadily over the next five years, it would be reasonable to assume that tracker rates would be cheaper than fixed rates; however, the research found that this is not the case. Three and five year fixed rates generally cost little or no more than their tracker counterparts - giving borrowers even more incentive to switch to fixed rate buy-to-let products sooner rather than later.

Parents dish out £8bn on looking after the kids this summer

Parents could spend an average of nearly £1,000 per child during the forthcoming summer holidays to cover food, days out, treats, and childcare, according to new research from Nationwide Building Society. With 8.8 million children in the UK aged between 5 and 16, parents will rack up costs of more than £8 billion during the six-week summer holiday period. However, there is a change in the way parents are spending money. Costs will break down into: £156 on childcare, which is significantly less than last year (£390), £426 on feeding each child, a 25% increase on last year (£340) and £415 per child on days out, buying games/DVDs, activities and other entertainment. This has seen the biggest increase, up by two thirds on last years's figure of £246. More than two in five parents admit they are worried about how they are going to meet the cost of the school holidays. Around a quarter will use credit cards or personal loans, another quarter will raid their savings, while the remainder will use money in their current account. Louise Lovelock, Nationwide's Head of Savings Customer Proposition, comments: "While the summer holidays are a favourite time of the year for kids, they can often create a financial headache for parents because, when school's out, the cost of family life inevitably rises.

Workers' wages peak in late 30s

In 2013, those aged 38 had the highest average earnings, at £13.93 an hour, the Office for National Statistics (ONS) said. But in 1975, it was 29-year olds who were paid the most at the equivalent of £7.09 an hour today. However, the average masks different wage peaks for men and women. Last year, wages peaked for men at the age of 50, but at 34 for women, the ONS data shows. This is likely to show the effect of women taking reduced hours as they start a family. Yet, the gender pay gap has improved since the 1970s when there was a distinct difference between the pay of men and women, which then got wider with age. All the figures take into account the rising cost of living over the last 40 years.