27Sep

When the Bank of England decided to cut interest rates in August, the main aim was to make the cost of borrowing cheaper. A less-reported side effect is that it also helps consumers borrow slightly more.

A while ago the Prudential Regulatory Authority brought in rules to ensure that lending wasn’t purely based on the record low interest rates we’re currently enjoying. If it were, many people could find themselves in serious difficulties when interest rates eventually rise. 

When assessing affordability, lenders are required to check that the loan would still be affordable if rates increased by 3%. This is what they call the “stress rate” and will typically be 3% above the lender’s Standard Variable Rate - even if the actual deal you’re applying for is much, much lower.

Of course when the rule came in no-one expected Base Rate would in fact fall further. But that’s what’s happened and so you could borrow slightly more today, than you could in July. That’s not just theory – a number of lenders have announced reductions to their stress rates, including big names like Barclays and Nationwide.

In real terms a 0.25% reduction to the stress rate isn’t going to make a huge difference to the amount you can borrow but anything that helps buy your dream home is good news.


27Sep

Saving up to buy your first home can be a challenge, but assistance is at hand in the form of the Government Help to Buy ISA.

This initiative allows a First-Time Buyer to deposit an initial £1,000, followed by £200 a month. When they decide to buy, the Government will provide a 25% bonus up to a maximum of £3,000. This means savings of £12,000 will be boosted to £15,000.

There has been some recent criticism over when the bonus can be claimed. The bonus is only available on completion rather than at exchange of contracts, when the deposit is normally paid.

Purchases can go ahead however without the need to pay the typical 10% deposit at exchange. 

The best way to avoid issues further down the line is to make sure that the solicitor is aware from the outset that a Help to Buy ISA is being used.  

First Time Buyers should certainly not be put off using a Help to Buy ISA to get their foot on the ladder. At the moment interest rates are better than on most standard savings accounts, and that 25% bonus will provide a much needed boost.

Each person can have one of these ISA’s, so those buying jointly could bump up their deposit fund significantly, and get a foot on the first rung of the property ladder a little quicker.


27Sep

Most of our attention has been centred on fixed rates over recent years, as economic uncertainty grew and borrowers looked for some peace of mind.

 

With the Bank of England cutting the base rate to an all-time low of 0.25%, and questions being raised over the possibility of a further cut, there is now likely to be more interest in tracker mortgages.

 

These are variable mortgages that move up or down in line with another rate (usually the Bank of England Base Rate) and as such the monthly repayments are also variable.

 

The potential for another drop in monthly payments will appeal to many. Borrowers should check with their lenders however. In recent years some have applied a collar to their deals, which would prevent monthly payments from going down any further, even if base rate was to be cut again.

 

The variable nature of tracker mortgages mean that they will not be suitable for everyone, and many borrowers will still prefer the security of a fixed rate, especially as they are so low at the moment.

06Sep

Economic News August 2016


On the 4th of August, the Bank of England Monetary Policy Committee unanimously agreed to cut the base interest rate to 0.25 per cent from its already record low level of 0.5 per cent, where it had remained since March 2009. The aim of the cut is to encourage households and businesses to borrow more and to encourage banks to create more money for loans and thereby keep money flowing into the economy. However, as rates are so low, the effect may be limited. 

As the cut was announced, some major mortgage lenders, including HSBC, Santander and Nationwide agreed to pass on the cut. However, Tesco Bank raised rates on a dozen tracker loans for new customers and the Halifax has followed suit, increasing the interest rate on two-year trackers offered to borrowers with small deposits to 2.04 per cent.

At the same time as cutting the base rate, the Bank of England announced further measures to stimulate the economy, which included a new round of quantitative easing to the tune of £60 billion, as well as buying up to £10 billion of UK corporate bonds. It also set up a new £100 billion Funding for Lending-style scheme. The Bank stated that there was still scope to cut the interest rate further if the economy worsens.

The Bank’s quarterly inflation report, delivered alongside the rate decision, downgraded Britain’s future growth forecasts but maintained the 2 per cent forecast for 2016 following a better-than-expected 0.6 per cent GDP growth in the three months up to June, up from 0.4 per cent in the first quarter of the year. A further positive note was sounded when the Office for National Statistics reported that UK industrial output grew at the fastest rate for 17 years in the April to June quarter. The figures were 2.1 per cent up on the first quarter of the year.

Mixed views are being reported on the state of the housing market. According to a survey by the Royal Institute of Chartered Surveyors, the UK housing market is continuing to slow in the wake of the Brexit vote, with a significant slowdown in price rises in the three months to the end of July. The Halifax said house prices fell by 1.0 per cent in July compared to June but the Nationwide said prices rose by 0.5 per cent. On an annual basis, the Halifax said house prices had increased by 8.4 per cent, while the Nationwide said annual house price inflation was 5.2 per cent. However, the latest House Price Index published by the Office for National Statistics affirms that UK house prices in June had increased by one per cent over May and by 8.7 per cent over the previous year; the official July figures will be released in September.

The Office for National Statistics reported that UK construction output fell in June but stated that there was ‘little anecdotal evidence’ of a Brexit impact. This contrasts with the Markit/CIPS purchasing managers' index, which suggests output in July shrank at its fastest since June 2009. 

New inflation figures were released in mid-August. The Consumer Prices Index rose from 0.5 per cent in June to 0.6 per cent in July. The main reason cited was an increase in fuel prices, which are priced in dollars and thus affected by the fall in the value of sterling. The Retail Prices Index measure of inflation also increased from 1.6 per cent in June to 1.9 per cent in July.

06Sep

UK HOUSE PRICE INDEX: June 2016 (released 16 August 2016)

The June 2016 house price index data for the UK showed a monthly rise of 1.0 per cent across England, Wales, Scotland and Northern Ireland, while in England the increase was slightly lower at 0.8 per cent. In London the monthly change was 0.2 per cent but it was the South East region that experienced the highest monthly growth with a rise of 1.5 per cent. The West Midlands and the North East each saw the most significant monthly price fall with a movement of minus 0.2 per cent.  

On an annual basis the price change across the UK was 8.7 per cent, bringing the average house price to £213,927. In England the annual price increase was a little higher at 9.3 per cent and the average house price £229,383. London experienced a rise of 12.6 per cent making the price of an average London home £472,204. However, it was the East of England that saw the greatest increase over the year with a rise of 14.3 per cent, while the North East saw the lowest annual price growth at just 1.5 per cent. In terms of property type, flats and maisonettes once again saw the greatest annual increase in prices both across the UK as a whole at 9.8 per cent and in England at 10.6 per cent.   

Detailed statistics for local authority areas continue to show a wide variation but ten areas saw a fall in prices over the year, notably Hammersmith & Fulham and South Lakeland at minus 3.2 per cent. The highest annual rise was seen in Slough at 24.6 percent, while Stevenage, Croydon, Luton, Newham and Waltham Forest also saw increases of 20 per cent or more.

Sales volumes for England in April 2016 totalled 42,938 compared to 102,597 in March. April sales were also 33.4 per cent down compared to a year ago when 64,467 completed house sales were made.

Statistics relating to building status showed that the average price of a new build property in England in June was £268,703, down 4.6 per cent on May but up 9.2 per cent on a year ago. The average price of a resold property was £227,377, a rise of 1.6 per cent over May and 9.6 per cent higher than 12 months ago.

Statistics on buyer status in England showed that the average price of a house sold to a first time buyer was £192,987 and to a former owner occupier £259,780. Prices to first time buyers increased by 0.6 per cent over May, while re-purchasers saw an increase of one per cent. Over the year, prices for both first time buyers and former owner occupiers increased by 9.3 per cent.

The latest figures on funding status, which compare average cash and mortgage prices, show that in England the average cash price was £215,534 and the average mortgage price was £236,363. The monthly change for cash buyers was an increase of one per cent, while mortgage purchase prices rose by 0.8 per cent. However, the annual change for cash purchases was 8.7 per cent, while for mortgage purchases it was rather higher at 9.6 per cent.

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