BoE keeps interest rate at 0.10%; expects inflation to hit 4%

The Bank of England’s Monetary Policy Committee (MPC) has unanimously voted to keep the bank rate at 0.10%.

It also voted, by seven to one, to continue buying corporate bonds for its quantitative easing programme, aiming to purchase assets worth £895bn in total.

In the MPC’s monetary policy report for August, the group says that inflation rose to 2.5% in June “stronger than the 0.7% recorded in March,” adding that it expects this to rise to 4% in the final quarter of this year.

It insists that this will be a temporary state of affairs, and that inflation will return to 2% in late 2023.

The MPC also believes UK GDP to have grown by 5% in the second quarter of 2021, which is “around” 4% below its pre-pandemic level; stronger than the committee believed it would be by this time.

Santander UK chief economist Frances Haque comments: “[This decision] … was expected given the continuing positive outlook for economic growth; the full lifting of restrictions; and the fact that the MPC has continued to state that they will look through transitory rises in inflation.

“However, June did see a large jump in inflation to 2.5%, which is higher than the BoE’s projections for Q2 2021 set out in the May monetary policy report. Although this increase in prices may be transitory there continues to be the possibility of an earlier rise in the bank rate should rises in inflation become permanent.

“Further, there is the possibility that the BoE will start quantitative tightening earlier than currently expected, However, this will depend on the review they are currently undertaking.”

However, some commenters believe low rates are here to stay for some time yet. Permanent Wealth Partners co-founder Adam Walkom says: “When it comes to interest rates, the BoE, like every other central bank around the world, is committed to let the economy run hotter for longer, as it is looking to see some inflationary pressures as a sign that the economy is growing quickly.

“With this philosophy, there is no way they will raise rates any time soon. They will do their best to warn around inflation if it does start to really perk up, but words and action are two very different things.”

And Cyborg Finance chief technology officer Adam Hosker adds: “The inflation we have currently is the economic equivalent of long-Covid.

“It has not been caused by an overheating economy but by depressed output. It will settle down once the economy is back to its original output capacity.

“Raising interest rates will only hinder our economic recovery and it’s highly unlikely for some time yet.”

Meanwhile, Keystone Property Finance chief executive David Whittaker says: “For borrowers, the bigger question is whether SWAP rates reflect a different view from the MPC in the weeks ahead and start to rise again and the extent to which this is offset by competition between lenders, who generally have stronger appetites after a great H1 on completions.

“The divergence will probably be clearer at the next quarterly inflation report from BoE in early November. Fixed rates should be stable over this period, but the challenge will be whether the BoE can then ensure that Bank Rate rises are gradual as 2021 turns into 2022 – By Gary Adams 5^th August 2021 12:32 pm (mortgagestrategy.co.uk)

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A fifth of UK homes rising in value by more than the average UK salary

FinancialReporter.co.uk – More than 4.6 million properties, amounting to more than a fifth (21%) of all UK homes, have risen in value by more than the average annual salary in the past year, according to new research from Zoopla.

The data found that there are 4,635,000 private homes in the UK that rose in value by more than £30,500, the average UK salary, in the past 12 months.

On a more local basis, homes in the South West are most likely to be earning more than the average salary in the region. In the past 12 months alone, 29% of homes in the region increased in value by more than the average regional salary, which currently stands at £29,000.

Homes in the South East are the second highest top earners compared to the average salary. 28% of properties increased in value by more than the average regional salary of £32,900 over the last 12 months.

London, which many may have expected to come top, comes third on the list, due to the higher than average salaries earned there. Nearly a quarter (24%) of homes in the capital went up by more than the average London salary of £37,300 in the past year.

Despite homes in the North and Midlands rising less in monetary terms than their Southern counterparts, the lower house prices in these regions and the pace of house price growth means a notable proportion of homes are still rising at a higher level than local salaries.

Nearly one in five homes (18%) of homes in the North West, 17% of homes in the East Midlands, 14% of homes in the West Midlands and one in ten homes (9%) in the North East have gone up in value by more than the average salaries in these areas in the past year. In Scotland, the figure is 9%, whilst in Wales it is 22%.

Home values in some commuter hotspots have also outperformed local salaries over the last 12 months. In Mole Valley, Surrey, more than half (54%) of homes increased more than the average local salary, and in St Albans, that figure stands at 46%.

The shift among some homeowners from urban to more rural living during the pandemic has also resulted in house prices rising faster than local salaries in more rural and coastal areas. In Hastings, East Sussex, 62% of homes increased in value more than the average salary in the area of £25,800 in the past year. The figure is 60% in Adur, also in Sussex. Meanwhile, Dorset saw 47% and the Cotswolds saw 46% of homes increase more than the average salary.

Andy Marshall, chief commercial officer at Zoopla, commented: “As our agent partners know better than anyone, there’s been strong demand from home buyers since the market reopened after the first lockdown in May last year, compounded by the search for space and the stamp duty holiday.

“The impact this has had on house prices means that one in five homes in the UK have risen in value by more than the equivalent of a years’ salary over the space of 12 months.”

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Government needs to improve the home buying and selling process

There will be a huge number of property professionals for whom June couldn’t have ended quickly enough. (Bestadvice.co.uk)

As I write, we are on the last stretch of what has been an incredibly busy – and stressful – time for all stakeholders, perhaps most notably the clients themselves who were waiting to see if they could complete before the end of the month and secure the stamp duty saving available.

If anyone has doubted the importance of politics and the impact that Government intervention can have on the housing market, they perhaps need only look at what has transpired since the stamp duty holiday was announced last July, and then extended at the Budget in March.

While clearly the right decision, I’m afraid there are still going to be transactions which did not complete by the end of June, and while they may still complete before the end of September and secure a partial saving, it may well leave a sour taste in the mouth for certain clients.

We’re already reading about attempts to renegotiate price because the transaction didn’t complete in time, and I see some people are already beginning to play the ‘blame game’ in terms of who they deem responsible.

It is far too early to do this, but I suspect that when the dust has settled, it will make interesting reading to see a breakdown of those transactions which didn’t complete and the reasons why. With so many moving parts, and so many professions involved, there is always a danger that deadlines won’t be hit; add in the special circumstances we have all found ourselves in over the last 18 months, and the chances of this happening are likely to have increased.

As mentioned, some of those transactions will go onto complete, but some will collapse adding to the many thousands of aborted cases which do not get to their end goal every single year. In that sense, 2021 is not really different, because this happens all the time, but looking forward, the Government needs to review the part it plays in all of this.

First up, is the interventions it makes. As we know, post-lockdown 1, demand was already growing significantly in the housing market after two or so months of pretty much nothing happening. There will be question marks about whether a stamp duty holiday was required right then, or perhaps it might have waited to see the levels of transactions that were already being generated.

Secondly, is the timing of the intervention in terms of property professionals and their working practices. While the conveyancing sector, for example, has worked absolute wonders over this period, one can’t help feel that were we in a ‘normal working environment’ their ability to work these large numbers of cases would have been greatly enhanced. As it is, working from home or remotely may well have hindered the ability of firms to process some of these cases efficiently.

Finally, is the nature of the process itself. Currently sales are taking, on average, 20 weeks to complete – a figure which has risen steadily over the last couple of years. Now, of course, some of this will be to do with what I’ve mentioned above, property professionals having to work away from the office and such, but some of this is simply down to the inefficiencies in the process.

In simple terms, the Government needs to legislate and mandate in a number of areas to hit its stated goal of improving the home buying and selling process for all. It can no longer suggest it’s up to the industry to literally get its house in order, or provide supportive words to industry groups – which sometimes can’t decide themselves on the best way forward – instead it has to recognise the improvements that are necessary and make the solutions a formal part of the process.

Until we get that, the industry will do its best, but it will be working with a process which requires updating and which, until that happens, will continue to take time to get through to its conclusion. We all want to speed the process up for our clients – the Government will ultimately decide just how fast this can be done.

Mark Snape is chief executive officer of Broker Conveyancing

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One in six to be paying off mortgage at 65

One in six people – 15% – expect to be paying off their mortgage over the age of 65, shows research from Hargreaves Lansdown. (Gary Adam – Mortgagestrategy) This compares to 18% of survey participants answering likewise in 2020, despite 2.9 million people having taken out a mortgage holiday during the pandemic. Hargreaves Lansdown personal finance analyst Sarah Coles points out that, “this is likely to be because when payments restarted, mortgage companies tended to increase monthly payments instead of extending the mortgage as a default, and it seems borrowers have accepted these bigger bills rather than paying their mortgage for longer.” And of those aged 55 or over who still have a mortgage of the 2,000 people asked in Hargreaves Lansdown’s latest survey, 19% anticipate paying off their mortgage over the age of 70 and 5% believe they’ll never repay their mortgage in full.

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Rate rise speculation mounts as inflation surges by 2.1%

CPI inflation rose by 2.1% in the 12 months to May, up from 1.5% to April, according to the latest statistics from the ONS.

The sharp rise, which breaches the Bank of England’s 2% inflation target, has sparked speculation over whether the Bank’s MPC will begin to consider a monetary policy adjustment.

On a monthly basis, CPI rose by 0.6% in May 2021, compared with little change in May 2020.

CPIH inflation, which includes owner occupiers’ housing costs, also rose by 2.1% in May, up from 1.6% in April, with monthly growth of 0.5%.

Rising prices for clothing, motor fuel, recreational goods, and meals and drinks consumed out resulted in the largest upward contributions to the change in the CPIH 12-month inflation rate between April and May.

Rachel Winter, Associate Investment Director at Killik & Co, commented: “The jump in UK inflation signals the hustle and bustle of life once more.

“Although the Government now isn’t progressing with the roadmap as previously promised, a clear vision of the country coming out of lockdown has boosted consumer confidence. Inflation has been driven by the rising cost of clothes, fuel and food and drink.

“With the United States exceeding inflation expectations as its consumer price index reached the highest levels since 2008, it will be critical to keep an eye on inflation here. Gradual inflation is beneficial but having too much of a good thing too soon is not. If inflation becomes unmanageable, the Bank of England may be forced to raise interest rates much sooner than anticipated.”

Paul Craig, portfolio manager at Quilter Investors, said: “Inflation is on the up, breaching the Bank of England’s 2% target, yet it remains hesitant to respond by reducing the stimulus it has provided and the quantitative easing that has become so addictive for markets. For now, this is likely the correct decision as we still expect much of the inflation feeding through to be transitory. Wage increases do appear to be coming through, but again this data is so distorted by the furlough scheme that it can’t be seen as a reliable indicator.

“Unfortunately, much of the inflation that is coming through is bad inflation and hitting lower income households in the pocket. How long these price rises continue remains to be seen. Will inflationary pressures be self-defeating or resolved as pent-up demand dissipates or is met with increasing supply. But should it become sustained then it risks making the recovery even more uneven than it already is and thus, it will ultimately fall to government to pull the fiscal levers as it continues in its levelling up agenda.

“The data we are getting continues to be noisy and won’t return to normal for some time. Therefore, don’t be surprised to see things run hot for a period while the BoE assesses the impact. For investors they will need to keep listening closely to the noises coming out of the central banks because as soon as they hint at moving, markets will react quickly. This is why investing in quality businesses is so crucial right now. They are built to withstand multiple market environments and won’t necessarily be phased by spiking inflation and the impacts it could have on central bank decisions.”

Derrick Dunne, CEO of Beaufort Investment, added: “UK inflation continued its ominous climb in May, with the CPI reading surging year-on-year to 2.1%, up from 1.5% in April – beating analyst expectations and, crucially, breaching the Bank of England’s 2% target for the first time since 2018.   

“Clearly, an impressive economic recovery is coming. Today’s data once again indicates a promising rise in consumer demand, largely driven by the easing of restrictions and a hearty embrace of the return to hospitality: the strongest upward contributions in May came from transport, clothing, food and recreation.

“But the Bank of England may soon have to take tightening measures. Let’s not forget a few years ago when it started cautiously raising the base rate in the face of a post-Brexit inflation surge.

“That being said, the latest delay to our so-called ‘Freedom Day’ and the impending end of the furlough scheme should temper price rises in the short-term, but the breach of the Bank’s stringent 2% target may already be provoking discussion of a monetary policy adjustment. Investors should still ensure that their plans can withstand both inflationary pressures and a potential rise of the base rate. At this stage, nothing is off the table.” 

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Retired and looking forward to enjoying more of life again?

Equity release might be the answer – here’s what you need to know Ad Feature by Saga – From travelling the world to spending more time with the grandkids, there is plenty to look forward to once you retire, but how do you fund your golden years? Retiring may give you more freedom and time to spend on the things, and with the people you love the most, but it still costs money. Without a regular salary it can be hard to adapt to life in retirement, especially as there’s no guarantee that your state or private pension will maintain the standard of living you’re used to. So that’s why many people turn to equity release to help provide the retirement they’ve been dreaming of. An equity release product is similar to a mortgage, but is only for people aged 55 or over. It lets older people release tax-free cash from the value of their property. There are two types of equity release products and the most popular is a lifetime mortgage, which is a loan secured against your home. Unlike a traditional mortgage, there are no monthly interest or repayments, depending on the plan you opt for. Instead, everything is rolled up and only has to be repaid once the borrower moves permanently into a care home or passes away. Alternatively, some older property owners use a home reversion plan where part, or all, of the home is sold to a provider in return for tax-free cash. For the full article : https://www.dailymail.co.uk/femail/article-9570701/Heres-need-know-equity-release.html

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Government launches First Homes scheme with 30% discount for first-time buyers

The government has launched its First Homes scheme, which will help local first-time buyers onto the property ladder by offering homes at a discount of at least 30% compared to the market price.
That same percentage will then be passed on with the sale of the property to future first-time buyers, meaning homes will always be sold below market value.
The scheme will support local people who struggle to afford market prices in their area, but want to stay in the communities where they live and work.
The first First Homes properties went on the market today as part of the first phase of an early delivery project in the Bolsover district, East Midlands.
Further sites are set to launch across the country in the coming weeks. A further 1,500 will enter the market from the autumn, with the government pledging to deliver at least 10,000 homes a year in the years ahead.
High-street lenders Halifax and Nationwide Building Society, along with local building societies and community lenders, announced that they will be offering high loan-to-value mortgages against First Homes to support the roll-out of the scheme.
Housing Secretary Robert Jenrick said: “Enabling more people to buy their own homes is at the heart of the mission of this government, and First Homes will offer a realistic and affordable route into home ownership for even more people who want to own their own home.

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