Almost two-thirds of landlords have no plans to sell their buy-to-let properties over the coming year…
Landlords remain optimistic about the buy-to-let market despite recent regulatory and tax changes, according to the latest Landlord Sentiment Survey by lettings agency Your Move.
In a survey of over 1,000 landlords, more than half (52%) felt positive about current market conditions, with almost two-thirds (64%) stating they were unlikely to sell a buy-to-let property in the next 12 months.
Just 16% expressed negative feelings towards the market, whilst 30% responded to the survey as being “indifferent”.
The poll also revealed that for 83% and 80% respectively, the most important considerations for landlords are the costs of upkeep and property maintenance, and the ability to make a long-term profit.
Brexit was the least pressing issue for landlords, with just 32% expressing concerns towards it, whilst under half (43%) regarded the upcoming tenant fees ban in England & Wales as a potential problem.
“Given the number of regulatory and tax changes in the buy to let market over the last few years, it wouldn’t be surprising if landlords felt some trepidation about the future,” said Martyn Alderton, national lettings director for Your Move and Reeds Rains.
“However, it’s great to see that the landlords we surveyed do, for the most part, remain positive about the future.”
He concluded: “Our research shows the majority of landlords are in it for the long term and that’s important for the well-being of the private rental sector, providing much needed homes for those who cannot yet afford, or do not wish to purchase due to lifestyle choices.”
Strong demand from housebuilders driving up cost of land and house prices in the Midlands
An increase in the supply of permissioned land has lead to supressed levels of land value growth, according to the quarterly UK residential development land index by Savills.
Greenfield land values grew by 0.8% in Q2 2018 across the UK, bringing annual growth to 2.7%. The strongest quarterly increases recorded were 2.0% in Scotland, 1.5% in the East (includes East Midlands and East of England), and 1.3% in the West (includes West Midlands and South West).
On an annual basis, greenfield land values were up 4.4% in the West and 4.8% in Scotland, with the index noting that the strong growth in land values in the Midlands has been driven by rising demand from housebuilders.
The reason for the muted growth in land values across the UK, however, is due to a sharp rise in granted planning permissions.
In 2017, over 391,000 new homes had planning permission granted, a 21% increase from 2016.
According to the index, demand for land is also being driven by housing associations competing with housebuilders for land as a result of Section 106 requirements.
Strong house price growth is linked to the rise in land values, with Savills reporting that annually prices in the East and West Midlands are up 5.8% and 6.2% respectively, compared to a 3.9% average across England & Wales.
“Land values are currently underpinned by increased demand and a clear political will to maintain high levels of housing delivery, while rising consents and build costs will temper growth potential,” said Savills research analyst Lucy Greenwood.
“The key to boosting housing delivery will lie in unlocking land in locations linked to the strongest housing markets and to those with the most pressing housing need.”
Homeowners more concerned with mortgage rates than house prices due to Bank of England decision….
The Bank of England’s decision to increase interest rates may have deterred homeowners from moving, according to new research from AA Financial Services.
Throughout 2018, the proportion of adult homeowners planning a move in the next six months had stayed consistent at 8%.
However, in the 48 hours following the interest rate rise by the Bank’s Monetary Policy Committee, this fell to 6%.
The AA’s research analysed future demand for property by tracking homeowners’ intentions to move, including the timescale for the move, how much they planned to spend on it, and which regions they were planning to move to and from.
In its most recent figures, collated in July before the interest rate rise was announced, the AA predicted 2018’s summer would experience a high in property confidence, and expected a notable increase in the number of homeowners planning a move over the coming three months.
It also found that the average planned spend on a new home move jumped to in June, up from recorded in April.
Additionally, the July data revealed that 34% of renters were planning to buy a home in the Summer, up from 28% in the Spring, despite concerns regarding property supply.
Commenting on the figures, David Searle, Managing Director at AA Financial Services, said home movers were now concerned more with mortgage costs than house price trends as a result of the interest rate rise.
“After years of record low interest rates, last week’s rise – and indications that more is yet to come – mean that the cost of buying a home is going to get more expensive.
“Given many people are moving home to save money, release equity or to make their money go a bit further it seems that, for some, the reality of living with rate rises may well temper their plans to move in the short term.”
UK pension companies may be harbouring billions of pounds of losses from home equity release loans, according to research seen by the BBC.
Under equity release, homeowners borrow money against their house’s value and don’t repay anything until it’s sold.
That’s fine for the borrower, but there are fears lenders have underestimated how much these loans could cost them.
At least one firm assumes house prices will rise 4.25% a year. If they don’t, firms face losses – or even bailouts.
Pensioners whose firms invest in the loans would be protected through the Financial Services Compensation Scheme (FSCS) which is funded through a levy on the industry meaning losses would be ultimately borne by all pension holders.
Parliament probed insurance rules last year and one MP wants to reinvestigate.
John Mann, MP for Bassetlaw and vice chair of the Treasury Committee, which investigated the market last year, told the BBC: “We need to hold a new hearing, a new session, to go into the issue.” He added: “I think some financial institutions have pushed the boat out too far with this, and that creates a potential systemic risk.”
Parliament’s report was seen as broadly supportive of the industry, focusing on competition and innovation.
Equity release works like this:
Borrowers over the age of 55, take out a percentage of the value of the house.
They pay nothing; the money is paid back when the borrower dies or moves into care. Interest is added each year or month, and because of compound interest, the loans can grow in size very quickly.
Borrowers are safe. The loans come with a guarantee that they won’t have to pay more than the value of the house. Any difference is absorbed by the lender.
But the loan can exceed the value of the house it is secured against, especially if borrowers live longer than expected or the value of the house drops, and that threatens some lenders.
The Prudential Regulation Authority (PRA), which oversees the companies offering these loans, says it is considering whether to tighten the rules. But critics say it has been too slow.
If new rules don’t emerge, house prices continue to rise and there are no surprises for insurers when it comes to people living longer, equity release lenders may never realise these losses.
Which is the problem, says Professor Dowd. A property price crash or a period of consistent negative growth would see equity release loans become a loss-maker for their providers. So, says Professor Dowd, equity release providers are gambling that house prices will continue to rise.
Just Group, to which borrowers owe more than £6bn of these loans, said last month that a PRA draft “does contain proposals, which if implemented would result in a reduction in Just’s regulatory capital position.” This would mean a smaller financial cushion to absorb losses.
Professor Dowd’s calculations suggest its guarantees could cost it £2bn if accounted for correctly in his view. Just Group declined to comment on his estimate.
It said: “At Just we set aside substantial prudent resources against UK residential property risks. We calculate these on a basis equivalent to a 28% fall in the property market and property prices never rising thereafter which is much stronger than the more severe economic scenarios that the Bank of England prescribes for the banking sector. […] Protecting the guarantees we have made to our policyholders is, and has always been, of paramount importance to Just.”
It declined to comment on the size or nature of these resources, or how they might be affected by a change in the rules.
The PRA watchdog is considering whether to change the rules to stop companies assuming house prices will rise.
Equity release mortgages are increasingly popular as older homeowners seek to top up their retirement funds.
In the three months to the end of June, homeowners aged 55 and above borrowed a record £971m through equity release, according to the Equity Release Council.
Case Study: Anne and Chris Lee
They are in their early 60s and borrowed about 30% of the value of their home to finance renovations and help fund their retirement.
Their loan was £112,000, at a rate of 6.78%. It will take just over 10 years for that amount to double.
But they are sitting pretty. And that’s because of the no negative equity guarantee, borne by lenders.
Sharing Professor Dowd’s concerns is Dean Buckner, a former senior technical specialist at the PRA who retired in May. He said progress at his former employer in fixing these loans had been slow. Part of that may be the nature of the regulator and the many roles it must fulfil.
“The regulator is there both to protect firms and to protect the general public,” he said. “The Bank of England has part of its mission statement to protect the good of the people or something like that. I think it’s a horrible failure of regulation and I’m very sorry about that.”
The PRA said in a statement: “Following a review announced in 2015, more robust expectations of firms were published in 2016 and confirmed in 2017. Clearer and more precise tools to determine whether firms are meeting these prudent expectations have been out for public consultation since July 2018.
“They benefit from experience of Solvency II in practice and the collective expertise within the PRA, in which a plurality of views is actively encouraged when determining policy”.
Since Thursday’s rise there has been very little movement in rates, although generally it takes at least a week for any rises to be announced and a month for any of those better returns to take effect.
Tom Adams, of comparison site Savings Champion, said that rather than waiting, many people could get a much better deal by moving off an old deal that might pay about 0.5% in interest, or as little as 0.05%, to one of the better buys.
The leading rates for instant access savings accounts are well over 1% so, for many, simply switching to a new savings account would be more lucrative than hoping the base rate increase is passed on to their existing account.
“This year we have seen competition between the newer challenger banks rather than the big High Street names,” he said.
The reason for this, in part, is that the largest banks, particularly, did not need to attract savers. They had money sloshing around from schemes that allowed them access to cheap funds to lend out.
Challenge for customers
The competition view was echoed by Bank governor Mr Carney, who told BBC’s Today programme on Friday that while competition was not the Bank’s direct responsibility, it had created a better-prepared wicket for this to be played out.
“In order to have competition, you need all of the banks to be healthy,” he said.
“That required a lot of repair post-crisis, and… you need a lot of new banks in the system, so we’ve authorised 40 more banks.”
The City regulator has suggested that a minimum savings rate should be considered for longstanding customers, but a widely held view is that savers need to ditch their loyalty and move their funds around.
However Mick McAteer, director of the Financial Inclusion Centre, said that switching would not benefit many households with squeezed finances.
He said many millions of savers did not have sufficient amounts tucked away for a small rise in interest to make much of an impact.
Even a 1% rise in the savings interest rate would only add 20p a week or so to many people’s savings, he said, which was an “immaterial rise” and one that would do little to encourage people to save more.
However, the disruption caused by the “Beast from the East” that hit this March led to the economy growing by just 0.1 per cent in the first three months of the year and the Bank opted to keep interest rates at 0.5 per cent.
Two more rate rises are expected in 2019 and 2020.
Will I still be able to afford my mortgage after today’s interest rate rise?
“According to Nationwide Building Society, only a third of London borrowers are on variable rates. This means the vast majority of borrowers will see no impact on their mortgage payments have taken advantage of the low fixed rates that have been on offer,” said Colin Payne, associate director at Chapelgate Private Finance.
Today’s interest rate rise will push up the average mortgage by £26 per month to £1,180, further squeezing household incomes.
“In real terms, wage rates are still at levels prevailing in 2005. Moreover, a small proportion of households already have a relatively high debt service burden. For those, some of whom will be on variable rates, any rate rise will be a struggle, even though the impact on the wider economy and most households are likely to be modest,” said Robert Gardner, Nationwide’s chief economist.
That said, while a rise in interest rates may come to a shock to anyone who bought their first home in the past decade, higher mortgage interest will have been factored into lenders’ calculations since new rules were introduced in 2014 to curtail high-risk lending, so don’t panic.
Should I fix my mortgage now?
People on a variable rate mortgage benefit from interest rate changes when the base rate drops. However, mortgage experts agree that today’s announcement heralds a general upwards trend in interest rates.
Mark Carney, governer of the Bank of England, announced the Bank rate rise to 0.75 per cent today (Bloomberg)
This means that borrowers on a variable rate should seek out a new deal now if they can.
“If November’s rate rise was important for its symbolism, today’s rate rise is equally important for its message to the market: the record low interest rate era is over, and interest rates are now headed in one direction,” said Craig McKinlay, sales and marketing director at Kensington Mortgages.
“This rise should be a call to action for those borrowers who haven’t yet remortgaged to get in touch with a mortgage broker and seek a new competitive deal.”
Will house prices go up or down now interest rates have risen?
The 0.25 per cent rate rise may push down already falling London house prices, as the cost of home ownership looks set to rise further.
“It’s not the relatively modest increase in interest rates which is significant – the message it sends about their future direction is far more important,” said London estate agent and former residential chairman of the Royal Institution of Chartered Surveyors, Jeremy Leaf.
“The change is likely to compromise already fragile confidence to take on debt in the property market and wider economy.”
London house prices fell for the fourth month running in May to £479,000, a drop of £2,000 off the value of the average home in the capital.
Prices were expected to continue to decline slightly for the next couple of years due to uncertainty over Brexit, combined with the likelihood of further interest rate rises.
“In our regional forecasts we predict price falls in London in 2018 and 2019 of 1.7 per cent and 0.2 per cent respectively,” said Richard Snook, senior economist at consultants PwC.
The pound was trading down 0.82 per cent against the dollar after the Bank of England’s monetary policy committee voted unanimously to hike the base rate from 0.5 per cent to 0.75 per cent.
Sterling had been trading down around 0.4 per cent earlier in the session and appeared to reverse those losses in the immediate aftermath of the decision. However, the currency took another dip and fell to $1.3020 an hour after the Bank announced its decision.
The pound also dropped against the euro, tumbling by 0.34 per cent to €1.122.
Sterling’s decline coincided with the Bank’s press conference, during which governor Mark Carney said Threadneedle Street would continue to follow a strategy of “ongoing, limited and gradual tightening of monetary policy” in order to keep inflation within target. He added that this could lead to three further rate rises over the next three years.
“Despite the intentionally hawkish signals it appears that traders aren’t buying it, with a failure for sterling to gain on what is, on the face of it at least, a positive hawkish message, a potentially ominous warning sign for the currency going forward,” said David Cheetham, chief market analyst, at brokerage XTB.
“Looking ahead, the curve has barely budged on today’s news with a further hike before year-end still seen as highly unlikely and an additional increase not priced in until September 2019.”
Jordan Hiscott, Chief Trader at ayondo markets, said it was notable that sterling had fallen “despite the fact the market had priced in the expectation of a 0.25 per cent rate hike”.
“A couple of things stand out for me. Firstly, the recent economic data is not consistent enough to warrant a rate increase and future near-term increases. Brexit and the fractious nature of negotiations will likely also affect this
“Secondly, the last time the MPC voted unanimously to increase rates was May 2007, and that didn’t turn out too well then.”
Savers may have to wait months to see the benefit as lenders keep rates low…
After the Bank of England’s interest rate hike on Thursday, some high street lenders have again been quick to pass on the increase to their mortgage customers, but many have been less keen to boost savings rates at the same time.
Alistair Wilson, head of retail platform strategy at Zurich, said it could take months before savers see the impact of the rate hike “as with last November’s quarter of a per cent increase, which has only resulted in an average 0.07 per cent rise on easy access accounts.”
HSBC said its tracker mortgages would go up 0.25 per cent on Friday to reflect the base rate while its other mortgage and savings rates will be reviewed.
A spokesperson for HSBC said its savings rates were “not directly linked to the Bank of England base rate”, but said customers will be informed of the outcome of the review “at the earliest opportunity”.
Virgin Money has increased the rate on its tracker mortgage by 0.25 per cent.
RBS, which owns both NatWest and Ulster Bank, has raised the interest rate on its rate-linked products by 0.25 per cent and said it is reviewing its variable rate products.
An update will be provided “ shortly”.
Lloyds Banking Group, which includes Halifax has not yet made any announcement on its variable rate but said: “The 0.25 per cent Bank of England base rate increase will form part of the ongoing rate reviews across our product ranges.”
Rate tracking products will be increased by 0.25 per cent from September, Lloyds said.
Barclays said variable mortgage rates will increase to 5.24 per cent from 4.99 per cent from 1 September. Buy-to-let variable rates will rise to 5.74 per cent 5.49 per cent on the same date and trackers will rise 0.25 per cent.
Santander said it is reviewing all variable rates.
All tracker mortgage products will move in line with the change and base-rate linked loans to UK businesses linked to the base rate will move in line with the change and in accordance with the terms of the deal.
All savings products linked to the base rate will move in line with the increase from the end of August.
A Santander spokesperson said: “When we review rates, we consider both the interest we charge for borrowing money, and the rate of interest we can offer on deposits.”
TSB said it was reviewing its variable interest rates on mortgages and will make an announcement as soon as possible.
Yorkshire Building Society will raise variable savings rates by 0.25 per cent on variable savings accounts from 14 December. “As a mutual which is owned by its members, it is our priority to deliver highly competitive and sustainable rates for both our savers and borrowers,” the lender said.
Nationwide has not yet announced rates, while the Post Office will raise its variable mortgage rates 0.25 per cent from 1 September.
A five million-strong army of self-employed workers has no faith staff pensions are the safest way to save, according to official statistics, as a Government manifesto pledge to ensure the rising tide of freelancers is ready for retirement fails to bear fruit.
Among those who work for themselves just 15pc think paying into an employee pension is the best way to guarantee an income in retirement, Office for National Statistics research covering July 2016 to December 2017 found. This compares with 44pc among those who are employed.
Low trust in workplace savings from the self-employed may be expected given employer pensions are not available to them, the ONS said.
The Government pledged to tackle the issue of self-employed pensions in its manifesto last May, saying “we will continue to extend auto-enrolment to small employers and make it available to the self-employed”.
But it has still yet to put forward any specific plan to enact this.
Self-employed worker numbers have jumped in recent years from 3.3 million people (12pc of the labour force) in 2001 to 4.8 million (15.1pc of the labour force) in 2017.
Under “automatic enrolment” all employers must pay for a pension on behalf of their staff. The policy is intended to bridge the savings gap that means many people will have little or nothing to live on in old age.
The rules, which were conceived a decade ago, did not include anticipate the boom in self-employed working and stated the self-employed are not required by law to enrol in a workplace pension.
Self-employed workers who plan to rely on the state pension may also be disappointed as their numbers grow.
The Taylor Review into working practices, published last July, called on the Government to improve pension provision among the self-employed, including auto-enrolling them into a pension and administering this through HMRC’s tax self-assessment process.
In its response in February, the Government said it would carry out “feasibility work, and will seek to evaluate these interventions and consult on next steps before the end of this parliament”.
The Department for Work and Pensions reiterated its commitment to increasing pension provision among the self-employed in its corporate report, published in June.
“[The DWP plans to] take forward wider work to explore ways of increasing retirement saving among the self-employed, and to engage with stakeholders on the proposals set out in December 2017 to extend coverage and increase contributions in the mid-2020s,” it stated.
The ONS figures suggested self-employed people are considering other provisions for life post-work. Investing in the property for retirement (42pc) was viewed as a much better option, despite property investments generally lacking the same perks as pensions such as government tax-relief and employer contributions.
Such was the weight of market expectations that the Bank of England (BoE) would raise rates, that failing to enforce a hike would have caused a minor panic – with investors asking what the Bank’s Monetary Policy Committee (MPC) knows that the rest of us do not.
So it was hardly a shock when they did. As with the last increase, it was the smallest step upwards the Bank could practicably take, and it still leaves rates at historically low levels. A more normal pattern of interest rates, such as obtained before the financial crisis, would be closer to 5 per cent, say, than zero. We’ve become accustomed to very cheap money, which is a dangerous thing in the long run.
Still, businesses and mortgage holders will be squeezed a little more, which is the point – to make it harder for the shops to raise their prices. The Bank senses, rightly, that the current trend of wages growth and strong employment figures could convert into home-brewed inflation across the two-year horizon that policy makers try to peer into.
Even with the economy growing sluggishly, and all the uncertainties surrounding Brexit, those inflationary pressures have been slowly building for a year or two, and the Bank has acted to preempt them turning into a self-fuelling wage-price spiral. What’s more, with the financial crisis having passed some time ago, the banks no longer have such need for easy money to stay liquid, and some of the BoE’s other schemes to support business lending and the property market have been quietly dropped.
We are, then, on the road to normalising interest rates, almost a decade on from the emergency cuts that brought them to 300-year lows. Yet the economy is about to enter a highly abnormal phase – Brexit. With the probability of a hard Brexit increasing, the BoE should now refrain from raising rates until the picture becomes clearer, or as clear as it ever gets with Brexit, after the formal leaving date of 29 March 2019. If the worst predictions come true with a “crash out” of the EU, the BoE may even need to take action to underpin the financial system and the wider economy in the light of unknowable consequences.
A sudden rupture of trading patterns and financial contracts would constitute an external shock every bit as destabilising as the 2008 banking crash, or the oil crises of the more distant past.
There is, after all, a close and recent precedent for hard Brexit, which is the aftermath of the unexpected EU Referendum result in 2016, when sterling crashed and the BoE had to act, successfully as it turned out, by slashing rates to just 0.25 per cent to protect financial stability and the real economy alike.
Whatever may be said about Project Fear, and the BoE’s role in it, the economic effects of that political shock were immediate. A weaker pound therefore seems an inevitable consequence of a hard Brexit (or even a soft one) and will pose a nightmarish dilemma for the BoE, as it will also mean higher “imported” inflation feeding into the system, even as the domestic economy weakens.
The BoE will also be aware that a disorderly exit will affect billions of pounds, dollars and euros worth of financial contracts across Europe, previously predicated on the EU membership, EU law, the EU Court of Justice, and EU freedom of movement of capital.
Europe’s financial “plumbing” runs through the City and Canary Wharf; what will happen if it suddenly becomes blocked? What will happen if euro-denominated deals must be legally cleared, or settled, within the EU, not London? Central banks across the EU and the BoE will need to take evasive action to limit the chaos, including on interest rates. Journalists on Brexiteer newspapers can idly blame Barnier, Merkel and Macron, but that won’t settle a single derivative deal. Someone will need to clean up the mess.
Because the path of the economy in such circumstances is difficult to predict, how weak the pound will be for how long is also hard to judge. If history is any guide, then, as in the 1970s, the deterioration of the external worth of the British currency may be more or less unrelenting.
Central banks do not like to have to lower rates midway through an orderly path to raising them, and having to do so next spring after hard Brexit would be disruptive in every sense. Such a scenario might have been avoided had the BoE not pushed the rates higher now. Either way the case for extreme caution on future rate rises is plain. The BoE, for obvious reasons, prefers not to get embroiled in the Brexit debate, but it simply cannot pretend it isn’t there or is economically neutral. At the moment the BoE seems a little in denial about the very thing they warned so hard about in 2016 – a post-Brexit recession. A U-turn probably awaits governor Mark Carney and his colleagues, say around the time of the MPC announcement in February 2019.