Inflation and poor growth see Bank of England ditch rate rise plans

Interest rates could stay low for as long as another two years, as falling inflation and weak economic growth force the Bank of England to scrap plans to push up rates in the coming months.

Mark Carney is expected to hold rates at 0.5pc at Thursday’s Monetary Policy Committee meeting, postponing a highly-anticipated rate rise for at least three months. The freeze will disappoint savers who have laboured under historically low rates for almost a decade – and a boon to borrowers who get extra time with cheap money.

But economists now suspect that inflation will keep falling quickly towards the Bank’s 2pc target, making it harder for policymakers to raise the rate.

Poor GDP growth at the start of this year and signs of a slowing global economy could also dent the Bank’s longer-term inflation estimates.

If that forces it to cut back its inflation forecast then the case for higher rates could evaporate altogether.

“They are stuck. The Bank can’t raise rates now, the economic numbers have been too weak recently,” said Martin Beck at Oxford Economics. “They should not have raised rates in November, closed the term funding scheme or worried that credit growth was too strong – those three things have contributed to the economy slowing.”

Markets are currently pricing in only two rate rises by August 2019, but George Buckley, an economist at Nomura, thinks even this may be too many if inflation is slowing sharply.

“Should the Bank publish a forecast with inflation below target based on market rates that would be quite a statement, as it would imply that even limited market pricing for rate hikes might prove too much,” he said.

UniCredit’s Daniel Vernazza believes it will be at least another year before rates rise to 0.75pc.

Kallum Pickering at Berenberg Bank fears the Bank has missed its chance. “They should have hiked by this stage of the economic    cycle, but they cannot do it now because of the soft data,” he said.

One Third of Millennials Will Continue to Rent in Their Retirement

The number of families with children living in rented property tripled between 2003-2016…

The Resolution Foundation has proposed a series of reforms aimed at protecting tenants and landlords in the private rented sector.

According to the think-tank’s research, half of all millennials – people born between 1980 and 1996 – will be living in rented property up to their 40s, whilst a third are likely to be renting beyond retirement.

Furthermore, four out of ten millennials aged 30 are already renting, double the rate of the previous generation and four times that of baby boomers, whilst the number of families with children lived in the private rented sector has grown substantially, from 0.6m in 2003 to 1.8m in 2016.

Although they acknowledge the policies the government has introduced to make housing more accessible for first time buyers, the Resolution Foundation argues that more needs to be done to provide greater security for those that rely on renting.

This includes short-term measures such as proposals for indeterminate tenancies, which are essentially open-ended leases. Such tenancies are already in use in parts of Europe, including Scotland.

A new tribunal system could also be created, in order to resolve disputes in a timely and cost-effective manner.

Lindsay Judge, a senior analyst at the Resolution Foundation, notes that support needs to be available across all areas of the housing market: “While there have been some steps recently to support housebuilding and first-time buyers, up to a third of millennial still face the prospect of renting from cradle to grave.

“If we want to tackle Britain’s ‘here and now’ housing crisis we have to improve conditions for the millions of families living in private rented accommodation.”

Number of Build-to-Rent Homes Under Construction Up 47%

The number of build-to-rent properties either completed, under construction or planned has risen significantly across the UK in the past year.

Analysis by Savills, commissioned by the British Property Federation (BPF), reveals there were 117,893 build-to-rent homes recorded across all the stages of development in Q1 2018; a 30% increase on Q1 2017.

Completions, as well as build-to-rent homes under construction, have grown substantially by 45% and 47% respectively, whilst properties in the planning stage have increased by 19%.

Of all the new build-to-rent homes either completed, under construction or planned, 60,530 (51%) are in London, followed by 29,600 in the North West (25%), and 13,009 across the Midlands and Yorkshire & the Humber (11%).

Ian Fletcher, the director of real estate policy at BPF, commented: “The build-to-rent sector is evolving quickly, with significant delivery in the regions and more houses, rather than just apartments, coming forward.

“Policy is also adapting, as to date the sector has grown without a planning blueprint. This is now changing. With the draft revised National Planning Policy Framework, local authorities will now have to specifically identify how many new rental homes their respective areas need.”

Meanwhile, Housing Minister Dominc Raab said: “The 45% increase in completed build-to-rent homes is good news, but we’re restless to do more.

“Our revised National Planning Policy Framework is a crucial next step in supporting the build-to-rent sector, reforming planning rules, and helping to deliver 300,000 homes a year by the mid-2020s.”

Recent analysis from Landbay revealed that rental payments across the UK amount on average to 52% of a household’s disposable income.

Extent of North-South Renting Affordability Gap Revealed

Households outside London spend an average of just over half their income on renting…

Households renting in London are putting a significant percentage of their income towards rent compared to the rest of the country, according to new data from Landbay.

Annual rental growth in the UK, excluding London, rose to 1.21% in March, bringing the average monthly rent to outside the capital.

In London, the average monthly cost of renting is more than double the national average, at 2100

However, the average disposable income for a worker in the capital is per 2455 month. As a result, 89% of their take-home pay is used on renting.

Outside the capital, rental payments amount to just over half (52%) of the average disposable income, which is per 1760 month.

In England, renters in the North East have the lowest percentage (41%) of their incomes going towards rent, followed by Yorkshire & the Humber (43%), the North West (44%) and the East Midlands (44%).

“Rents have continued to rise over the last five years, increasing by 9% across the UK since March 2013 and by 7% in London,” notes John Goodall, CEO and founder of Landbay.

“Not a day goes by when there isn’t more news about the supply-demand mismatch in the UK housing sector and until this is resolved, tenants will continue to rely on the private rented sector to support them.

“With the right property and the right location, there are attractive yields to be had, and consistent rental demand will drive returns in the long-term,” Goodall concludes.

 

London’s property market is in a coma

London’s housing market has ground to a halt.

After years of blockbuster growth, home prices have reversed course and are expected to drop further over the next year. The number of sales has dropped, and more homeowners are pulling properties off the market.

The dour outlook comes courtesy of the Royal Institution of Chartered Surveyors (RICS), which warned in a report on Thursday that weakness in London had caused its UK house price indicator to hit a five-year low.

A number of factors have hobbled London’s market.

The government has in recent years hiked taxes on property purchases, making it more expensive to buy luxury housing, second homes and investment properties. Doing so has scared off some wealthy investors and caused prices to slump in central London.

Britain’s decision to leave the European Union has also hurt the market, with potential buyers putting their plans on hold because of the economic uncertainty.

One property professional surveyed by RICS said that Brexit and the tax changes had “killed the liquidity of the London market.”

Related: Renting vs. Buying: What can you afford?

The Bank of England is also expected to keep slowly raising interest rates as the economy grinds forward, making mortgages even less affordable for Londoners.

The average house price in London is £486,000, according to the UK Land Registry.

That’s too high for many first-time buyers, whose finances have been hit by high inflation and small salary rises. But sellers would rather pull properties off the market than accept lower bids.

“Buyers and sellers are currently locked in a stand-off,” said Hansen Lu of Capital Economics.

RICS’ chief economist Simon Rubinsohn said that the slowdown in London “has the potential to impact the wider economy, contributing to a softer trend in household spending.”

He said the dynamic could ultimately impact the Bank of England’s thinking about future interest rate rises.

Still, analysts don’t expect house prices to collapse in London. Inflation has moderated in recent months, employment remains strong and the British economy is growing.

Lu said this should be considered “good news” for the stagnant market.

12 Months To Go: Brexit and the UK’s Defiant Housing Market

On the 29th of March 2019, the UK will leave the EU. There are several key areas of concern across every sector of the country, but what does Brexit mean for UK property, and how is the market confronting the challenges?

In less than 12 months, Britain is scheduled to leave the European Union, following a hard-fought referendum back in June 2016. The negotiations are well underway, with progress being made on key issues, such as the duration and specifics of the transition period, citizens’ rights and future trade deals.

Despite the pervading uncertainty and cooling activity, investor confidence and growth projections for the UK’s property market remain strong, supported by dwindling supply and climbing demand.

2018 is the year when decisions on Brexit must be made, and property investors prepare to adjust to a new status-quo. But is the UK’s post-Brexit future still unclear, and what does it hold for those investing in UK property?

 

Brexit and UK Property

The country has been on something akin to a rollercoaster since Prime Minister Theresa May invoked Article 50 last March, serving the official notification letter to the European Council that formally began the withdrawal process.

Following this, there have been various summits, a gamble of a general election, and the agreement of a vital transition period – which will begin after the UK’s official departure in March 2019 – all aimed at solidifying the UK’s new status in Europe.

While uncertainty is set to dissipate in the final year of negotiations before the UK exits the EU, the property market, like many other industries, has held strong since the referendum in June 2016 – defying expectations.

Despite house prices and rental growth slowing in recent months, the significant falls in property values projected in the wake of the referendum have failed to materialise.

According to data from Your Move and LSL/Acadata, annual house price growth in February 2018 remains positive at a modest 0.6%, while data from the Office for National Statistics (ONS) found that rents increased by 1.1% annually over the same period.

But if Brexit is not behind the deceleration in growth, what is?

 

Construction Industry Brexit

Fundamentally, house price and rent growth in the UK is governed by the imbalance between the supply and demand for properties, with this current slowdown forming a natural part of the property cycle.

As housebuilding construction activity remains subdued, owing to high materials costs and a chronic labour shortage, the supply of homes in the UK continues to fall far short of demand, pushing prices up in a competitive, high demand market.

Yet, this growth has started to cool as property becomes increasingly unaffordable for many prospective buyers. With the cost of purchasing a home too high, many households are turning from the housing market and towards the more reasonable rates available in the private rented sector.

As a result, home sellers are having to be more competitive with their prices in order to attract buyers, despite estate agents registering fewer homes for sale in February, which has caused a modest drag on asking prices.

Midlands Cities Among Top 10 Buy-To-Let Property Postcodes

London commuter belt towns fall down the rankings as Northampton, Leicester and Birmingham surge

Three of the top five locations for buy-to-let property investments are in the Midlands, according to new research.

Northampton, Birmingham and Leicester were all cited as top postcodes for buy-to-let, with strong rental growth of 2.38%, 3.91% and 4.35% respectively, according to independent mortgage lender LendInvest.

Whilst the Midlands regions have been steadily rising up the rankings, the report highlights the South West region as an up-and-coming market, as strong rental growth and healthy market activity has boosted the profile of cities like Bristol, Swindow, Truro and Gloucester.

Conversely, London and the South East continue to underperform, as declining rents deters further investment in these regional markets.

Historically strong performing commuter towns like Dartford, Romford and St Albans have recent begun to slide down the LendInvest buy-to-let rankings, in some cases by as many as 58 places.

However, the report notes that demand for housing will continue to support future growth: “Political changes are increasingly underpinning this uncertainty in the market, however the need for housing around the UK prevails.

“As such, we can expect the rental market to grow, with investors prioritising yields and rental price growth as valuable metrics to consider when purchasing a property.”

Over the last 10 years, rents have grown by 16% nationally, according to figures from Rightmove.

 

Buy-To-Let Investors Target North West and South East

Two-fifths of landlords are planning to purchase more property in 2018

Landlords in the UK are optimistic that their buy-to-let (BTL) property portfolios will continue to perform well in 2018, despite the challenges the market faces from Brexit-related uncertainty and affordability stress tests.

According to the annual ‘buy-to-let barometer’ by Shawbrook Bank, 65% of investors were confident in their portfolio, whilst just 14% of respondents were concerned.

Growing returns and rising demand were cited as the two primary reasons for the confidence, as 21% of landlords had seen an increase in tenant demand in 2017.

Meanwhile, investor sentiment towards the UK economy is waning due to lacklustre growth and the uncertainty surrounding Brexit, as more landlords in 2017 (42%) expressed concern than in 2016 (33%).

Despite this, appetite for buy-to-let property remains healthy, with 39% of landlords planning to invest in an additional property in 2018, whilst expressing a strong preference for property in the North West and South East regions.

Commenting on the data, Karen Bennett, managing director of Shawbrook Bank commercial mortgages said: “There’s a healthy dose of uncertainty around at the moment, but the BTL market is showing its resilience. Property continues to offer an excellent underlying investment vehicle for professional landlords with the right investment strategy.

“Whilst the investment case for BTL remains strong, there are particular challenges ahead for portfolio landlords and the additional impact of the PRA (Prudential Regulation Authority) changes.

“Landlords now face much more stringent affordability tests and it’s therefore more important than ever than landlords are clued up on their obligations as the market continues to get even more complex.”

Economy wobbles as factories and building sites stall – putting May interest rate hike in doubt

Economic growth slowed again in February as the construction and manufacturing industries both stalled, a pair of oil refineries closed for maintenance, and the export boost from the weak pound began to fade.

The Bank of England had already cut its first-quarter growth forecasts from 0.4pc to 0.3pc because the icy Beast from the East made families stay at home instead of hitting the shops. But now economists fear even this estimate is too high.

The new figures “look consistent with GDP growth slowing to 0.2pc in the first quarter – below the Monetary Policy Committee’s 0.3pc forecast – from 0.4pc in the fourth quarter, casting doubt over whether a May rate hike is as likely as markets currently expect”, said Samuel Tombs at Pantheon Macroeconomics.

 

“We estimate that economic growth nudged lower to 0.2pc in the first quarter of 2018,” he said.

“The main reason for the weakness was severe weather in March, which is likely to have disrupted activity in all major sectors of the economy.”

Manufacturing output fell by 0.2pc in February, the Office for National Statistics said, and January’s 0.1pc expansion was also revised down to zero.

Falling output of electrical goods, machinery, textiles and plastics hit the figures.

Growth in industrial production overall – which includes manufacturing as well as industries such as mining and quarrying, and utilities – slowed to 0.1pc for the month.

A major cause was that two of the UK’s six refineries were closed for refurbishment. However, growth was supported by February’s unusually cold weather, which boosted domestic energy consumption.

Mark Carney at the Bank of England is expected to raise interest rates to 0.75pc next month – but this weaker data could make him think again Credit: Simon Dawson/Bloomberg

At the same time construction output tumbled by 1.6pc in the month, defying expectations of a 0.9pc increase. This drop may not be entirely weather related. The ONS said maintenance work led the decline, even as residential building and infrastructure construction increased.

The trade deficit increased in the three months to February, rising by £0.4bn to £6.4bn, as a dip in imports was more than offset by a larger fall in exports – which the ONS said coincided with a strengthening of the pound.

However, the overall slowdown may only be a temporary wobble, rather than a longer-term slowdown in the economy.

“While a continuation of such news may generate some nervousness in markets about whether the Bank of England will deliver another rate hike next month, it is worth pointing out that there is another full round of economic news before the Bank announces its decision,” said George Buckley at Nomura.

“We continue to expect a 25-basis point move on May 10 on the assumption of better economic news to come.”

Chief economist Lee Hopley at manufacturing industry group EEF said: “The data looks more like a temporary wobble than a turn for the worse. Whilst other indicators may have softened since the start of the year, ongoing growth in the global economy should continue to spur growth across manufacturing in the coming quarters.”

Source https://www.telegraph.co.uk/business/2018/04/11/economy-wobbles-factories-building-sites-stall-putting-may/

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Rental Rates Increased Nationally by 16% Over Last Decade

East and West Midlands top annual rent increases in Q1 2018

 

Rental growth has remained stable in the first quarter of 2018, the latest Rental Tracker from Rightmove suggests.

 

Excluding Greater London, the average asking rent for all tenures has risen by 0.9% annually, compared with an annual increase of 0.7% recorded in the final quarter of 2017.

 

This comes despite rents being down on a quarterly basis by 0.2% between Q4 2017 and Q1 2018, bringing the average asking rent per month to

 

The East Midlands was the strongest performing region for annual growth, with asking rents rising by 2.6%, followed by the West Midlands (1.9%), Wales (1.8%) and Yorkshire & the Humber (1.5%).

 

In the capital, asking rents for Q1 2018 were down 0.1% year-on-year, but had increased 0.2% from Q4 2017.

 

Looking back on the last decade, the data shows that the cost of renting a two-bedroom home has increased nationally – excluding London – by 16% in 10 years, and 25% in London.

 

“A look at the first few months of this year shows the usual seasonal trend of asking rents falling slightly compared to the last quarter of the last year, but we’re likely to see a rise again next quarter,” Rightmove’s housing market analyst Miles Shipside said.

 

“London asking rents remain flat compared to this time last year, a sign that we are highly unlikely to see the same big increases over the next ten years that we’ve seen in some areas in the capital over the previous ten years.”