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.”

Manchester – the UK’s property hotspot

Strong demand for city-centre living, a huge student population and urban regeneration make Manchester one of the best-performing property markets in Britain

Manchester, benefitting from the recent £1bn investment as part of the Government’s Northern Powerhouse initiative, is showing itself to be a vibrant, forward-thinking metropolis with the most attractive city centre investment market in Britain, according to JLL.

The property specialist company rates Manchester as its No 1 prospect for residential price growth over the next five years, with the annual average growth of 4.2pc compared with 2.4pc across the UK. Rents are expected to increase by around 3.5pc per annum between now and 2020.

Pivotal to the recent success of Manchester is a revival in demand for city-centre living

House prices grew by 10pc in 2017, with the average two-bedroom flat now costing £250,000 (an increase of 8.7pc over 2017), and rental prices rose by 3pc, according to JLL’s latest research.

Pivotal to Manchester’s success is a revival in demand for city-centre living – a trend that was at its height before the 2008 recession, which collapsed along with house prices due to sheer oversupply.

In 2000 there were 10,000 people living in the heart of the city. Now there are nearly 70,000, many of them students or young professionals with a desire to live close to where they work and play.

“City living has gained strong momentum in Manchester over the past three years and, together with an active student market, has pushed demand in both the sales and lettings markets noticeably higher,” says Neil Chegwidden, of JLL residential research.

Huge potential: canalside apartments in the Castlefields area of Manchester Credit: Getty

“And with housing supply in the city centre severely constrained, prices and rents have soared.”

For investors with an eye on Manchester, its student population of more than 85,000, spread among four universities, plays a crucial role.

The city has the highest retention rate of students after London, with 50pc choosing to stay after they graduate. Six in 10 Manchester-born students who go to university elsewhere also return to their home town after graduation.

Nick Whitten, JLL’s director of UK research, says: “You can see the reasons. They already know they enjoy living there and there are plentiful employment opportunities and affordable housing.

“More new businesses are coming to the city than anywhere else in the UK, outside London. Many of them are first-time investors in the city, which is a reflection of Manchester’s growing profile.”

Manchester: a market snapshot

4.2%

Average house price growth in Manchester over next five years

£250,000

Average cost of a two-bedroom flat in Manchester

£1bn

How much the government has invested in the Northern Powerhouse initiative

70,000

Number of people now living in Manchester city centre

The young demographic is also a driving force in the number of rental properties in Manchester – which constitute two-thirds of the city centre’s housing stock. A fast-emerging trend is a build-to-rent market, which accounts for a large proportion of the 30 new residential developments currently being built.

“Professionally managed blocks of rental apartments with leisure facilities and concierge services are forcing private landlords to up their game, which is a positive thing.

“Shortly, we could see landlords offering similar white-label services such as local discounts and access to a network of handymen to stay competitive,” says Mr Whitten.

JLL identifies nine Manchester “sub-markets” that offer potential to investors, including the centrally located Northern Quarter, Piccadilly and Castlefields, with its urban canalside living. St John’s Deansgate has become a prime market, with sales there last year regularly exceeding £500 per square foot.

Across the River Irwell, suburban Salford is prominent on the radar of the millennial market seeking a lower-priced, higher-quality alternative to city-centre living.

Focus area: Salford Quays is the UK’s second-biggest media hub Credit: Getty

Salford is also a key focus for buy-to-let investors, with Salford Quays now the UK’s second-biggest media hub, home to 80 media organisations.

“It has the benefits of being well connected to the city centre but better value in property terms. There are 7,500 homes in some phase of development in the Salford City Fringe, and Salford Quays attracts a professional audience, which makes it a good place to invest,” says Mr Whitten.

He thinks that another area to watch is Ancoats and New Islington, whose regeneration is largely funded by the owners of Manchester City Football Club.

As the momentum and investment continue in creating the Northern Powerhouse, Manchester is arguably the poster city and the greatest beneficiary so far, with a new arts centre, two new research institutes and improved transport infrastructure.

It has also seen the highest rate of job creation in the country, with the number of new jobs growing by 84pc between 1999 and 2015.

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.

London property market moves out of boom phase, says Rightmove

The capital’s housing market lagged the rest of the UK in 2017, and there’s little to suggest any upturn is in store

London’s property market has moved out of its boom phase, and home sellers need to be more realistic about their price demands, according to Rightmove.

The February report from the home-listing website shows that asking prices were down 1 per cent from a year earlier, a sixth consecutive fall. They rose 4.4 per cent on the month, reflecting the usual jump at the start of the spring season.

The capital’s housing market lagged the rest of the UK in 2017, and there’s little to suggest any upturn is in store. Still, while multiple reports point to a cooling in London housing, the damage is being limited by cautious sellers, who aren’t flooding the market in a panic to dump property.

That means the long-running supply-demand imbalance in the city is providing some support to prices.

“End-of-the-boom prices normally readjust more quickly if there is an oversupply,” Miles Shipside, Rightmove director, said in the report. However, “some would-be sellers are holding back, preventing a glut of competition from forcing prices downward,” he said.

The capital’s housing market lagged the rest of the UK in 2017, and there’s little to suggest any upturn is in store. Brexit uncertainty has damped demand, while years of rampant inflation has pushed ownership out of reach for many.

The mean asking price in London this month was almost £630,000, more than 20 times average UK earnings.

For those who need a fast sale, Shipside’s advice is to “sacrifice some of the substantial price gains of the last few years.” The average time to sell a property in London is now 83 days, up from 73 days a year ago.

Nationally, asking prices increased 0.8 per cent in February from January, though that was below the 10-year average for the time of year. The average price of £300,000 is up 1.5 per cent year-on-year. That compares with gains of about 6 per cent seen less than two years ago.

Government Announces £400m Housebuilding Investment Fund

The Housing Secretary Sajid Javid has revealed a new government investment fund to help boost housing construction in Greater Manchester, Oxfordshire and the West of England.

Almost million is being put towards building more homes, as well as delivering local infrastructure projects like schools, roads and hospitals.

The fund is similar to the £ 120m grant to build 215,000 new homes in the West Midlands, announced by the Chancellor in the Spring Statement.

Of this, Greater Manchester is set to receive m to accelerate economic growth in the Northern Powerhouse and support the construction target of 227,200 new homes in the region by 2035.

An interim package of 120m will be given to the West of England, which covers Bristol, Bath, and parts of Gloucestershire and Somerset, to nearly double the number of new homes built each year from 4,000 to 7,500.

Oxfordshire will receive the rest of the funding, some m, which will support the construction of an additional 100,000 new homes by 2031, as well as the building of vital bridges, roundabouts and roads.

Meanwhile, the government announced that shortlisting has finished on bids for the bn Housing Infrastructure Fund, with 44 bids for high-impact infrastructure projects successfully progressing to the next assessment stage.

“This government is determined to build the homes this country needs,” Sajid Javid said of the fund. “That’s why we’re working with ambitious areas across England and backing them with investment and support.

“We’re also investing in local infrastructures like schools, roads and hospitals so that we can help unlock even more new homes in the areas where they’re needed most.

The 10 UK areas where house prices rose the most in 2017

UK house prices:Cambridge and Orkney see the biggest average price growth across the UK

New figures reveal the districts where house price growth outperformed the rest of the UK last year.

Property prices in Cambridge have risen by £63,000 in a year, according to the first detailed report on how much homes sold for in 2017.

Annual house price growth of 15 per cent takes the average price of a home in the university town and surrounding areas to £462,000.

Meanwhile, with prices across the UK rising by five per cent to average £227,000, the pace of growth in Cambridge is three times higher than the national average, according to the Office for National Statistics (ONS) report.

Last year, the government committed to a £7 billion investment programme in the city which is set to bring new roads, rail links and homes between Cambridge and Oxford.

“There is lots of talk about the Oxford-Cambridge corridor becoming England’s own Silicon Valley. Faster rail links for London workers is music to many home owner’s ears as the exodus from London continues,” says Michael Houlden, head of national estate agency at Strutt & Parker in Cambridge.

He reports that the proportion of buyers from London in the area rose by 60 per cent last year.

cambridgehp.png
£475,000: this three-bedroom detached house is between Cambridge North and Cambridge stations with easy access to the A14

THE UK’S TOP 10 FASTEST RISING LOCAL AUTHORITIES IN TERMS OF HOUSE PRICE GROWTH:

Local authorities Av. house price Dec 2017 Av. house price Dec 2016 Av. growth
Orkney Islands £146,842 £124,256 18.20%
Cambridge £462,033 £399,330 15.70%
Eden £206,713 £179,676 15.00%
West Dunbartonshire £109,293 £95,081 14.90%
Kettering £203,237 £178,200 14.00%
Cotswold £394,405 £346,150 13.90%
North Norfolk £258,580 £227,473 13.70%
Oadby and Wigston £215,417 £189,806 13.50%
Forest Heath £223,407 £199,385 12.00%
Dover £246,887 £220,776 11.80%

ENGLAND

Other areas with double-digit growth were Eden, just outside of the Lake District National Park, where an average house now costs £206,000; Kettering in Northamptonshire with average prices of £203,000; and the Cotswolds in south-central England.

An average of £48,000 was added to Cotswolds residences over the course of 12 months, taking the average price to £394,000 in December last year.

For this price, buyers seeking their own slice of Cotswolds charm can stretch their budget to a three-bedroom house with exposed beams and an Inglenook fireplace.

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£400,000: this Grade II-listed, three-bedroom house is in the historic hamlet of Churchend.

“The Cotswolds remained a firm hotspot last year as it continued to attract strong levels of demand from buyers looking for a change of pace and lifestyle,” says William Leschallas, director of Jackson-Stops’ Burford branch.

Widely regarded for its beautiful countryside and picturesque villages, the area is proving popular with young professionals commuting to Cheltenham, Bristol and Bath, Birmingham and Oxford, as well as families and downsizers.

“We expect demand to continue over the coming years, but whether or not supply can keep pace is yet to be seen. There are a number of larger property schemes in the planning system on the edge of major Cotswold towns, which may appeal more to local buyers who wish to remain in the area as their needs change,” says Mark Johnson, residential development partner at Knight Frank.

SCOTLAND

Homeowners in The Orkney Islands, off the north-east coast of Scotland, saw the biggest growth in percentage terms, with average prices rising by £23,000 (18.2 per cent) to reach £147,000.

For this, home owners can buy a dreamy two-bedroom house with sea and farmland views.

orkneyhp.png
£155,000: a two-bedroom house in Orkney

“The romanticism of a secluded island life, coupled with an affordable price tag, has no doubt made the islands impervious to the negative market influences of the mainland. Although it is also likely that the Orkney Islands’ explosive growth is no doubt a tad skewed to a smaller sample size than most other areas of the UK,” says founder of Emoov Russell Quirk.

There are also generous grants available to businesses setting up in the area, which will be attractive to qualifying entrepreneurs.

Scotland’s West Dunbartonshire also made it in to the top five performing areas in terms of house price growth. With an average house price of just £109,000, it is nearly £20,000 cheaper than nearby Glasgow and nearly £70,000 cheaper than Stirling, boosting its appeal.

WALES

Newport was the standout area in Wales for price growth, with homes selling for an average of £168,000. However, growth of 9.6 per cent puts the region outside of the UK’s top 20 performing areas.

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£169,950: a semi-detached three-bedroom home for sale in Newport

“Over the last few years, Scotland and Wales have seen property prices fall due to influences other than the wider uncertainty surrounding our departure from the EU.

“Both countries are home to pockets that have seen a drastic decline in the local property market, as the result of diminishing industries which have previously been pivotal to the local populace and economy,” says Quirk.

“However, with a much lower cost of getting on the ladder than the majority of regions in England, both have benefited from a greater degree of buyer and seller confidence, which has returned at a much quicker rate than other more inflated markets.”

Decade-High Number of First-Time Buyers in 2017

25,000 more first-time purchases in 2017 than 2016

First-time buyer numbers rose by 7.4% in 2017 compared to 2016, according to recent figures from UK Finance, the trade association for banks and finance firms.

 

According to the association, approximately 365,000 first-time buyer purchases were made throughout the last year, exceeding 2016’s total by more than 25,000 and reaching the highest level for a decade.

 

The report also revealed that the average age of a first-time buyer in the UK now stands at 30, whilst the average income of those taking their first step onto the property ladder was now

 

Last November, the Chancellor, Phillip Hammond, utilised the Autumn Budget to introduce the abolition of stamp duty land tax on the first of any property purchased by a first-time buyer, with the surprise move helping to boost activity in the final month of 2017.

Furthermore, interest rates remain historically low despite rising in November to 0.5%, although the Bank of England has indicated that rates may increase earlier than they originally intended.

Paul Smee, head of mortgages at UK Finance, believes that low mortgage activity will moderate the market in 2018: “2017 saw the number of first-time buyers reach its highest level in a decade, which is welcome news for those getting started on the housing ladder.

“But although the market remains competitive there is no room for complacency, with weaker December figures consistent with our market forecast of subdued growth this year.”

The Price of Land Rising Fastest Across the North

Growth in UK house prices is gaining momentum, driven by flourishing northern regions,

In their latest residential development land report, Savills predicts that property values in Scotland and the North of England will increase by 17-18% over the next five years – surpassing the UK average house price growth of 14%.

As a result of such strong performance, land costs across these northern areas are also due to rise exponentially, says Savills.

In particular, the value of greenfield land is expected to outstrip the national average of 1.7%, rising by 4.2% in Scotland and 2.7% in the North of England.

According to the estate agency, unlike many cities in the south, such as London, northern regions have yet to face affordability constraints – leading to greater opportunities for growth in these areas.

Furthermore, Manchester is seen as the leading driver of this trend, as house prices in the city rose by 8.6% in the year to October 2017 – more than double the national average of 4.2%.

Consequently, Manchester’s urban land prices have also seen significant increases, surging by 24% in 2017, compared to just 4% in the UK as a whole.

Also contributing to rising land values across the country is an increase in competition for land between large builders, medium-sized builders and housing associations, suggests the report