What an interest rate rise means for you

A borrower with a mortgage of £100,000 will see an increase of £12 in their repayment, according to the Nationwide.

The UK's wealth disparity has been reveaeled
Image: People with a standard variable rate mortgage of £100,000 will pay £12 more a month

The Bank of England has raised interest rates to their highest level in almost a decade but what are the effects of an interest rate increase on day-to-day finances?

:: Who are the winners and losers?

It is a modest increase of 0.25 percentage points to 0.75%. Households can expect the cost of their loans and mortgages to go up as banks and lenders lift their interest rates.

Savers, who have had the most to complain about in the low-interest rate environment, may see a modest gain.

:: What will be the impact of my mortgage?

Skipton Building Society chief executive David Cutter told Sky News that most new mortgages are fixed for two- to five-years.

“The vast majority of new loans, 90% are on fixed rates. Back book (older mortgages) about 66% so there is going to be no immediate impact regarding affordability,” Mr Cutter said.

This is why interest rates have been raised by the Bank of England

This is why interest rates have been raised by the Bank of England

As the bank took its decision today, the mood could hardly have been more different from the crisis days in 2009

“On an average mortgage, if they do increase by a quarter of a percent, then I think your monthly payment will go up by £16 or about £190 a year.”

According to the Nationwide Building Society, anyone on a standard variable rate will see an increase of £12 on a mortgage of £100,000 and on a £200,000 mortgage, £25.

:: Why will savers benefit?

“The good news, of course, the rest of our membership, we have a million now, is the saving side because they have really suffered for ten years now. If rates do go up to 0.75% that will be highest since early 2009. So hopefully some relief is coming down the line as well,” Mr Cutter said.

Asked by business presenter Ian King whether the full rate increase would be passed on to savers, Mr Cutter responded: “Yeah, we’ll see what the reaction is in the market.”

While savers may be hoping for better returns, Bank of England statistics show that the average interest rate on UK current accounts increased by only 0.09% in the seven months since rates were increased by 0.25% last year.

:: Will this bring down prices at the shops?

While the Bank of England has raised interest rates partly to tackle inflation, this move will not be reflected in everyday prices for some time to come.

It took six months for the effects of the Brexit-hit pound to raise prices as imports became more expensive.

Retailers fear rate rises as higher mortgage and other bills for consumers mean they will have less money to spend.

The BoE predicted that inflation would be 0.1 percentage points higher this year and next at 2.5% and 2.2% respectively.

Value of UK property market falls £26.9bn as house prices stagnate

he value of Britain’s housing market has fallen by £26.9bn, or 0.33pc, since the start of the year, as growth in the North East and Wales has failed to counteract falling prices in many other regions across the country.

The nation’s homes decreased in value by an average of £927 each between Jan 1 and June 30 this year, and are now worth a collective £8.2 trillion, according to figures from property site Zoopla.

While the value of the housing market in the North East has risen by 3.31pc, and Wales’ by 1.4pc, poor-performing regions such as the South West, which endured a decline in value of 2.51pc, and Yorkshire and The Humber (-2.12pc), has dragged the overall market value down.

It marks a reversal of fortunes for the UK housing market, which registered an increase in value of 3.5pc in 2017, despite a slowdown in London and the South East.

Zoopla’s most recent data found that on a local level, the English town of Barrow-in-Furness in Cumbria was the top-performer in terms of house price growth, with prices rising 6.7pc in the past six months. Holt in Norfolk experienced second-best growth of 6.27pc, followed by Pontypool in Torfaen (6.06pc).

By comparison, Reigate in Surrey saw price growth in the first half of 2018 decline in value by 6.7pc. The second and third largest reductions were seen in Lydney in Gloucestershire, and Sturminster Newton in Dorset, which reduced in value by 6.69pc and 6.64pc, respectively.

Despite property prices in London falling at their fastest rate since February 2009, the capital’s homes collectively rose in value by an average of 0.75pc in the six months to June 30.

Zoopla’s Laurence Hall said it was “not surprising” to see a small drop in values since the start of the year.

“Uncertainty around Brexit is a very real factor in the market, however on the positive side, the drop is creating a potential opportunity for first time buyers to get a foot on the ladder in some regions across Britain,” he said.

Analysts have blamed Brexit for the slowdown in the UK’s property market since 2016. House prices have risen more slowly than before the EU referendum, which hit consumer confidence and spending as the pound’s fall pushed up inflation.

According to figures from Nationwide in April, house prices were growing by about 5pc a year around the time of the Brexit vote, but in 2018 growth has consistently hovered around 1pc.

A buoyant property market depends on the UK’s economic health, so if the pound weakens further, inflation surges, and interest rates are raised, the capacity for house price growth would be reduced.

Equally, if Brexit negotiations are successful, economic growth continues to remain positive, and confidence is boosted, house prices could increase faster than initially thought.

Source The Telegraph

https://www.telegraph.co.uk/property/house-prices/value-uk-property-market-falls-269bn-house-prices-stagnate/

How a a £15,000 loan led to a 1,500 residential property portfolio

Empire Property Concepts founder Paul Rothwell tells the Telegraph Business Club about his company’s focus on converting disused commercial property into residential accommodation

Paul Rothwell’s career in property development began while he was a student. He used a £15,000 loan from his dad to buy a house and convert it into flats for himself and fellow students.

When he graduated, he didn’t sell the house but let it out and took out a second mortgage to help fund another.

That was how Empire Property Concepts (EPC) started out, and now, just 13 years later, it has a portfolio of more than 1,500 residential units across various portfolios.

Empire’s response to Permitted Development Rights (PDR) legislation was to set up a new company, Empire Property Holdings (EPH).

EPH issues Loan Notes across several Special Purpose Vehicles (SPVs) to finance EPC’s developments, focusing on converting disused commercial property into residential accommodation.

With interest rates low or negative, these Loan Notes offer sophisticated investors an innovative way to engage in the UK property market.

Statistics

Company website: empirepropertyconcepts.co.uk

Business sector: Consumer & Retail

Location: Doncaster, UK

Annual turnover: £4.5 million

Number of Employees: 16

Year Founded: 2009

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.

Rents Continue to Grow Across England and Wales in February

London experiences lowest annual rental growth in over 7 years….

Official figures suggest the rental market remains subdued at the start of the year, whilst regional differences in performance persist.

In the 12 months to February 2018 rents in England increased by 1.1%, which remains unchanged on January, data from the Office for National Statistics (ONS) revealed.

This rises to 1.6% if London is excluded, where rents increased slightly by 0.1%; the lowest annual growth in the capital since September 2010.

The strongest rental growth was recorded in the East Midlands (2.5%), followed by the East of England and South West (2.1%), and the West Midlands and South East (1.7%), with above-average increases also reported in Wales (1.4%).

Kate Davies, executive director at The Intermediary Mortgage Lenders Association, believes the ONS figures demonstrate the burdens buy-to-let landlords are having to face, saying:

“Whilst [the data] may be giving tenants some temporary respite from higher rents, the flip-side is that landlords will be facing downward pressure on their cash-flows and profitability. This comes at a time when successive policy changes in the buy-to-let sector have proved detrimental.

“We therefore ask the Government to recognise the benefits that a strong private rented sector brings for the UK, and the importance of maintaining a good supply of rental properties for the periods when home ownership is not suitable or achievable for households.”

Property is Most Popular Investment Choice for Retirement

Retirement savers turn to property due to complexity of pensions and low interest rates

The majority of people believe that investing in property is the best way to fund retirement, according to a new survey from the Office for National Statistics (ONS).

49% of non-retired respondents claimed property was their preferred option for making the most of their money between July 2016 to June 2017, the latest Wealth and Assets survey reveals.

The second most popular method, employer pension schemes, was picked by just 22% of those surveyed.

With interest rates historically low, cash savings and ISAs have declined in popularity amongst the group; while personal pensions and premium bonds were favoured by less than 10% of those surveyed.

With the pensions system becoming increasingly complex, only 42% of respondents felt they had the sufficient knowledge on pensions to consider it as an option.

The survey also revealed that 23% of those not yet retired expected to downsize as a source of income in retirement, whereas 44% would use their savings or investments, further demonstrating the popularity of property as a means of funding retirement.

Inflation rose to 3.1% in November, the highest in nearly six years,


Inflation rose to 3.1% in November, the highest in nearly six years, as the squeeze on households continued.

The Office for National Statistics (ONS) said that airfares and computer games contributed to the increase.

The most recent data shows that average weekly wages are growing at just 2.2%.

Mark Carney, the governor of the Bank of England, will now have to write a letter to Chancellor Philip Hammond explaining how the Bank intends to bring inflation back to its 2% target.

Mr Carney has to write a letter to the chancellor if the Consumer Prices Index (CPI) inflation rate is above 3% or below 1%.

In November, the Bank of England raised its key interest rate for the first time in more than a decade from 0.25% to 0.5%.

However, it is not expected to announce a further increase when it publishes the results of the Monetary Policy Committee’s two-day meeting on Thursday.

Mr Carney had said that he expected inflation to peak in October or November.

The last time he wrote to the chancellor was in December 2016, after inflation fell to 0.9% in October that year.

Mr Carney’s latest letter will be published in February, when the Bank of England will also release its quarterly Inflation Report.

Analysis, Andy Verity, economics correspondent

Image copyright PA

It may be the highest rate of inflation for nearly six years. But that tells you not so much how high it has got but how low it has been for so long.

In the past 10 years, inflation’s peak has been 5.2% (in 2011). Tell anyone over the age of 50 that inflation at 3.1% is out of control and you’re likely to get a scoff, followed by memories of the 70s and 80s.

What they may forget, though, is that for most of that time wages were also rising – and faster than prices. The tendency of wages to respond to higher prices and outpace them seemed to follow an iron logic back then.

Bigger price rises led to bigger pay rises, forcing many employers to charge higher prices to cover higher labour costs: the so-called “wage-price spiral”.

But those rules don’t seem to apply these days. The breakdown of that logic is why we have a squeeze on living standards. It is also why the Bank of England isn’t that worried about above-target inflation getting higher or even staying above target. In the City, a second rise in interest rates isn’t expected until August next year.

Pricier food

Lucy O’Carroll, chief economist at Aberdeen Standard Investments, said: “It’s quite possible that inflation is now close to its peak. But some of the latest surveys suggest that service sector costs and prices are rising. Given how dominant services are in the economy, this could feed through to inflation overall.

“That means that further interest rate rises are definitely not off the table.”

The ONS said that although airfares fell in November – down 10.4% – the decline was not as steep as last year when they tumbled 13.4%.

Data also shows that food inflation has picked up, especially prices for fish, oil and fats, such as butter and chocolate.

Figures from market researcher Kantar Worldpanel released on Tuesday indicated that food inflation hit 3.6% in the three months to 3 December, the highest rate since 2013.

It also noted that prices for butter and fish had grown as well an increase in the cost of fresh pork. Kantar said only a few items were cheaper during the period, such as fresh chicken and crisps.

Richard Lim, chief executive at Retail Economics, said that the rise in inflation had come “at precisely the wrong time for retailers”.

“In the run-up to Christmas, the cost of living, now rising at the fastest rate in five years, remains uncomfortably high for households.”

He said that food inflation “is one of the most transparent indicators of living costs and often the catalyst to cut back on spending elsewhere”.

However, he expects the inflation rate to now fall and could reach 2.5% by Easter.

The ONS will announce employment data for the August to October period on Wednesday, which will include figures for wage growth.

Ben Brettell, senior economist at Hargreaves Lansdown, forecasts that average weekly wages have risen by 2.5% during the period.

He said: “With wage growth picking up we should see an end to falling real pay in due course.

“That’ll be of small comfort, however, to households facing a significant increase in the cost of Christmas this year.”

Source http://www.bbc.com/news/business-42320052

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Manchester, Birmingham & Leicester Topping House Price Growth

Growth in property values in London is lagging behind that of regional cities

Analysing housing trends across 20 UK cities, the newest research by Hometrack shows an average of 6.1% increase in house price inflation in October– the greatest growth seen since September 2016.

According to the market experts, the value of homes in regional cities is rising faster than London, as affordability levels in these areas remain attractive and unemployment continues to fall.

Topping price inflation over the month was Manchester, in the North West, with prices in the area increasing by 7.9% year-on-year to an average of

In the ranking table, Manchester was closely followed by Birmingham and Leicester, both in the Midlands, recording a property price inflation of 6.2% and 6.1% respectively compared to a year earlier.

Conversely, decreases in house price growth were seen only in Oxford and Aberdeen, with values dropping by 0.6% and 3.1% respectively in these cities.

Whilst not at the bottom, London registered an annual house price increase of just 3.0% with the average home in the capital now priced at nearly half a million, or

Earlier this week, the latest analysis by Your Move showed robust rental growth in the East of England in the year to October, and yields remaining the strongest in the North.

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Housing Supply Could be Boosted by More Funding to SME Builders

In his budget speech this week, the Chancellor pledged 2 billion for the Home Building Fund to be targeted specifically at small and medium sized builders (SME) – allowing them to play a greater role in tackling the UK’s critical housing shortage.

Welcoming the announcement, Chief executive Brian Berry from the Federation of Master Builders (FMB) said that the government’s new goal of building 300,000 homes pa by mid-2020s, together with the 50 billion pledged in the budget to meet this target, will boost the sector.

Furthermore, a 700 million fund has also been promised to increase opportunities for small scale developments, by requiring councils to deliver more homes from smaller sites, which are faster to build.

Further commenting on the proposals, Mr Berry said that with Brexit on the horizon, one of the major challenges to building more will be a shortage of skills, as European workers make up a significant proportion of the sector’s workforce.

Ensuring that the UK’s building industry continues to have access to a skilled labour pool remains therefore a concern for many in the sector.

Liz Jenkins, partner at international services firm Clyde & Co, said:

‘Meeting the Chancellor’s ambitious targets will require an available and skilled construction workforce.’

‘In the long term we need to be attracting the next generation of talent into the sector but we have an immediate priority to create the skills we need to deliver new homes today,’ she added.

House Price Growth Highest in North West

UK annual inflation in September up 0.6% compared with August, while London prices decline…

The ‘north-south divide’ seems to be diminishing, as London’s house price growth continues to lag behind the rest of the country.

 

The north west of England continues to dominate, with a 7.3% rise year-on-year according to the September house price index by the Office for National Statistics (ONS).

 

By comparison, the capital saw growth drop by 0.2% since August to just 2.5% year-on-year.

 

As a whole, the UK experienced an annual price increase of 5.4%, up from 4.8% in August.

 

This is a much faster rate than what has been reported in other recent house price indices; 2.5% according to Nationwide, and just 1.4% announced by Rightmove.

 

Buy-to-let investors are turning away from the capital and Jonathan Hopper, manging director of Garrington Property Finders, believes economic growth in the north and higher yields are a possible cause.

 

“In the 12 months to September, prices in the capital rose at barely a third of the pace of those in the fastest-growing region.

 

“This shift is being driven by a steady flight of equity from London – and other previously overheated regions – to areas with greater affordability.”

More Landlords than Ever are now Using Cash to Invest

Cash purchases made by landlords accounted for 65% of all buy-to-let investments in the last 12 months…

Landlords choosing to buy their rental properties with cash are now dominating the UK’s rental market, according to the latest lettings index from the UK’s largest estate agency group, Countrywide.

In the last 12 months, a total of billion was invested by landlords paying for properties in cash, marking a 32% increase over the last decade.

Indicating a shift in attitude in the market, 65% of all buy-to-let property purchases were made with cash in 2017, surpassing the previous peak of 60% in 2011, as well as the 40% share seen in 2007, when the agency started their records.

A driving factor behind the increase in cash purchases is, according to Countrywide, rising house prices, which are allowing investors to remortgage their current assets and invest the equity in new properties.

However, there are regional disparities. The North East contained the largest proportion of cash buyers, which accounted for 78% of all purchases made in the region in the last 12 months, while 58% of landlords in London were still using buy-to-let mortgages to purchase their investments.

In terms of rental growth, the agency reported a 1.2% increase over the last 12 months in Great Britain, when excluding London.

The growth was mainly driven by Wales and the Midlands, where rents saw an upswing of 2.6% and 2.2% year-on-year, while average rents in the capital fell once more.

Commenting on the report, the Research Director at Countrywide, Johnny Morris, said:

‘Landlords have increased their housing wealth considerably over the last 10 years. This means cash purchases are steadily becoming a bigger part of the market…. Rising prices have allowed landlords to take equity out of both their personal or other rental homes to expand their portfolios.’