Posts with tag: interest rates

UK interest rates slashed to historic lows-reaction

Published On: August 5, 2016 at 9:14 am

Author:

Categories: Finance News

Tags: ,,,

Yesterday, the Bank of England took a historic decision to slash interest rates in the UK to their lowest ever level of 0.25%.

Whilst this is not expected to have a significant impact on the overall property market, it is a signal that home borrowing is unlikely to rise in the short-term.

Historic

This is the first time that rates have been cut for seven years, without the Brexit fallout meaning that borrowing will stay historically low.

However, parts of the real estate market could be impacted. Andy Pyle, UK head of real estate at KPMG, this could depend on location and price of properties. Pyle said, ‘whilst a number of overseas investors are being cautious, others are attracted by the depreciation in sterling enabling them to buy more cheaply and the reduction in interest rates has already had an impact on the value of the pound.’[1]

Adam Challis, Head of residential research at JLL, feels the reduction in interest rates will signal to mortgagors the cheaper rates will be around for a prolonged period. He noted, ‘this will benefit many would-be home movers and we are encouraged by the Term Funding Scheme that will ensure lenders pass on most of the rate reduction to consumers.’[1]

‘More important for the housing market is a strong, stable economy and the rate cut will help. Post-referendum we need greater certainty that will encourage house builders, protect jobs and ultimately provide a range of housing that people can afford.’[1]

UK interest rates slashed to historic lows

UK interest rates slashed to historic lows

Remortgaging

Stephanie McMahon, head of research at Strutt & Parker, believes that the cuts will lead to a surge in remortgaging. She observes, ‘rates were already at record low levels, however a further drop may see lenders whose margins allow seeking to be competitive. As such, we can anticipate those who have sufficient savings to meet the loan to value criteria amongst potential home buyers.’[1]

Stephen Stone, chief executive of home builders Crest Nicholson, noted that lower rates could help the housing industry: ‘with interest rates and unemployment now at an all-time low, now is a great time to buy and we can expect a boost to the economy and in particular the house building industry with renewed confidence amongst potential home buyers.’[1]

Jonathan Hopper, managing director of buying agents Garrington Property Finders, believes the slash in rates will not assist the property market that much. Hopper said, ‘in the context of the housing market, today’s interest rate decision is in reality just a sticking plaster which fails to solve a deeper underlying issue. With property transaction volumes all but drying up, what’s urgently required is direct Government action to reduce the costs of moving.’[1]

‘For many home owners in London and the South East especially, the call on cash to fund skyrocketing stamp duty costs has become an insurmountable barrier, blocking their progress up the housing ladder. Post-Brexit, what the market really needs is a balanced stimulus package to get Britain moving, without further increasing house prices. The Chancellor and Governor of the Bank of England are unlikely to find better ways to boost the wider UK economy,’ he added.[1]

[1] http://www.propertywire.com/news/europe/uk-interest-rate-mortgages-2016080412226.html

 

How Will the Interest Rate Cut Affect You?

Published On: August 5, 2016 at 8:42 am

Author:

Categories: Finance News

Tags: ,,,,,,

Yesterday, the Bank of England (BoE) decided to cut interest rates for the first time in over seven years. So how will the interest rate cut affect you?

The Bank’s decision to cut interest rates from 0.5% to 0.25% marks the first interest rate change since 2009 and stems from market uncertainty caused by the EU referendum vote.

But what does the cut mean for the average consumer? A series of experts explain:

Savings

“Today is a bad day to be a saver; savings rates have already plummeted to record lows, so a cut to interest rates is only going to increase savers’ pain,” says Charlotte Nelson, a Finance Expert at Moneyfacts.co.uk.

She continues: “Rates have tumbled since the last base rate change; for example, the average easy access account has fallen from 0.94% in March 2009 to 0.55% today, while the average two-year fixed rate bond fell from 2.83% to 1.31% over the same period.

How Will the Interest Rate Cut Affect You?

How Will the Interest Rate Cut Affect You?

“The base rate cut does not necessarily mean that providers will pass on the reduction to savers, but seeing as rates are already dropping, this latest change will give them yet another opportunity to cut their rates. Anyone considering switching deals will therefore need to do so sooner rather than later.”

Mortgages 

Could the interest rate cut be beneficial to those with mortgages?

Nelson explains: “Borrowers have already been enjoying some of the lowest rates on record, and the 0.25% cut to the Bank of England base rate will provide further impetus to the rate-cutting trend.

“Thanks to Government lending initiatives and falling SWAP rates, lenders are very keen to attract new customers and retain existing business, which is why the average two-year fixed rate mortgage has fallen from 4.79% in March 2009 to 2.48% today.”

She adds: “This cut in base rate will also be a significant boon to those currently sitting on their Standard Variable Rate (SVR). Based on the average SVR of 4.80%, today’s cut represents a drop of £28.64 to monthly repayments. However, with fixed rate mortgages still currently sitting at record low rates, borrowers may still be better off looking elsewhere and fixing to a new deal.”

Pensions

If you have a pension, Richard Eagling, the Head of Pensions at Moneyfacts, explains how you will be affected by the change.

“The interest rate cut is not only bad news for those pensioners relying on their savings to generate an income, but also for those on the verge of retirement who may be looking to secure an income through an annuity, as it’s likely to add extra downward pressure on annuity rates at a time when they are already at record lows. The greater demand for gilts could see yields fall further, and since these are used to back annuities, it seems inevitable that annuity rates will take a hit.

“An interest rate cut will also have an adverse impact on the already precarious funding position facing most defined benefit schemes, as lower gilt yields will increase pension liabilities. Employers will need to look at ways of addressing the greater pension deficits that this is likely to create.”

Property market 

The founder and CEO of eMoov.co.uk, Russell Quirk, offers his insight into the interest rate cut’s impact on the property market.

He says: “Today’s cut in interest rates will come as welcome news to UK homebuyers, who will continue to enjoy rock-bottom mortgage rates as a result of this latest cut.

“The Brexit result brought about sensationalist prophecies of a less stable housing market and, as a result, many would have been deterred from buying. However, today’s news should come as a reassurance that the UK property market is in a more than stable condition.

“A cut in interest rates is the antidote for the post-Brexit worry and will, as a consequence, ensure that the UK economy continues to be underpinned by buoyant property prices.”

What do you think about the latest interest rate cut?

Interest rates held at 0.5%

Published On: July 15, 2016 at 9:06 am

Author:

Categories: Finance News

Tags: ,,,,

Interest rates in the UK has been frozen once again at their all-time low of 0.5%, following the Bank of England’s decision not to cut them further.

It was widely expected that the Bank would slash rates to boost economic growth already slowing before Britain’s decision to leave the European Union. However, the nine-member monetary policy committee yesterday decided that a cut was not necessary at the present time.

This decision came despite the fact that latest figures indicate that the UK economy slowed during the end of the second quarter of the year.

Mortgage rates

Now, it looks likely that rates could be cut in August. Presently, mortgage borrowing costs will remain fairly consistent, particularly with tracker mortgage deals which will automatically marry-up with the fall in interest rates.

Buy-to-let landlords with fixed mortgages would have not benefitted from this cut until their deal has expired.

Even if there is a cut in interest rates during the next month, this could not be passed on in full by mortgage providers.

David Whittaker, managing director of Mortgages for Business, noted, ‘lenders may even be keen to sustain current rates, or increase pricing in order to regain recent months’ lost margins.’[1]

Whittaker also said that there is a strong core of sustainable low loan to value lending to property investors, including buy-to-let landlords, who are not likely to heighten instability.

Welcome

The decision to hold interest rates at 0.5% whilst waiting for the full impact of the Brexit vote has been welcomed by Simon Checkley, managing director of Private Finance.

Checkley said, ‘we fully support today’s decision by the MPC to hold the Bank Rate at 0.5% whilst it waits for the longer term impacts of the EU Referendum result to become clearer.’[1]

‘We anticipate a further review in August once the new economic forecasts are published where we would expect the committee to cut rates by as much as 50bp, achieving a zero percent interest rate, which would be in line with Mark Carney’s most recent comments about the need for the implementation of monetary easing over the summer,’ he continued.[1]

Interest rates held at 0.5%

Interest rates held at 0.5%

Buy-to-let growth

Stuart Law, CEO at Assetz Property, feels that there will be continued growth in the buy-to-let sector. This is due to the fact investors can get roughly three-times as much income as they could get from a bank account.

Law said, ‘Buy-to-let landlords investing in Northern property in particular will continue to thrive as the market appears to be remaining stable post-Brexit. Prices continue to be modest versus the South, while gross yields are reaching up to 8.5% on average, compared to just 3.5% in the capital.’[1]

‘Amid these current times of uncertainty and unanticipated outcomes, we expect investors to concentrate on investing for yields as the small dividends from the stock market do not really compensate for fluctuating share price risks.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2016/7/bank-of-england-slash-interest-rates-to-shore-up-economy

PCL market to be hardest hit by referendum result

Published On: June 24, 2016 at 11:55 am

Author:

Categories: Property News

Tags: ,,,,

The shock news that Britain is to leave the EU is likely to have the largest detrimental effect on the prime property market in London.

With sales activity and property price growth in the sector continually slowing since 2014, experts had already underlined the danger of a Brexit driving further reductions.

Prime falls

Liam Bailey of Knight Frank, believes, ‘there is no doubt that the vote in favour of Brexit will generate a period of renewed uncertainty in the prime London residential market. Some demand, especially from investors, will be delayed and in some cases redirected to other markets although the significance of those trends should not be overstated.’

‘It is not easy to identify an obvious alternative destination for investors despite short term nervousness. On the eve of the vote the pound sat 14% below its mid-2014 peak meaning pricing in the prime market was more attractive for dollar buyers. While a further weakening of the pound could increase inward investment, this impact will be constrained by the fact that around 80% of central London buyers are UK residents,’ he added.[1]

Interest rate cuts?

Bailey went on to say, ‘it seems a reasonable assumption to make that interest rates will be lower for longer, despite the risk of imported inflation from a weaker pound. While the long term benefit of ultra-low interest rates on the housing market may be questionable, in the short term they will act to underpin demand especially for equity rich buyers with access to the best funding rates.’[1]

‘While we are entering a period of renewed uncertainty in the UK and London market, ongoing issues around EU and especially Eurozone stability, which will be highlighted in the run up to French and German elections, are likely to counter this risk and shore-up London’s safe haven appeal,’ he concluded.[1]

PCL market to be hardest hit by referendum result

PCL market to be hardest hit by referendum result

Risks

Peter Wetherell, chief executive of Wetherell, believes there is now a Pandora’s Box for the London property market. He feels that this will greatly assist foreign investors.

Wetherell suggests, ‘This is a market for risk takers and people able to spot high risk, but potentially lucrative opportunities that have emerged overnight due to the fluxes in the markets. Dollar based Middle East and Asian investors in particular will now look at short term buying opportunities in the central London property market and look at acquiring residential property priced up to £6 million.’[1]

‘Now that UK will not be part of the EU in the future then industry construction costs could rise by up to 15% since currently construction materials imported from and exported to the EU are free of duty and taxes. Many site/construction staff working in London are people who originate from countries across the EU the future of all of this will need to be looked at quickly and decisively,’ Wetherell added.[1]

[1] http://www.propertywire.com/news/europe/brexit-london-property-market-2016062412069.html

Buy-to-Let Will be Unprofitable in Most Areas if Interest Rates Rise

Published On: March 1, 2016 at 12:49 pm

Author:

Categories: Finance News

Tags: ,,,

Investing in traditional buy-to-let could become unprofitable in seven out of ten UK towns and cities if interest rates rise by 2.5% over the next four years, according to a new study.

Buy-to-Let Will be Unprofitable in Most Areas if Interest Rates Rise

Buy-to-Let Will be Unprofitable in Most Areas if Interest Rates Rise

Property Partner has analysed over 100 of the largest towns and cities in the UK to consider what impact an interest rate rise, alongside the forthcoming changes to mortgage interest tax relief, could have on local buy-to-let markets.

The research covers the next four years to 2020, when buy-to-let landlords will have lost the ability to claim the higher rate of tax relief on their buy-to-let mortgage interest payments.

The research took an average property, rented out at a price typical of the area in each town or city covered. It assumed that the property was mortgaged with a 60% loan-to-value buy-to-let loan, at a fixed rate of 3% for three years.

In the country as a whole, the average annual net profit on this property would be £3,419 today, but would drop to £2,555 by 2020, even if rates remained at 3%. This decrease in profit would be down to the phasing out of mortgage interest tax relief.

The study paints a worse picture if interest rates were to rise by 2.5% by 2020, with the same property making a loss in more than two-thirds of towns and cities, with an average loss of £325 per year.

In Salisbury, Property Partner found that buy-to-let landlords, currently making an average annual profit of £2,200, would be in debt of £2,984 a year with a combined interest rate rise and reduction in mortgage interest tax relief.

However, economic analysts believe that interest rates might not rise until at least 2020.

The gradual phasing out of buy-to-let mortgage interest tax relief will begin in 2017.

For the upcoming changes to the buy-to-let sector, read this interesting piece by Nova Financial’s Paul Mahoney, who insists that buy-to-let “is not dead”: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

UK Interest Rates May Not Rise Until 2020, Believe Analysts

Published On: February 10, 2016 at 12:24 pm

Author:

Categories: Finance News

Tags: ,,,,

Bank of England

Insecurity in global markets and a weakening US economy will force the Bank of England (BoE) to delay interest rate rises until at least 2020, according to leading industry analysts.

The Economist Intelligence Unit’s (EIU) prediction adds at least three years to the BoE’s timeline for the first increase from the historically low rate of 0.5%.

The forecast will be welcome news for mortgage borrowers, but will disappoint savers.

UK Interest Rates May Not Rise Until 2020, Believe Analysts

UK Interest Rates May Not Rise Until 2020, Believe Analysts

Most analysts expect the first rise in the base rate for almost seven years to arrive at the end of this year or in early 2017.

The Governor of the BoE, Mark Carney, announced in January that the UK faced “a powerful set of forces” that prevented policymakers from increasing rates.

However, in his quarterly inflation report briefing, Carney said that interest rates were “more likely than not” to go up over the next two years1.

Two analysts at the EIU, Danielle Haralambous and Aengus Collins, believe Carney’s announcement is at odds with the downbeat evaluation in the inflation report.

They said: “We now expect record low interest rates to remain in place in the UK for at least the next four years.”

In the past week, the BoE has downgraded the UK’s expected GDP growth for 2016, and indicated that inflation will remain low this year and in 2017.

The EIU analysts found that downward adjustments to official growth expectations reveal that the loss of momentum last year was sharper than anticipated.

They also argued that the UK suffers from “unresolved structural weaknesses” that would prevent wages from rising and from putting pressure on prices.

They reported: “The vulnerability of the UK recovery, combined with the more decisively dovish tone at the BoE, has led to a significant change in our call on monetary policy. We no longer expect tightening for the next four years at least.”

The decision to maintain low rates will remain, despite a build up in inflationary pressures, they added.

The analysts concluded: “The BoE is likely to delay policy tightening in 2019, largely on the basis of our forecasts that the US will experience a downturn in 2019, and rising levels of indebtedness in China will have become a greater source of risk by the end of our forecast period. Our view is that the next increase in interest rates will come in mid-2020.”1 

If rates do not rise until 2020, how will your financial position change?

1 http://www.theguardian.com/business/2016/feb/09/global-economic-woes-delay-uk-interest-rate-rise-2020-bank-england