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03/11/2022

The interest rate has been raised to 3% – the highest level since the 2008 financial crisis.

The Bank of England’s 0.75% hike represents the eighth consecutive increase since December, pushing the rate to its highest level for 14 years.

It also marks the biggest single increase since 1989 and will have a big impact on the cost of living and people’s finances.

Mortgage holders, house hunters and savers will be affected by the Bank of England’s decision to increase the rate from 2.25% to 3%%.

Homeowners on Standard Variable Rates or tracker mortgages will be hit particularly hard in the short-term by the latest interest rate increase.

After a period of ultra-low rates, many homeowners are now facing the possibility of much more expensive monthly repayments.

The Bank’s rate hike from 2.25% to 3% means that those on a typical tracker mortgage will pay about £73.50 more a month. Those on standard variable rate mortgages would face a £46 jump.

Analysts suggest rates could reach 4.75% next year.

However, that peak is lower than predictions had suggested a few weeks ago, when the government was in some turmoil after its mini-Budget was badly received.
Industry reaction:

David Reed, operations director at Richmond estate agency Antony Roberts, commented: ‘First-time buyers, in particular, will be conscious of the impact a further rate rise on their mortgage payments. They may pause while they weigh up the feasibility of plans to buy before Christmas. They may even hold off until the Spring or Q2 and reassess the situation then.

‘A preference to continue renting instead of buying will further restrict the supply of rental accommodation coming to market at a time when availability is already acute in many areas.

‘The situation is very different for those buyers with a formal mortgage offer. For them, there is a rush to complete on a purchase before the bagged relatively attractive rate expires.

Resources:
propertyindustryeye-com

15/10/2022

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13/10/2022

Despite the worsening economic outlook, the Bank of England’s chief economist, Huw Pill, still believes that there is a major need for a “significant” base rate rise next month.

Speaking at the Scottish Council for Development and Industry in Glasgow yesterday, Pill, who joined the MPC just over a year ago, also reiterated the Bank’s commitment to returning inflation to its 2% target.

He said: “At present, I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks. But I will see when we get to November how events have evolved in the meantime.”

Pill also said that new independent forecasts from the Office for Budget Responsibility, which will be released alongside the chancellor’s budget plans on 31 October, will “bolster the credibility of the process, thereby helping to add stability in what is a volatile environment at present”.

The lack of an independent assessment by the fiscal watchdog was a key reason why Kwasi Kwarteng’s recent mini-budget of tax cuts sparked turmoil on financial markets, and in the mortgage market.

The UK central bank has already hiked interest rates at each of its last seven meetings, with the bank rate currently at 2.25%.

It has also brought quantitative easing (QE) to an end, and started to run down its holdings of gilts accumulated for monetary policy purposes.

Reflecting on the Bank’s decision to intervene in the bond markets two weeks ago, he added: “In the face of dysfunction that has emerged in some specific market segments in recent weeks, the Bank is conducting a set of temporary and targeted financial stability operations to support the gilt market. Their goal has been to permit an orderly deleveraging of positions held by so-called liability driven investment (LDI) funds, which became vulnerable in the volatile market conditions we have seen of late.

“In taking this action, the Bank has sought to prevent the emergence of a self-sustaining vicious spiral of collateral calls, forced sales and disappearing liquidity from emerging in a core segment of the financial markets. Restoring market functioning helps reduce any risks from contagion to credit conditions for UK households and businesses.”

Resources:
propertyindustryeye-com

12/10/2022

Liz Truss has within the past few minutes confirmed that the government is not backtracking on their plans to scrap Section 21 so-called ‘no fault’ evictions and will press ahead with the policy.

The Tories have returned to Westminster in an unsettled mood following the break for the party conferences, and MPs on all sides of the House had plenty of questions for the prime minister on a wide range of pressing matters, including housing.

During PMQs, which started at midday today, Graham Stringer, Labour MP, commented on reports that the government does not plan to proceed with Rental Reforms, including the scrapping of Section 21 eviction notices.
He said: “Going back on commitments to end no fault evictions is an act of extreme callousness.

“Can the prime minister reassure the 11 million private renters in the country that she will carry out the commitment to get rid of no-fault evictions?”
Truss replied succinctly: “I can.”

The Times reported this week that the government is expected to U-turn on plans to abolish Section 21 evictions, which caused outrage among some people. See below.

The government published its Fairer Private Rented Sector White Paper in June with plans to ban Section 21 evictions, alongside other proposals.
But the newspaper claims to have been told that the plans are no longer considered a priority and could be killed off entirely, despite being a manifesto commitment.

Steven Swinford, political editor at The Times, tweeted: “Liz Truss is shelving Michael Gove’s plans to end no-fault evictions, which were due to be introduced in this Parliamentary session.

“The Times has been told that they are not considered a priority and could be killed off entirely, despite being a manifesto commitment.”

However, Truss has now confirmed that is not the case, and it would appear that the plan will now be introduced in this parliamentary session.

Resources:
propertyindustryeye-com

11/10/2022

House prices look set to fall sharply in the coming months, with several leading analysts predicting a double-digit drop in average prices as a result of the sharp rise in mortgage rates.

The latest economist to warn that property prices will ‘inevitably’ fall, after average fixed-rate mortgage deals climbed to over 6% last week, is Roger Bootle.
With lenders continuing to push up rates in response to the rapidly rising cost of borrowing, Bootle, one of the City’s leading economists, says that averting a 1990s-style slump in the housing market is now near impossible.

In his latest column for The Telegraph he sheds light on how the UK and world economies are performing and the challenges facing the world’s policymakers.
Bootle said that as mortgages get more expensive, the impact on property prices would become more severe.

He wrote: “The last couple of weeks have seen alarm building in the mortgage market, with gathering consequences for the housing market. The latest RICS survey of surveyors; views of the market, released on Wednesday, will give us an up-to-date snapshot. How dire could things get?

“It is vital to put current developments in context. Many people will blame the government’s botched mini budget for today’s mortgage market travails. It is true that the announcement of large net tax cuts made the likely future level of Bank Rate higher.

“Also, the loss of confidence caused by how the mini-Budget was presented resulted in longer-term rates being higher than they needed to be.
“But the fundamental truth is that higher interest rates were on the way in any case. You only have to look at what other countries, led by the US, have been doing.
“And, at the bottom of it all, is a surge of inflation which has to be overcome and a tight labour market which needs somehow to be loosened up.”

Bootle reflects on the fact that the recent hike in interest rates has “shocked” a number of people because they have got used to an ultra-low level “which is without precedent in the whole of our history”.

He also pointed out that before the recent cycle of rate rises began in December last year, Bank Rate was 0.1%.

He continued: “Until recently variable rate mortgages were available at 1.5% and two-year fixed rate mortgages were at 1.1%. These mortgage rates were also without precedent.

“You didn’t need to be John Maynard Keynes [a renowned economist] to realise that this was an aberration and the medium-term risk was all one way.
“Similarly, house prices have been rising relentlessly now for many years. Since 2012, they have risen by 66%, well in advance of the overall increase in consumer prices.

“In real terms, house prices have increased by over 30%. This dramatic growth has been reflected in a record level of the ratio of average house prices to average earnings. It currently stands at 7.8, above the previous peak of 7.5, registered in 2007. The long-term average is 5.1.

Resources:
propertyindustryeye-com