News Headlines for 11th December

ECONOMICS

  • In the Financial Times, Brooke Masters (amongst others) reports on the joint paper from Paul Tucker and Martin Gruenberg, chairman of the US Federal Deposit Insurance Corporation, outlining how they’d deal with cross-border bank failures. Elsewhere, the FT says the approach is straightforward – either the US or the UK regulator would take control, fire the management, wipe out the shareholders and force bondholders to take equity: “All in all, pretty similar to a standard debt-for-equity swap”. While yesterday’s Evening Standard leader said these measures would help make banks behave more responsibly and deserve serious consideration from ministers, in an opinion piece in The Independent, James Moore wonders whether any of the new safeguards would really work if another mega-bank hit the wall.  LEX agrees the approach isn’t perfect, highlighting three difficulties “all of which illustrate why banking is still in crisis”. First, by formalising the bondholder bail-in, the plan will raise banks’ cost of debt.  Second, it is very well for the FDIC and the BoE to give their views on the matter, but there is no guarantee other regulators will follow.  They may decide on an approach that is not compatible with how the FDIC and BoE see things.  Finally, all this regulation should create an industry that is cheaper to fund and can happily lend into a growing economy.  But that golden future is a long way off, and in the meantime the banks are faced with ever-changing rules that all make life more expensive.  That is hardly the basis for the kind of lending that would help the economy.

 

PERSONAL FINANCE

  • The Daily Mirror’s Graham Hiscott says E.ON will raise its tariffs next month, with customers getting both gas and electricity from the company hit with an 9% rise. The company didn’t mention that some customers will be affected more than others due to regional pricing, with power bills in parts of the South East going up by 11%.  E.ON UK boss Tony Cocker blamed government ‘taxes’ among other rising costs for the higher tariffs.

 

RECRUITMENT & EMPLOYMENT

  • In The Sun, Steve Hawkes reports that the MoD has confirmed a Royal Navy submarine deal, bringing joy to 3,000 BAE Systems workers at Barrow-in-Furness.  The £2.7bn deal will see work continuing on four new submarines in a seven-sub programme. BAE had to show the affordability of the programme and that it could meet Navy requirements.

 

PROPERTY

  • While in his Editor’s Letter, City AM’s Alistair Heath compares buoyant prices in prime central London (where they are now an astonishing 30% higher than pre-recession in nominal terms, buoyed by foreign cash) to non-prime central London (where prices are just 5% above their previous peak) and Outer London (remain they were or are down), Ben Southwood points out that 39% of landlords surveyed by LSL Property Services expect rents to rise over the coming year, with just 1% predicting they would decline.

 

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Less stress for homebuyers as house purchase lending rises

The latest Mortgage Monitor, produced by e.surv chartered surveyors, revealed there were 54,713 house purchase loans in October, the highest since January, and the second highest since December 2009. It represents a 4% increase on October last year, and reverses four consecutive months of negative annual growth dating back to May this year.

The rise in lending has been driven by an increase in the mortgage credit availability to lenders, thanks primarily to the government’s Funding for Lending Scheme. Lenders have reported a 36% increase in mortgage credit for Q4 – the biggest quarterly increase since records began – which has encouraged banks’ to increase lending volumes and introduced more competition into the market. A higher proportion of house purchase loan applications were approved in October, with lenders predicting a 6% increase in the proportion of application approvals in Q4 compared to Q3.

Encouragingly, in line with the wider uplift, lending to borrowers with small deposits was 10% higher in October compared to Q3. There were 5,307 loans to borrowers with a deposit of less than 15%. This was the highest since April, and higher than the Q3 average of 4,826.

Richard Sexton

Richard Sexton, business development director of e,surv, explains: “If we discount January this year, when lending levels were artificially high thanks to the rush to beat the end of the stamp duty holiday, house purchase lending is as strong as it’s been since the end of 2009. It suggests the mortgage market is beginning to find it’s feet again after a torrid six months caused by tight funding conditions for lenders I would speculate that much of the improvement is down to the Funding for Lending Scheme. It didn’t have a significant impact in Q3, but now it is beginning to flood lenders’ balance sheets with cheaper funds and has encouraged them to increase their mortgage lending.”

The increase in lending was spread equally across different LTV bands, indicating lenders are still not yet confident enough to use the improvement in mortgage credit to focus their lending disproportionately on high LTV borrowers. Nine in ten house purchase loans in October went to borrowers with an LTV below 85%, a similar level to September and Q3.

Richard Sexton explains: The improvement in October is encouraging, but it is by no means a sign the market will recover to its pre-financial crisis health. Lenders aren’t confident enough to really begin focusing their efforts on first time buyers, which is why lending to high LTV borrowers still forms a disproportionately small share of the mortgage market. Lenders are hamstrung by strict capital adequacy requirements and the prevailing tight funding conditions in the wholesale money markets. These are chronic problems that will continue to hamper their efforts to increase their lending in the long-term. FLS is an artificial stimulant which appears to be counteracting these drags and encouraging lending that may not otherwise have occurred – to this extent it should be applauded. But it isn’t a cure to the broader economic problems blighting the mortgage market. It will take a sustained spurt of economic growth to resuscitate the market back to rude health.”

LOANS FOR HOUSE PURCHASE (seasonally adjusted)

Month Number Monthly change Annual change
May 51,098 -1.0% 9.8%
June 44,192 -12.6% -9.5%
July 49,561 12.1% -1.0%
August 47,665 0.2% -9.9%
September 50,024 4.4% -2.1%
October 54,713 9.4% 3.6%

 

News headlines for 15th August 2012

Economics
In the papers today, the Financial Times has Greece on the front page after it had to go cap in hand to the ECB to seek a two-year extension to its austerity handouts.  This comes as Greece struggles to squeeze another £11.5bn of spending cuts from the carcass of its economy, part of a tough programme imposed by the EU and IMF under the terms of its bailout.  Greece branded the deficit reduction demands as ‘excessive’.

Personal Finance
The Daily Mail’s James Coney claims Sir David Walker’s recent comments on free banking suggests the incoming Barclays’ chairman blames bank customers for mis-selling.  Tim Wallace, writing in City AM also looks at the popular free banking current accounts model.  He says FSA boss Lord Turner favours charging customers for current accounts but that consumer groups warn customers could be badly ripped off if free banking is scrapped.

Property
The Times looks at news from e.surv chartered surveyors who say that there were 9 per cent more Scottish house sales in the first half of this year compared with the same period last year, as the market begins to recover.

Recruitment & Employment
And new unemployment statistics will come out today.  Last month’s figures showed that unemployment fell by 65,000 in the three months to May to 2.58 million, with the unemployment rate at 8.1pc.  The number of unemployed 16 to 24-year-olds fell slightly, to 1.02 million.  The Olympics should have a positive impact on jobs.

News headlines for 18 May

Economics:

Euro-crisis deepens; Moody’s downgrades 16 Spanish banks, including Santander UK, citing the government’s reduced ability to provide financial support to the sector.  Fitch also downgraded Greece’s credit rating from B- to CCC.  Markets slumped worldwide – FTSE fell to a six month low.  FT, p.1 Telegraph Business p.1,5, Times p.1, Guardian p.14-15, Independent p.1,51, Mail p.4

Facebook to debut on the stock market today; initial share price is $38, giving it a valuation of $104bn and placing it in the top 25 US public companies – and second only to Visa as a public offering.  Mark Zuckerberg (at the grand age of 28) has a stake valued at $19bn, and 1,000 present and former employees will be transformed into millionaires.  May push the site in a new direction, with more advertising or looking for new ways of making money as new shareholders put pressure on the company to increase its revenues  FT p.1, Telegraph Business p.1, Times p.1, Guardian p.26, Independent p.51, Mail p.33

Personal Finance:

Household finances suffer; falling house prices and stretched household finances leave consumers feeling pessimistic that the government is doing anything to help, according to YouGov’s household economic activity tracker index.  Perceived home values and concern about family finances fell – while in contrast the job security index moved upwards.  City AM p.18

Property:

Potential homebuyers should expect costlier mortgages as a result of eurozone fears, according to LSL.  Lenders are likely to become more cautious as fears about Greece’s future continue.  Independent p.54

Recruitment:

London’s position as the home of financial services jobs is slipping; regional centres such as Edinburgh, Manchester and Leeds are winning these jobs instead, according to recruitment company Brightpool.  Over half (55%) of all new financial services job vacancies last month were outside the capital, compared with around 20% before the credit crunch. FT p.4

News Headlines, Tuesday 28th February

Economics
The Telegraph business section leads with the story that Barclays has seen various tax loopholes blocked.  Barclays has been stopped from using two highly abusive schemes that would help the bank avoid paying a significant amount of tax. Other banks have also tried to exploit the same scheme to avoid paying a total of £500m in tax.  One of the tax schemes involved the bank buying back its own debt and making a profit on transaction while not paying for corporation tax. The other involved investment funds trying to benefit from tax credits. The Times says any suggestion that Barclays was involved in aggressive tax planning will be somewhat embarrassing for CEO Bob Diamond who has stressed the importance of good citizenship for its company.

Property
House prices feel by a third in the last four years after inflation.  Although prices declines by a modest 1% last year, the overall drop since the credit crunch has been sharper than the likes of Spainwhere prices are down 27%. According to RICS this is due to a combination of a weak housing market and general price inflation. However price hikes have been noted in Germany, France, Switzerland and Norway. City AM, p20

Bovis posts a 74% jump in profits. This time last year they made pre tax profits of £18.5m whereas this year they have made £32.1m. City AM, p18; Valuation fears take shine off buoyant Bovis. Despite posting encouraging figures the share price dropped more than 4%, yet CEO David Ritchie commented that Bovis was on track to becoming a bigger but also better business. Telegraph B3

Personal Finance
We are the fuel tax capital of Europe. British motorists are shouldering the heaviest tax burden in the EU at the petrol pumps. 60% of the price of unleaded petrol is made up of duties and VAT in Britain. The disclosure comes after the chancellor refused to slash fuel duty in next month’s budget, Daily Mail, p1

Rents see second successive monthly fall


  • Rents fall for second consecutive month, with a monthly decrease of 0.8% to £711 per month
  • Despite a monthly decline, average rents have increased 4% annually
  • Total annual returns for landlords increased to 3.7% as rental property prices stabilise
  • Impact of Christmas spending drives up rental arrears, with 10.7% of all rent late or unpaid in December

Rents fell for a second successive month in December, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns theUK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In December, the average rent inEnglandandWalesfell by 0.8% to £711 per month. Despite the monthly fall, annual rental inflation increased to 4% from 3.5% in November, as tenant demand in December surpassed that of a year ago.

On a monthly basis, rents fell in seven regions, with the biggest declines in the South East and North East, where they fell by 1.9% and 1.4% respectively. Rents inLondonfell for the first time since December 2010, with rents falling by 0.9%, compared to a drop of 2.3% a year ago.

In the last 12 months rents have risen in all but two regions. The fastest rising rents on an annual basis were inLondonwhere rents rose by 5.6%. The next biggest increases were in the East and South East of England, with rents rising 5% in both regions.  Rents fell in the North East and South West by 1.3% and 1.2% respectively.

Despite the average rent inEnglandandWalesfalling by 0.8% December, the seasonal decrease was less than the 1.2% monthly fall recorded December 2010.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains comments: “The seasonal relief continued for tenants as rents dipped again in December, but the drop-off was much smaller than a year ago. The rental market was sheltered from the full impact of the seasonal lull by the strength of underlying tenant demand as many prospective renters took the opportunity to move in the run-up to Christmas at a time when the market is traditionally less competitive.

 

“With the mortgage market facing challenges from the eurozone crisis and the sluggish wider economy, credit conditions are unlikely to ease significantly in the coming year. As a result, the number of first-time buyers able to secure finance isn’t about to rocket up, and demand for the limited supply of rental accommodation will continue to rise. It won’t be long before rents will resume their upward march.”  

The average yield dipped slightly to 5.2% as rents fell away slightly in December. However as rental property prices recovered in the last two months of the year, total annual returns climbed in December. The average total annual return per property in December was 3.7%, compared to 2.7% in November. In cash terms, this was an average of £6,107 – equivalent to £7,611 in rent with a capital loss of £1,504.

If property prices maintain the same trend as the last three months, an investor could expect to make a total annual return of 4.8% over the next 12 months – equivalent to £7,841 per property.[1]

David Newnes continues: “Rental income has underpinned landlords’ returns in the last year, but the stabilisation of property prices in the past quarter has helped bolster annual returns. In the long-term, capital gains will contribute heavily to an investor’s profit. However in the current market, as house prices face pressure from the wider economic environment it is annually increasing rents that are attracting investors – providing a hedge against inflation. With house prices still well below their historic peak and historically low mortgage rates, there is a golden window of opportunity that many investors are beginning to exploit. ”

 

Tenant Arrears Deteriorate

Tenant finances deteriorated in December, with 10.7% of all rent late or unpaid at the end of the month, compared to 9.3% in November. Nevertheless, the seasonal increase was much lower than December 2010, when rental arrears rose to 11.7%.  In December, unpaid rent totalled £300m, a 12% increase from the £263m unpaid or late in November.

Newnes concludes: “The festive season tends to crank up the pressure on tenants’ finances, with spending over the holiday season often exacerbating existing financial difficulties. Despite this, overall rental arrears in December were at a lower level than a year ago. While there are indications that a small minority of tenants are facing increasing arrears, the overall tenant population has coped reasonably well with the impact of higher rents and soaring inflation. The influx of financially sound, frustrated buyers has helped prevent higher general arrears so far, but as the labour market weakens and wage growth remains lethargic, we expect a steady rise in arrears as the year progresses.”     


[1] Assuming house prices change at the average rate of the last three months and they achieve the average yield of 5.2%.

Newcastle Building Society appoints e.surv Chartered Surveyors

Following an extensive tender process earlier in 2011, Newcastle Building Society has announced it has chosen e.surv as its new Panel Manager for mortgage valuations and related inspections.

Commenting for e.surv, Richard Sexton, Business Development Director for e.surv said: “We’re delighted to be one of the Society’s key partners and very much look forward to welcoming them to a significant group of existing e.surv clients from the lending sector.”

Steven Marks, Intermediary Services Executive for the Society said: “We were impressed by e.surv’s innovative approach and in particular the contribution we believe they will make to our wider risk management strategies.”