UK Energy Prices for Residential Properties

July 5th, 2011 No comments »

It is great news to hear that forensic accountants are going to examine the wholesale purchase prices of energy to try and identify if consumers are getting a fair deal.  However is this really going to help?

Increasingly suppliers are using the tactic of what could be termed “price confusion” to lull consumers into paying more for their services or products.

Supply of energy, that is gas or electricity, should be quite easy to price.  There are peak periods and off peak periods, each has a tariff, and that should be it.  But not for our energy suppliers, they want to create as much confusion on pricing as possible so that can get consumers to pay more.

So suppliers introduce multiple tariffs; energy saver plus, online energy saver plus2, super saver gas plus electric, online energy saver3, etc, etc, etc, … you get the point. At the end of the day all of these “products” are the same thing, energy in the form of gas and electricity, energy does not vary  in colour, taste, weight, etc, its just energy, what is so complicated about that?

Then the consumer signs up to one of the many tariffs thinking they have a good deal.  Next month the suppliers say, hey, wait a minute, we have got lots of people signed up to our online energy saver plus2 tariff, so lets increase that one and make the others cheaper.

And so it goes on.  The suppliers of energy will make inflated margins until regulation is applied.

Maybe what we need is a single tariff, like a price for electricity and a price for gas, followed by an overall discount which they can vary from time to time at the supplier’s discretion.  This would make it much easier for consumers to select on price.  So how about it regulators?

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Posted in UK Economy, Uncategorised

The end of the Euro?

June 20th, 2011 No comments »

It could be, at least according to Jack Straw’s comments in parliament today.  Some say the Jack Straw is being careless with his comments however there are also many who share his views.  So what is the situation and just how possible is the scenario of the Euro collapse?

The fundamental issue for the Euro, and in particular countries such as Greece, Ireland and Portugal, there is too much debt, there has been excessive spending and there needs to be a rebalancing.  Austerity is going to be around for a few years yet!

The problem comes when the markets, who are providing the funds for the debts, start to move toward the position where they feel the debt cannot be repaid.  When this happens the cost of debt soars to a point where the interest rate repayments cannot be met, and the only way out is restructuring the debt, in effect a debt write off. 

The markets are extremely wary of debt write off, if the tipping point is reached then the markets will pull out or at least push interest rates for the debt upwards.  This would be “unaffordable” for Greece, Ireland and Portugal.

But could the EU keep funding those countries in need? The reality is that the EU countries also need to borrow in the markets, and countries like Spain and Italy are also in a challenging situation for debt financing, if these where to be the next casualties the remaining EU countries would not have the resources to support them, and the EU would collapse.

Another option is to force Greece out of the Euro.  Whilst this might give some temporary relief for the Euro it then raises the question of how safe is the Euro in any country.  Will markets start to see some countries are a “safer” Euro investment than others?  If this was to happen it would also be the end of the Euro.

So going back to Jack Straw’s comments, maybe he is saying what many feel is a real possibility, but they simply cannot say for fear of making that possibility a certainty.

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Posted in UK Economy

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Splitting banks retail and investment – a good thing?

June 15th, 2011 No comments »

Whilst the full details have yet to be published it would appear that moves are underway to create a “division” between the retail and investment side of banks operating in the UK.

The retail side will manage deposits along with loans, mortgages, and related products for the UK consumer and businesses.  The investment side will contain the areas considered to be more risky such as trading on derivatives, etc.

This should reduce the risk for the retail side of banking however there are some who question whether the banks will be able to maintain an effective division between the retail and investment banking entities when they are managed and owned by the same company.

One of the negative factors being put forward by the banks is that the proposed changes could undermine lending and effectively make consumer creidt more difficult to obtain.  Clearly this is not a view shared by the Government as availability of sustainable credit is fundamental to economic growth. 

It will be interesting to see how this plays out.

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Posted in UK Economy

Property Fraud – How someone lost their house

April 15th, 2011 No comments »

It seems almost unbelievable, how can you possibly lose your home or other property, after all it is “bricks and mortar”, you have evidence that you purchased the property, so how could someone get away with taking your property from you?

The reality is you really can lose your property to a fraudster, a recent article published by Credit Check Services highlights how this can happen based on an actual case, this is not theory, it is fact.  You can read more about it here, losing a property due to identity fraud.

In brief this is how it happened:

The property belonged to a buy to let investor and was empty for a few months between tenants.

During the void period someone gained access to the property and then advertised it for sale.  As they had access to the property they were able to access any post such as water rates bills to help verify their ownership.

The fraudster is alleged to have had a passport copy made of the true owner, this plus access to the post gave them all they needed to demonstrate to a solicitor they were the owner.

Land Registry accepted the ownership and passed the title to the new purchaser.

The original owner attempted to challenge the ownership on the basis that they did not sell the property to the new owner, Land Registry however were unable to revert ownership back as the new owner was now in possession (e.g. occupancy or let to tenants) of the property.

The upshot is that identity fraud can really cost you your home.  We recommend reading more on the Credit Check Services website (link above) to see what you can do to prevent the loss of your property.

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Tenant referencing – beware who carries out your checks

April 4th, 2011 No comments »

There are a number of companies providing tenant referencing or tenant checks, and as with many suppliers there are a range of service offerings and a range of prices which can be a little confusing for landlords and letting agents.

The fundamental to consider with all tenant referencing reports is the skill with which the work is undertaken.  It really is not a simple case of carrying out “a search” in court databases, if you want to have a high degree of certainty that your tenant is free of adverse financial history you need to do more.

A key aspect is multiple or linked address searches.  At Credit Check Services they found than in over 40% of tenant checks carried out there was CCJ information recorded at a previous linked tenant address.  Thus any company that carries out a search using only one or two recent addresses is at great risk of failing to find adverse financial data should it exist.

Some companies offer a headline price, then add on £2 per linked address searched.  The reality is however that there can be up to 7 or 8 linked previous addresses for a tenant, thus a headline cost for a single address search can soon escalate a much higher cost.

This is where the service offering from Credit Check Services makes absolute sense, they provide tenant screening reports from £8, and all report options include linked address searches.  Simple pricing with no hidden costs, and a full search for adverse financial data.  Take a look for yourself, tenant referencing at Credit-Check-Services.co.uk

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Posted in Buy-to-Let

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Public sector pensions to be cut?

March 10th, 2011 No comments »

There has been much publicity about public sector pension with unions making increasing noises about strike action, public unrest, etc.  Is this really the case?

If we look at private pensions then people save into a fund, when they retire the fund pays out each year.  But as we live longer the fund has to stretch further and so the amount of pension paid out each year will fall.

If we look at public sector it is very different.  Irrespective of living longer the fund keeps paying out, so this means the fund has to increase in line with increased life expectancy.

If we take another view on this.  Someone retiring at 65 years of age in the 1970s might expect to have an average of 15 years retirement.  But we now live much longer, so someone retiring in the 2020s might expect to have an average of 30 years retirement.

For the public sector pension this means that the fund has to increase by 100% to cover the increase in life expectancy. 

As the growth in life expectancy is continuing then it is clear that public sector pension funds would have to increase to maintain the same pension.  Quite simply this is not sustainable, it is unaffordable and it must change.

The unions should stop harping on about “pension cuts”, what we need is a “pension cap” to stop the public sector pension growing to a level we simply cannot afford.  And the unions should stop complaining about the bankers, whilst many agree they are overpaid the UK can do little, we need the international community to take action, otherwise banks will move to which ever country is the most friendly and UK will lose the tax revenues, and then we really will need a public sector pension cut!

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Posted in UK Economy

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Lybia – impact on UK economy

February 22nd, 2011 No comments »

As the public desire for change spreads across the Middle East region there is increasing concern published in the media about what this could mean for oil prices and the western economies.

In some ways such views are perhaps a little selfish, those who are truly suffering are the populations of the Middle East countries where repression is backed with violence.  But then equally there is a responsibility on those countries that produce the world’s oil to ensure the supplies are maintained. 

So what is the impact on the UK economy?  The main impact is inflation, any increase in oil prices will impact not only fuel prices, but also the supply of commodities, food, goods and services of which the vast majority depend on oil for transportation and in some cases production.

The consequences of higher inflation could be severe by bringing forward interest rate rises that in turn will restrict economic growth and possibly push the UK back into recession.

Clearly all of this is hypothesis, it is by no means certain the the current Middle East turmoil will become protracted and impact oil prices long term.  In fact there is a possibility that once the current turmoil subsides those countries affected will seek to increase oil exports to improve their economies, and any increase in oil supply will reduce the price of oil.

It will be interesting to see how this plays out in the next few months.

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Posted in UK Economy

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Bank tax levy increased to £2.5 billion on a permanent basis

February 8th, 2011 No comments »

The new £2.5 billion bank tax levy ….whilst this is good for the British taxpayer there are still questions about the support given to banks and how those banks pay for the support received.

No country can implement unilateral sanctions against the banks such as “capping bonuses” without risking those banks relocating to another country.  But clearly something has to be done to address the imbalance where in good times a bank creates vast profits for its executives and shareholders, and in bad times they get a safety net from the tax payer.

But there has to be a way, a way in which banks cannot rely on a tax payer safety net without there being huge financial consequences for them.  Perhaps only then will the banking system operate in a more risk adverse way so as to avoid melt down knowing that such a situation carries huge financial penalties.

As to banks lending to small and medium businesses this is a very difficult issue.  It is very difficult to force any bank to lend to a business that is considered a high risk, otherwise we end up back where we started, that is bad loans causing banks to fail.  But equally there has to be more focus on business lending, not all businesses are high risk.  Maybe one of the big issues for banks is the regulation now being applied for them to increase liquidity, such regulation is effectively a “brake” being applied to all lending.

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Posted in UK Economy

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Egypt – the economic ripples and how they may affect UK economy

January 31st, 2011 No comments »

It is almost classic chaos theory, riots in the street in one country such as Egypt can affect the price of houses in UK.  Seems strange but it really is possible, here is why.

Instability in Egypt affects the Middle East region and in turn this could affect oil prices.  Already the ripples are being seen in the currency markets as currency traders and investors mark down the higher risk currencies.  If investors see a threat to future oil prices then prices will most likely increase.

Any increase in oil prices will impact economies and in particular the UK economy which is already experiencing an inflation upturn.  If UK inflation increases too far then the pressure on the Bank of England to raise base rates will grow.  And with increased interest rates it will make the cost of house purchase higher, thus impacting on UK property prices.

So far we have just used the oil example, but other commodities are at risk of price increases, one major example is wheat prices.  Any increases in commodities will again feed into higher inflation.

The bottom line is the stability in Egypt and the Middle East is key for the UK economy, and most especially whilst the UK is experiencing its own domestic issues due to the extraordinarily high level of national debt.

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Posted in UK Economy

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Is “Mortgage Stickiness” holding up property sales?

January 24th, 2011 No comments »

The term “Mortgage Stickiness” describes the situation where a property owner has a mortgage product that they want to keep, typically because the mortgage is a fantastic deal that they cannot expect to improve upon, or it may be their financial situation has weakened and thus its unlikely they will be able to get another mortgage.

The current market has left up to 50% of residential mortgage holders with products that track bank base rates at 1% or 2% over base rate, in some case less than 1%.  In effect these mortgage holders have a huge disincentive to move property because if they did the new mortgage would have a much higher long term interest rate (some products offer initial low rates but the longer term rates are typically 3% or 4% over bank base rate). 

The effect is that someone with an average mortgage of around £140,000 (BBA statistics) could see interest charges increasing from £233 pcm (2%  rate) to £466 pcm(4% rate).  For many people this is a huge disincentive to move.

The other factor is those whose financial situation has changed, or maybe the more recent strict mortgage rules man they can no longer get a mortgage (some self employed may fall into this category).

No one knows for certain but it is clear that a very large percentage of property owners are effectively in a trap, they have a “sticky mortgage”, it would simply be too expensive to move to a new mortgage, effectively leaving them with no option of moving property.

This then takes us to our last point.  With a large proportion of the property market (up to 50%) trapped in this way we have a situation where there is insufficient property coming onto the market.  Perhaps this is a good thing short term as it helps to stabilise property prices?  However if the BofE starts to increase bank base rates too fast we could see a major shift, many will no longer be held back by their existing mortgage which will become more comparable to new mortgages on offer.  This could create a step change in market supply and create some interesting dynamics for property prices.

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Posted in UK House Prices

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