Details temporarily removed, to be added later.
Double dip recession or sustained but slow recovery?
January 30th, 2010 No comments »These are the two most probably outcomes for the UK economy over the next few years with many economists taking the view of a double dip recession or prolonged slow growth.
The key issue for the UK is the size of the national debt which has to be cut substantially in the next 5 years (or sooner). Failure to cut debt will increase the UK’s risk rating in markets, resulting in higher borrowing costs for the Government and a weakening of the currency.
The IMF have recently stated that the “biggest problem” facing recovery is the size of state debt, and that some countries may take up to 7 years for debt levels to be reduced to a more manageable level.
One of the recent countries in the news is Greece with national debt as a proportion of GDP even higher than the UK. The problem for Greece is an interesting one, as a full member of the Euro it has much tighter conditions to comply with. So far Greece has outlined a plan to halve the country’s debts in 2-3 years, some feel this may not be achievable.
Back to the UK, the added complexity is the pending election. Right now the UK is stalling on decisions to cut debt, the dilemma for the Government is the (perhaps) negative voter reaction when faced with substantial cuts and job losses.
This last point we have blogged about earlier, cutting back on jobs, which may well be needed in the public sector, will have an adverse effect on short to medium term economic growth. As we pull money out of the economy it is only logical that this will create a downward pressure on the economy.
So, double dip recession or prolonged slow growth? Our view here is that the economy will dip briefly back into recession as the effects of budget cuts unwind. All will become much clearer after the pending election and decisions taken to cut the budget deficit.
Property Fraud, Part 2 – Conveyancing
January 25th, 2010 No comments »Details have been removed but will be added back later once full report received
Unemployment falls but are we heading for a double dip recession?
January 20th, 2010 No comments »Recent date published identifies falls in unemployment of around 7000 at the end of 2009, but is this a statistical blip, or is it at trend?
One of the theories being discussed is the drop in unemployment is due to a seasonal increase in part time employment often seen around the Christmas period peak retail sales. We will know for sure when the February figures are published (post new year sales, retailers tend to slow down).
The key question for most people is what about 2010? Recent indications form the Bank of England suggest that markets are becoming concerned about action to reduce UK debts. The strategy proposed by labour is to halve the deficit in 4 years, but is seems the “markets” are indicating much faster cuts in the deficit are required. So what does this mean for the economy?
The key factor will be the balance between sufficiently aggressive cuts to ensure we do not have pressure on sterling, but equally not too aggressive such that we thrust the economy back into a recession.
The bottom line is no one can be certain, however it is a possibility that we could have a double dip recession. Lets hope that whoever gets elected gets the balance just right!
Unexpected inflation could lead to interest rates increases
January 19th, 2010 No comments »The CPI figure for December 2009 was 2.9%, much higher than expected leaving many question marks about the continuation of low bank base rates.
The 2.9% figure was partly due to unchanged fuel prices and less retailer discounts on the high street. The big question is what will January 2010 bring? With VAT now back up to 17.5% from 15% in December this alone could push CPI above the bank’s CPI target of 2% inflation.
Any prolonged period of inflation will put pressure on the Bank of England to raise base rates from their historic low of 0.5% much sooner than analysts had previously been predicting.
As 2010 is set to be the year when everyone will start to feel the effects of substantial budget cuts the last thing the economy needs is higher interest rates at a time when jobs are being lost. The real danger is stagflation, where interest rates increase while the economy falls (back) into recession. Stagflation would have very serious long term consequences and is really the last thing we need.
The coming months are going to be very interesting, key points will be:
- Economic growth (or not) for Q1, 2010
- CPI growth in Q1
- Announcements on where budget cuts will be targeted – expected after the general election in Q2, 2010.
On the subject of budget cuts there is a growing concern that these will hit public services and as a result those towns and cities which have a greater local economy reliance on public sector employment. If you are looking to invest in property it would be wise to research local economic dependencies before choosing to buy.
The property market in 2010
January 11th, 2010 No comments »It is going to be an interesting year, over the coming months the political parties will unveil their budget plans, and then there will be a general election, following which some of the market uncertainty will start to unfold. Only then will there be some clearer views on what this could mean for property prices.
There are many factors at play. Firstly we could see unemployment remain high for a prolonged period should there be significant cuts in public sector. There is almost certainly going to be higher taxation, depending on the levels of tax and where it is targeted it could significantly reduce the disposable income per capita. Such actions will naturally feed into the property market.
As we blogged earlier, there is the current false property market where lack of supply exists in part due to a large number of people being on very low interest rates, unable to move property as new mortgages would be on higher rates. This effect will unwind itself as banks start to increase their SVRs (we blogged earlier, this looks highly likely in 2010).
The bottom line is that the property market in 2010 is going to be volatile, a key fundamental will be the new Government and the action it takes to deal with the current economic problems.
Mortgage interest rates set to rise in 2010
January 7th, 2010 No comments »Market analysts are now predicting that even if the Bank of England base rate is not increased in 2010 many lenders are likely to increase their rates. Some analysts such as Stephen Noakes, Lloyds Banking Group, are looking at the market consensus on bank base rates, the view was “Bank of England will first raise interest rates in the middle of the year and that base rates will end up at 1.5% by the end of 2010”
So either way it would seem that all those with variable or tracker mortgages will see increases before the end of 2010.
One of the issues for lenders is that they are currently making losses by lending on low rates when their true cost of borrowing is much higher. This is a situation that cannot last.
For those with buy to let tracker mortgages at rates of 3% to 4% over BBR this could see them paying as much as 6% by the end of 2010 with further increases in 2011.
It looks like 2010 is going to be an interesting year for the property market!
Future house prices – beware
January 4th, 2010 No comments »A reason why we should be more cautious regarding recent house price increases and what this could mean for future house prices.
Acording to the Council of Mortgage Lenders (CML) around two thirds of residential mortgages are linked to bank base rates, e.g. “tracker” or “variable rate” mortgages. After the sharp fall in SVR and tracker rates over the last year the vast majority of these mortgage holders will be paying less than 3% on their mortgages, in some cases closer to 1%.
And here is the dilemma …
You would like to move home but it means getting a new mortgage, and in the current market this means mortgage rates higher than 3%. In effect anyone moving home would end up paying more on the new mortgage even if they borrowed less money!
Here is an example …
Homeowner has a property with a £150,000 mortgage on a base rate + 1% tracker. Their actual mortgage interest payments are currently £2,250 p.a. BUT if they move and take out a £150,000 mortgage on their new property the mortgage rate would double to at least 3%, making their interest payments £4,500 p.a. And even if they took out a £100,000 mortgage it would still cost them £3,000 p.a., that it £750 p.a. more than their original £150,000 mortgage!
So what we have here is a false property market where prices are increasing due to the shortage of properties available (many analysts have already made these comments). When base rates get back to “normal”, e.g. 4% or higher the differential on new mortgages will largely disappear, e.g. a new mortgage should then be similar to existing trackers of base rate + 1.5%.
The key question is this, when people are no longer constrained by the increased mortgage costs of moving will we find a surge in properties for sale and thus a fall in property prices as supply starts to exceed demand?
Adding £1000s to the value of a house
December 23rd, 2009 No comments »One of the key factors in selling a house is “kerb appeal”, this is making the house look good before you set foot inside. However many people often overlook this, and in doing so they not only risk losing out on a quick sale, they also potentially lose £1000s on the selling price.
Enhancing kerb appeal can be considered in several key areas; garden, elevations, and roof.
Gardens: This is the simple one to deal with, just a few hours work can transform a garden and it makes a huge difference. For an average front garden of a semi detached house you could get a gardener to do a makeover for less than £200 including a few shrubs!
Elevations: The main area to focus on is paintwork, if you have pvc double glazing already then all you need to do is make sure the walls look in good condition. In most cases refreshing the paintwork, if you have unpainted brick or stone make sure that any bits of missing pointing are filled. It may be that you have moss or other dirt on the foot of the elevations, this can be simply removed with a power washer. Overall the cost of refreshing the elevations should be just a few hundred pounds.
Roof gutters: An area often overlooked because people think it will cost too much, but beware, any buyer is likely to think the same! One area of roof maintenance if cleaning the gutters, fascias and soffits; ensuring there is no grass growing out of the gutters and no unsightly moss/fungi on the fascias. The cost of this type of work should be less than £200 for the average semi, a small invesmtent for the benefits.
Roof tiles: Roof cleaning and roof moss removal can have a huge benefit. Green algae and roof moss not only looks unsightly it can damage some roof tiles in the longer term. A professional company such as “UK Roof Cleaning” can clean the roof of an average semi from around £1500.
So in total, if you need the full external makeover including garden, elevations and roof the costs should be no more than £2000. It may seem a lot but for a house selling at £200,000 it is just 1% of the value, much more than this will be lost in the sales negotiation!
TOP 5 INVESTMENT TIPS FOR THE NEXT 10 YEARS?
December 17th, 2009 No comments »A survey of investment advisors carried out by the Sunday Times has identified areas of investment opportunity for the next 10 years – and property is not one of them!
The survey identified the following (not in order of priority):
Emerging Markets – Population growth is expected to realise a 50% increase in the next 40 years, with this there will be huge growth opportunities for investment in countries expected to see the greatest population increases; such as Brazil, Russia, China and India.
Healthcare – This is a demographic time bomb due to aging populations in many western countries. Healthcare services and products targeted at the aging population is considered a high growth area.
Agriculture – It goes without saying, the global population growth will have a huge effect on agriculture ranging from the cost of food production through to technologies related to food production.
Energy – Again the impact of population growth will increase demand for energy. Everything from energy production through to energy saving technologies will become far more attractive for long term investment.
Green Technology – The increasing focus on environment and carbon emissions will drive greater investment opportunities in technologies related to this area.
So why is property investment not in this list? Maybe because those surveyed did not see property as a high growth area for the next 10 years. That said with the forecasted growth in population there will be an increased demand for property, and in particular areas where land for new build is in short supply.
