Bank keeps interest rates on hold
House price inflation grinds to a halt
Lenders offer borrowers a helping hand
Affordability shows strength in tight market
RICS surprised by rise in house prices
House prices increase in December
Eager homebuyers ready to move
Property investors have positive perspective on 2008
House prices to fall slowly in 2008
Can Britain's Debt Problems Be Solved?
Remortgaging drops 21% in one month
Halifax posts surprise rise in house prices
Rate cut failed to boost morale
Buy-to-let remains resilient, says survey
Bank warns on mortgage defaults

Bank keeps interest rates on hold

Bank of England policymakers have decided to keep UK interest rates unchanged at 5.5%.

Analysts said the Bank faced a tough decision, having to balance signs of a slowdown in consumer spending against growing inflationary pressures. The decision is likely to disappoint some retailers, who had called for a cut after poor Christmas sales figures. While rates have been held this month, many analysts expect the cost of borrowing to be lowered in February.

The Bank's Monetary Policy Committee (MPC) last cut rates in December, reducing them to 5.5% from 5.75%.
A rate cut on Thursday could have lifted both consumer and general business confidence, but it could also have risked fuelling price pressures driven by higher energy and food bills, analysts said.

Last week, energy firm Npower increased both its gas and electricity prices and warned that its rival energy providers were likely to follow suit. Oil prices have also remained near record highs of more than $100 a barrel. "Rising energy prices and their knock-on impact on inflation, a slowdown in the housing market and weakening retails were all factors for the MPC to consider," said Trevor Williams of Lloyds TSB Corporate Markets. "But inflation is the key concern of the MPC and they clearly wanted to wait until February's quarterly inflation report, which brings all of these factors together, for reassurance that the time is right to cut interest rates again." "Given the uncertainty over the extent of the economic slowdown, the MPC was right to resist cutting interest rates today," he added.

The British Chambers of Commerce (BCC) said the Bank had missed an opportunity to underpin consumer confidence, and limit the damage from a global credit crunch and problems in the US mortgage market.
"A modest interest rate cut would have alleviated the threats to the banking system and would have helped restore the smooth flow of credit in the economy," said David Kern, economic adviser to the BCC.

The manufacturers' organisation EEF said the growing threat of a recession in the US, as well as the effects of the credit crunch on business and consumer confidence, outweighed any reasons for delaying a rate cut. "The evidence from the past month points to a growing risk of a weaker economy and there is little reason to believe the case for a cut will be any less strong next month," EEF Chief Economist Steve Radley said. 'Highly probable'

The MPC is now widely expected to cut interest rates in February, when the Bank releases its quarterly inflation report including new growth and inflation forecasts. "We suspect that the vote to leave interest rates unchanged today was extremely close," said Howard Archer of Global Insight.

He added that it was now "highly probable that the Bank of England will cut interest rates to 5.25% in February as evidence mounts that the UK economy is faltering".
Ian Kernohan, an economist at Royal London Asset Management, said the Bank may even cut rates by half a percentage point, "depending on how bad the news is over the next few weeks".

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House price inflation grinds to a halt

House price inflation in England and Wales has crawled almost to a complete halt in recent months, according to the Financial Times house price index.

In December, prices rose by 0.1 per cent, the slowest monthly rate since July 2005 following a 0.2 per cent rise in November. November's data itself was revised down from the 0.4 per cent reported initially. House price inflation has been falling steadily since June when it recorded a 0.9 per cent rise for the month.

The data are in line with other recent house price indices showing slowing growth, if not outright declines in value in once-frothy UK house prices and which have helped to fuel fears of an outright drop in values in 2008.
But year-on-year, the overall picture is far less gloomy, with a respectable 7.9 per cent rise through December, well ahead of any measure of UK inflation.

Meanwhile, London house prices continued to stand out from other locations in England and Wales, with a rate of inflation more than twice as high as the next highest region; the South East. If London house prices were stripped out of the assessment, house price inflation was flat for the period and the annual rate of increase falls sharply to 5.8 per cent.

Peter Williams, chairman of Acadametrics, the consultancy that compiles the index, said that London house prices perform differently than those of the rest of England and Wales because it is the UK's only truly "global" city. "London is a global housing market and is completely outside the wages and inflation pressures in the UK," he said. The influx of wealthy foreigners, often connected with the City's financial services industry, has brought with it pressures that are not found far outside London..

Indeed, just five London boroughs - Kensington and Chelsea, Westminster, City of London, Hammersmith and Fulham and Haringey - has house prices inflation of over 25 per cent on an annualised basis in the last three months alone.
But even those boroughs with the slowest growth showed respectable increases ahead of the rest of England and Wales of 7.8 to 10.5 per cent.

The regions showing the slowest growth in house prices, on average over the last three months, are the North and West Midlands, where annualised inflation rates were 3.4 and 3.5 per cent respectively. Outside of London, house values have risen fastest in the South East where growth has increased at an annualised 9.2 per cent pace over the past three months, and in the South West which recorded an annualised rise in values of 8.4 per cent over the same period. Among all regions, house prices have grown by an annualised average of 8.8 per cent over the past three months.

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Lenders offer borrowers a helping hand

New guidance from the British Bankers Association will force lenders to monitor borrower's mortgage repayments more closely in a bid to cut down on the number of home repossessions this year. The Credit Crunch and high interest rates have both had an affect in rising mortgage repayments, subsequently increasing the pressure put on mortgage borrowers.

As of March 2008, lenders will be responsible for contacting borrowers if they foresee the borrower having difficulties with their mortgage repayments. At the moment it is the responsibility of the borrower to inform the lender if they are having trouble making repayments.

Lenders will also be required to acknowledge that as well as mortgage repayments and credit card bills, borrowers have other high priority debts such as household bills to pay. If the lender believes that a borrower may struggle with repayments, they will then be required to offer contact details of advisers who can help the borrower to resolve their financial problems.

Although the majority of lenders currently monitor borrower's payment details closely, this news will put the borrower at ease as news of irresponsible lending dominated much of the news towards the end of last year.

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Affordability shows strength in tight market

Affordability in the mortgage market has shown some resilience against the tightening lending criteria seen in November.

Figures from the Council of Mortgage Lenders (CML) indicate that first-time buyers are borrowing 3.33 times their income while home movers borrow 3.02 times their income. The popularity of fixed-rate mortgages has fallen as the number of borrowers opting for the products dropped to 65 per cent from 68 per cent.

Michael Coogan, director general of the CML, said: "At a time of global market uncertainty, business levels in the mortgage market are holding up reasonably well in the UK despite funding constraints."

Gross lending reached £30 million during November with lending for house purchases totalling 80,000 transactions. Remortgage volumes declined to 73,000 with borrowers staying with their existing lender.

Mr Coogan said he expected the Bank of England monetary policy committee (MPC) to have a tough decision on whether or not to cut the interest rate further. "Most borrowers are on fixed rates and so will not see any immediate benefit from another change in the base rate. Some are on tracker rates which will automatically follow changes in the base rate or LIBOR," Mr Coogan said.

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RICS surprised by rise in house prices

The Royal Institution of Surveyors (Rics) has expressed its surprise at the rise in house prices during December.

According to the latest house prices index from Halifax, the value of a home rose by 1.3 per cent during December. Simon Rubinsohn, chief economist at Rics, said it was a surprise after three months of successive declines. "Our suspicion is that the market environment is likely to remain challenging for at the least the first half of this year and that activity levels will remain subdued," he said.

Mr Rubinsohn agreed that a cut in interest rates is a high probability during 2008 as lenders try to make their products attractive.

Halifax expects the Bank of England to make at least two rate cuts over the course of the year and Mr Rubinsohn said this will help first-time buyers.

"A key issue for first-time buyers eager to take their first step onto the property market in this climate will be the willingness of lenders to provide finance on attractive terms," said Mr Rubinsohn. "The slippage in money market rates since the start of the new year suggests that there is more chance of further interest rate cuts being passed on more fully to borrowers," he added.

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House prices increase in December

House prices increased by 1.3 per cent during December after three months of successive falls, the latest figures have revealed.

According to the Halifax house price index, house prices in December 2007 were 5.2 per cent higher than prices in 2006 with the average price of a UK home increasing to £197,039. Due to a mixed pattern of monthly rises and falls, Halifax is predicting that house prices will be flat in 2008 as the housing market slows down.

Martin Ellis, chief economist, said: "This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market. "Higher mortgage repayments in response to the series of five interest rate increases between August 2006 and July 2007 and falling real earnings have put pressure on households' income, resulting in a slowdown in both house price growth and activity in recent months," he added.

Halifax is expecting the Bank of England to make further interest rate cuts over the coming months to protect the economy from more economic slowdown and make the housing market flat.

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Eager homebuyers ready to move

One in ten prospective homebuyers intends to buy a home sooner than they expected, the latest research has revealed.

According to a new survey from Fool.co.uk, 11 per cent of people who plan to buy a house have accelerated their plans as the housing market begins to slow. Of the people intending to buy a house, 38 per cent plan to do so this year while 34 per cent intend to move during 2009.

The survey also indicates that there will be more sellers than buyers over the next five years as for every four people intending to buy a home five people will be looking to sell. Fool is predicting a fall in house prices during 2008 with the estimated value of a home expected to drop by 20 per cent to £157,290.

David Kuo, head of personal finance at Fool.co.uk, said: "The long-overdue correction in the property market will allow many people who have been waiting to move house to finally realise their dream." He said that homeowners should make sure they get the best mortgage deal before entering the market. "Only then can you be sure that your home-owning dream does not turn into a wealth-destroying nightmare," said Mr Kuo.

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Property investors have positive perspective on 2008

• 94% of landlords say tenant demand will rise or remain stable in 2008
• In response to demand, landlords plan to grow their portfolios over the next 12 months
• The average landlord's portfolio, worth £1.46 million now, is expected to increase in value by 1.6% over the next 12 months
• Less than 5% of the typical portfolio is new build
• Based on a survey, carried out in November 2007, of 200 landlords who have been in the industry for almost 14 years and in aggregate hold around £300 million in residential property investments.
  
  Britain's residential landlords remain confident about the buy-to-let market in 2008, supported by accelerating levels of demand for rented accommodation.
  
  According to a Paragon mortgages survey of 200 landlords, 27% said that tenant demand is currently either booming or growing, with 66% describing it as stable. However, when asked about the outlook for 2008, 42% of respondents said they believe that tenant demand will either boom or grow over the next 12 months, with 52% believing it will remain stable.
  In this environment, investors remain firmly committed to their portfolios, contrary to media reports that suggest landlords will begin to sell property in 2008. The average portfolio currently comprises 11 properties worth £1.46 million, and landlords expect the value of their portfolio to rise by an average of 1.6% over the coming year and to modestly grow the size of their portfolios in 2008.
  
  John Heron, Paragon mortgages' managing director, says: "The coming year presents significant opportunities for landlords. Demand for rented accommodation will accelerate, as homebuyers delay property buying decisions, and inward migration and other demographic factors place continued pressure on the housing stock."
  "Growing competition for private rented properties is pushing up rental incomes and overall returns. This upward trend is expected to continue into 2008, as yields see upward pressure. In addition, landlords are dispassionate purchasers and are well placed to secure good deals on properties, helping to increase the supply of rented homes and meet demand from tenants."
  
  "That is the key driver of the buy-to-let market - customer need. Successful landlords only purchase properties for which they know there will be strong demand from tenants, who typically prefer terraced houses and flats in established areas. From landlords' responses, it is clear they remain upbeat about prospects for the private rented sector over the coming year."

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House prices to fall slowly in 2008

The New Year will bring a 12 per cent fall in house prices, according to Firstrung.

Paul Holmes, chief executive officer, said that a fall in house prices was certain during 2008, it was just a question of how far."House prices will correct by a per cent a month over the next three years, so we'll see a 35 per cent correction in house prices," he predicted.

Before Christmas, Halifax reported that the average house price in 96 per cent of towns was unaffordable and that first-time buyers were being priced out of the market."With all the risky mortgage products taken out of the market place, this puts a lot of first-time buyers back to square one anyway," Mr Holmes added.

"We'd need a 20 per cent correction from today's prices just to take us back to 2004 levels, when it was still hard enough for first-time buyers," he added.

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Can Britain's Debt Problems Be Solved?

With rising mortgage payments, falling house prices and increasing food and fuel prices Britain's economy is certainly looking bleak. British consumers now owe over £1.39 trillion, therefore the New Year should be the perfect time for British consumers to take control of their finances, but the big question is are they going to?

New research from uSwitch.com the independent price comparison service has revealed that personal insolvency is reaching a record high, as British consumers are paying out a startling £9.3 million on interest on mortgages, personal loans, credit cards, and overdrafts as Britain's debt spiral out of control.

2008 is more than likely to see an increase in house repossession, bankruptcies and a take out of IVA's as almost one in four UK adults are finding their debts unmanageable and over 9.5 million have maxed out on a form of credit in the last six months.

Mike Naylor, Personal Finance Expert at uSwitch.com commented, "People have enjoyed easy access to cheap credit for quite some time, but for some, the party really could be over. Anyone with multiple debts and a poor credit history could be vulnerable to the impact of the Credit Crunch should seriously consider consolidation while the option is still available."

British debt has reached an all time high and many haven't seen such difficult economic conditions since the dotcom bubble burst. But hopefully times are changing as credit is no longer as easy to get. More than one in three people who applied for a new credit card in the last three months were declined and 19% have been rejected for an unsecured loan. There are also numerous ways the consumer can manage their debts, via an independent voluntary agreement, debt consolidation or a debt management plan.

Kevin Still, Director of Debt Management Company, EuroDebt Financial Services commented, "There have been a number of recent news announcements about the growing number of families in serious debt and the alarming rise in the number of personal insolvencies," "But I firmly believe that if we can get consumers, and their financial advisors, to start thinking about their monthly budget before they have any serious problems with personal and household finances, then if things do get very difficult, this will go some way towards helping them avoid the problem escalating out of control."

"Our recent experience in working with our broker and intermediaries is that consolidation loans and re-mortgaging options may no longer be viable in isolation to keep household debts at an affordable and manageable level. There is no doubt that financial advisors and mortgage brokers will see more and more cases where providing re-financing to consumers already over committed or with impaired credit records is not in their best interests. This is creating considerable interest in alternative debt solutions which do not involve re-financing, like Debt Management Plans."
"EuroDebt's aim is to work closely with financial advisors and intermediaries to provide expert debt advice around all the debt solutions available to both the broker and their client. We have a well established Introducer Scheme that enables referrals to be quickly followed up because people in an unmanageable debt situation normally demand a very rapid response."

"We have over 100 regional debt advisors who perform confidential home visits to prospective clients, where a thorough assessment can be made of the household finances. Debt Management Plans are very popular as they do not put the client's home at risk and the qualifying criteria are substantially less restrictive than for an IVA. Creditors see an immediate return from a Debt Management Plan and will generally stop applying interest and charges when notified of the appointment of a Debt Manager like EuroDebt."

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Remortgaging drops 21% in one month

A 21% drop in remortgage volumes could be a sign borrowers are sticking with existing lenders warns the Council of Mortgage Lenders. Remortgaging dropped from 93,000 in October to 73,000 in November.

The CML says that it's possible that more borrowers are staying with their existing lender at the end of fixed rate loans because of the deals available elsewhere are less attractivedue to them taking into account the costs of remortgaging. Borrowers though could instead be taking a wait and see approach in anticipation of further rate reductions before deciding whether to remortgage.

But despite a continued drop in income multiple levels the Council of Mortgage Lenders says the UK mortgage market remains resilient in the face of the liquidity crisis. From a peak in August of 3.39 x salary, the average first-time buyer now typically borrows 3.33 x salary, with the figure dropping steadily over the last six months.
Home movers typically borrowed 3.02 times their income, a figure which has remained steady since a peak of 3.04 in August.

The proportion of borrowers taking out fixed-rate mortgages fell for the fifth successive month to 65%, from 68% in October and a peak of 77% in June, as borrowers continued to anticipate future base rate falls. In the coming months, this trend away from fixed rates is likely to continue with the expectation of further rate reductions in early 2008.

Gross lending totalled £30bn in November, down 10.4% from £33.5bn in October, and 9.6% from £33.2bn in November 2006. Lending for house purchase totalled 80,000 transactions, a 3.1% decrease from 83,000 in October.

Michael Coogan, director general of the CML, says: "At a time of global market uncertainty, business levels in the mortgage market are holding up reasonably well in the UK despite funding constraints. "There are mixed signals on inflationary pressures here which will make the MPC's decision finely balanced, but consumer confidence would be further underpinned by another rate cut this week. "Most borrowers are on fixed rates and so will not see any immediate benefit from another change in the base rate. Some are on tracker rates which will automatically follow changes in the base rate or LIBOR (both up and down). A minority of customers are on a SVR.

"Each lender will make its own commercial decision on whether to change its SVR to follow a base rate move, depending on its risk profile, cost of funds, and business focus.

"As the 'credit crunch' has affected businesses in different ways, this fragmentation of approach by different lenders should be expected until the market returns to more normal conditions later this year."

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Halifax posts surprise rise in house prices

House prices strengthened unexpectedly in December after three successive monthly falls, Halifax's index showed on Tuesday, but analysts said the rebound was unlikely to signal an end to the housing market slowdown.

The lender said house prices rose by 1.3 per cent last month, beating forecasts of a 0.5 per cent fall. But prices in the fourth quarter of 2007 were 0.8 per cent below their level in the third quarter, and Halifax said the annual increase of 5.2 per cent was below the long-term average of 8 per cent for only the second time since 2001.

The pound strengthened after the survey's release, with the lack of compelling evidence to support a cut in interest rates at this week's meeting of the Bank of England's monetary policy committee, in spite of calls for a second swift cut from several industry bodies.

Most analysts think rates are on their way down but expect the Bank to hold its next move until February, when it updates its own economic outlook in its inflation report. Alistair Darling, the chancellor, said on Tuesday the Bank had "room for manoeuvre" with interest rates, adding that people would expect any cuts to be passed on by lenders.

Halifax's survey contrasts with other recent data showing lower mortgage approvals and month on month price falls. Analysts said the findings could not be taken as a sign that the housing market was stabilising, although they might moderate expectations of the extent to which prices could fall.

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Rate cut failed to boost morale

Last month's cut in interest rates did little to boost morale among consumers worrying about the economy and housing market, according to a survey released on Wednesday by Nationwide .

The lender's index of consumer confidence edged down to its lowest level since February 2007 in December as expectations for house price growth fell. People were relatively sanguine about their jobs and earnings prospects, but 42 per cent thought the economy would worsen over the next six months.

Fionnuala Earley, Nationwide's chief economist, said the weak reading was "not surprising given current economic conditions", adding that further interest rate cuts would help but confidence was unlikely to recover for several months.

Consumers' willingness to spend picked up from November's low, but stayed well below average. More than half of the respondents thought it was a bad time to make a big purchase. Ed Stansfield, property economist at Capital Economics, said it could be tempting to relate the bounce in prices to December's cut in interest rates, but that it seemed "unlikely that the cut would have had such a pronounced and rapid impact, especially as not all lenders have passed it on to borrowers".

Monthly readings on the Halifax index can be highly volatile, and the lender said a mixed pattern of monthly price rises and falls was typical in a subdued market. "With buyer traffic and mortgage approvals down sharply and buyers as eager to buy a house as they are to catch a falling knife, this is probably a blip in an otherwise downward trend," said Alan Clarke, economist at BNP Paribas.

Michael Saunders, economist at Citigroup, said: "This bounce in prices ... reflects the point that even in bear markets, prices do not fall every month, and the declines of the last few months were very sharp. "With housing demand weakening sharply, we continue to expect house prices to fall outright in 2008, contributing to a further marked slowdown in consumer spending," he said.

The prospect of lower interest rates may not feed through to house prices yet, but it has already led to changes in borrowers' preferences. The Council for Mortgage Lenders said the popularity of fixed-rate mortgages declined for the fifth successive month in November as borrowers anticipated further reductions in the base rate.

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Buy-to-let remains resilient, says survey

Buy-to-let investors have shrugged off a slide in the value of rented houses with almost half of existing investors planning further purchases in the market.

Nine out of 10 landlords have no intention of selling their properties, according to the fourth-quarter survey of the Association of Residential Letting Agents. Four out of 10 expect to invest further in the private rented sector this year. Arla said the findings were the first to show that confidence in the buy-to-let market had stood up to problems caused by the credit crisis.

"This is good news for the housing market, particularly as it comes from surveys carried out well after the credit crunch had begun to bite," said Ian Potter, Arla's head of operations. There have been fears that the buy-to-let market could grind to a halt as the cost of financing begins to rise at the same time as prices in the housing market fall. Lenders have certainly tightened buy-to-let lending criteria and raised rates in recent months to reflect their own difficulties in borrowing money on the wholesale money markets.

The average value of rented houses fell by 1.3 per cent over the quarter, according to Arla, with falls of 5.2 per cent in the south-east and 4.5 per cent in the rest of the UK being offset in part by a 2.9 per cent appreciation in central London.

Arla said that the market was being sustained by the income being generated and a healthy level of demand from occupiers fuelled by a shortage of available housing. The average rate of return on a cash purchase of residential investment property was 10.8 per cent last quarter, and for geared investments, assuming a 75 per cent mortgage, 21.4 per cent.

The survey showed that buy-to-let investors borrowed an average of 70 per cent of the purchase price, down from 74 per cent in the previous quarter, which an Arla spokesman described as a sustainable level of borrowing. But Arla warned prospective investors to avoid buying property "off-plan" - not yet built - which it described as risky in current market conditions. The survey showed that 7.5 per cent of purchases were made off-plan during the last quarter.

Recent studies from lenders such as Bradford & Bingley and Alliance & Leicester have shown similar levels of confidence. "We're sanguine about the market as long as investors have a long-term strategy," said Martin Gahbauer, senior economist at Nationwide, who added there were concerns about new investors buying into the market at this time.

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Bank warns on mortgage defaults

The number of households defaulting on their mortgage payments is expected to rise over the next three months, the Bank of England has warned.

Its gloomy assessment comes as it says the global credit crunch is likely to worsen into 2008, as banks become less willing to lend out funds. The Bank's comments came as it said homes and firms found it harder to borrow funds towards the end of 2007. Its findings may raise hopes of a further cut in interest rates.
The Bank's comments came in its latest quarterly Credit Conditions Survey, which covers the last three months of 2007. It said banks were now less willing to lend because of the higher cost and reduced availability of credit.

Both secured and unsecured household lending fell "due to lenders reducing their risk appetite", the Bank said It added that "recent financial market turbulence as well as expected changes in the cost and availability of funds, would point to lower credit supply".

The Bank last cut rates at the start of December, reducing them to 5.5% from 5.75%. This was the Bank's first rate cut since August 2005, with its nine-member rate-setting Monetary Policy Committee (MPC) unanimous in their decision.

Vicky Redwood, UK economist at Capital Economics, said the findings of the survey indicated that both consumer spending and business investment were now likely to suffer, hitting the UK economy. "Together with the delayed impact of previous rate hikes and the global slowdown, the credit crunch should push GDP growth to 2% or lower this year and next," she said.

Howard Archer, chief UK and European economist at Global Insight, said the Bank of England could now cut rates further as early as next week when the MPC meets for its January rate-setting decision.
"An undoubtedly weak survey, albeit expected," added George Buckley, chief UK economist at Deutsche Bank.

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