John Charcol Market Report
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Mortgage News Mortgage Guides Mortgage Calculators Mortgage Best buys Contact us HOME FIRST TIME BUYER REMORTGAGING MOVING HOME BUY TO LET COMMERCIAL INSURANCE WHY CHOOSE US? Ask the mortgage experts Home » Mortgage News » John Charcol Market Report Mortgages & me Ray Boulger's blog John Charcol Market Report John Charcol Index Thursday 21st March 15th Feb 2013 - Market Report Press Room Central Bank Rates 21st Feb 2013 - Market Report Glossary Bank Of England rate - on hold at 0.5% and no increase in QE - (next decision 7th March 2013 - Market Report 4th April) 14th March 2013 - Market Report ECB - on hold at 0.75% - (next decision 4th April) The March MPC minutes showed that members were still at odds over whether to use more QE to try and boost the economy. Once again outgoing governor Sir Mervyn King and two others , voted for more QE, but were outgunned by the remaining six members. One member flagged a concern over the weakness of the pound, which has dropped by some 8% against the dollar since the start of the year, primarily due to fears about the strength of the UK economy. Ian McCafferty said that further falls in sterling could produce further rises in inflation, which could have "damaging" consequences. One economist commented: "If we get a new remit or a different remit [for the MPC] from the chancellor today, the balance for monetary policy could well change. But there is nothing from today's minutes that screams out that we are definitely going to get more QE." Following the budget, the Bank of England has been given the additional remit to consider using unconventional monetary tools to boost the economy. The change to the central banks remit came after the 2013 GDP forecast was cut again. It means that the Bank will now provide explicit guidance on how long it will keep its monetary policy loose, which is similar to the US Fed. The assumption is that by providing an indication about how long interest rates will remain low will weigh on longer-term interest rates and thereby lower borrowing costs for households and businesses, and help improve broader economic conditions. Current Governor Sir Mervyn King and incoming Governor Mark Carney have agreed to the new remit. The move has come as the government, which is committed to fiscal austerity, wants the Bank to do more to help the economy grow, rather than just focusing on inflation. Reaction to the new remit was calm, "The change to the remit doesn't go quite as far as some in markets had speculated, and therefore the reaction from the currency and gilts has reflected this," said one economist, adding "It does, however, potentially give the Monetary Policy Committee more flexibility to ease monetary policy further," he added. Banks / Building Societies Accord and HSBC have become the latest lenders to withdraw completely from interest only. Accord includes the rest of the Yorkshire Building Society Group, and comes at a time when other lenders are focusing on market innovation, rather than less choice. The Co-op Bank has revealed it made a loss last year and will sell an insurance unit to rescue the deal to take over the Lloyds Banking Group branches they’ve agreed to buy. The bank lost £673.7million in 2012, compared to a profit of £54.2million in 2011. The bank also revealed that its losses on bad loans had risen to £474million during the year from £121million in 2011. Also last July, the Co-op agreed to buy 632 Lloyds branches, however technical issues relating to computer systems, along with the state of the economy have stalled the deal so far. Co-op agreed to pay £350million upfront and up to an additional £400million based on the performance of the combined business to take over the branches. The planned sale of the general insurance arm is in addition to the announced sale of its life insurance business to Royal London Mutual Insurance for £219million. "We're getting in shape to do it if we can," Co-op’s chief executive said. "We're clearing the decks in order to take advantage of the [Lloyds branch] acquisition if we decide to go ahead with it. We're trying to conclude this transaction in very difficult economic times. That's what makes it more difficult. We're trying to establish what the risks are and to mitigate those risks." It sounds like they’re looking for a reason to pull out of the deal. UK Housing / Mortgage Market In the Budget the Chancellor has announced Government plans to launch a £130billion mortgage guarantee scheme and inject a further £3.5billion into shared equity loans under a new scheme called “Help to Buy”. The new scheme will allow all homeowners with a small deposit to access loans backed by the Government, and while it is similar to NewBuy, it is not limited to new-build properties. The scheme converted by Web2PDFConvert.com will launch at the beginning of 2014 and will run for three years, and as part of the plan the Government will offer a guarantee of up to 15% of the purchase price, with the borrower putting down a deposit of between 5% and 15%. Lenders will purchase the guarantee from the Government, with the price to be decided at a later date, and partly determined by the LTV of the mortgage. The guarantee will last for seven years with lenders taking a 5% share of any net losses above the 80%, to hopefully ensure lenders do not lend recklessly. The Treasury has said that it doesn’t expect its liability to be anymore than £12billion. A participating lender will pool the loans they wish to place in the scheme and the Government guarantee will apply to the pool. Lenders will not have to offer a guaranteed mortgage and may choose not to use it, according to the Government. Mortgage brokers have called the move a "significant step forward" for buyers, and estate agency has claimed that more than 600,000 home sales could be supported by the new policies, while another said it would be an extra 25,000 sales per year over 3 years. However here are questions over whether the new measures will help more second home buyers, rather than their intended target, and some economists are concerned that the new schemes would just push up house prices. However the Council of Mortgage Lenders (CML), warned that it was the details of this scheme that would determine whether such capacity was reached. "Without capital relief, and depending on the size of the fee, the cost of the commercial fee that lenders will have to pay to gain the benefit of the scheme could make the scheme uneconomical," the CML said. John Charcol’s Ray Boulger said that the policies could unclog some of the blockages in the housing market, and that prices were more likely to go up by 3% to 3.5% this year, rather than 2%, as a result of the moves. However Capital Economics, claim that it will artificially increase house prices and added that: "At best, it will just be irrelevant," he said. "People will have more money with which to buy the same number of houses, the same number of people will live in them and the same number of people will be excluded. It is just that they will be excluded at a higher level.” UK The Office for Budget Responsibility (OBR) has slashed the 2013 GDP forecast from the 1.2% predicted in December to 0.6%. The shock reduction was announced at the start of the Budget, and were blamed by the Chancellor on lower-than-expected exports. The OBR also revealed that the chancellor had failed to cut government borrowing this year, with the figure of £121billion being the same as the previous year (excluding certain one-off factors). The chancellor said he was going to "level with people about the difficult economic conditions we still face", and admitted that the recovery was "taking longer than anyone hoped". 2014’s forecast has also been cut, from 2.0% in December to 1.8%, while those for 2015 to 2017 remain the same. Interestingly the OBR isn’t expecting a contraction in Q1, which means avoiding the ‘triple-dip’ recession, though it does expecting the eurozone to stay in recession this year. "While less than we would like, our growth this year and next year is forecast by the IMF to be higher than France and Germany," the chancellor said. Inflation rose slightly in February according to the ONS. CPI went up to 2.8% from 2.7% in January, while the RPI actually dropped to 3.2% from 3.3%. The ONS said the biggest upward factor was increases in domestic fuel bills. For the first time the ONS has published some new inflation measures, following last years decision that the RPI calculation wasn’t up to scratch. RPI is still published but is no longer an official national statistic. The new RPIJ, showed the annual rate of inflation in February was 2.6%, down from 2.7% in January. Most economists are now of the opinion that price rises will keep rising over the coming months, partly due to the drop in the pound, which makes buying goods in other currencies more expensive. Capital Economics have predicted that CPI will reach 3.5% in the summer, on the back of higher food and petrol costs: "While it should ease back thereafter, the rise in import prices likely to result from the recent fall in the pound could slow that fall." The ONS has also reported that unemployment went up by 7,000 to 2.52 million between November and January.