Bank of England Monetary Policy Committee

A colleagure of mine spent yesterday evening listening to a presentation by Adam Posen, who is a member of the Bank of England Monetary Policy Committee.

His presentation was a look at the trends apparent in the UK economy over the past few decades and present, as well as comparing the similarity and differences between our most recent recession and previous ones.

The key points he made were:

- No sustained inflation moving forward, he expects to see a rapid drop in inflation in 2012.

- Continued increase in exported goods.

- Productivity growth hasn't returned to it's normal growth trend, as happened after previous recessions, but expectation is that it will return to its normal pattern of behaviour in the long-term.

- The ability of SME's to secure financing is seen as a greater issue to productivity within the economy than unemployment.

- No one sector is much worse, or better, than any other.

- The slowest moving sectors to recover are; Finance & Insurance, Professional & Technology and Transport & Storage.  In these sectors his expectation are for a greater loss of headcount in the short term.

Over the coming 2 years he is expecting inflation to come down, unemployment to rise further and did not rule out further QE being used by the MPC.

Where does the liability for water usage lie?

The Flood and Water Management Act 2010 came into force in October 2011. Section 45 of the Act amends the Water Industry Act 1991 to place an obligation on the Landlord to provide the tenant’s contact details to the relevant water company. The rationale behind this is to prevent tenant’s departing properties without providing water companies with appropriate forwarding addresses and leaving unpaid bills. Should the landlord fail to comply with this provision he will become jointly and severally liable for the invoices of the water usage at the rented property.
The supplemental regulations that the government has created to bring the provisions into force are still in draft. However we understand that they will require the water companies to set up appropriate websites for landlords to provide the necessary information.
These changes place a significant new obligation on landlords. It also gives the water companies a substantial benefit over other utility providers who do not have the benefit of this kind of statutory protection. Landlords and agents should consider amending their tenancy agreements to specify that tenants must provide evidence of the water bill being paid to date otherwise it will be deducted from the deposit.

Halifax - 'Homes at Most Affordable for 12 Years'

The proportion of disposable earnings devoted to mortgage payments - a key affordability measure - is at its most favourable for 12 years, according to new Halifax research.
Nationally, typical mortgage payments for a new borrower - both first-time buyers and homemovers - at the historic average loan to value ratio stood at 28% in the second quarter of 2011: the lowest level since 1999 and down by almost half from a peak of 48% of average disposable earnings in 2007 Quarter 3. There has also been a modest decline over the past year from 30% in 2010 Quarter 2, reducing mortgage payments relative to earnings further below the average of 37% recorded over the past 27 years.
Lower house prices and reduced mortgage rates - which have fallen since 2007 from an average of 5.84% to 3.85% - have been the main drivers behind the significant improvement in affordability. However, the average deposit put down by buyers has increased over the same period from 20% of the property value in 2007 Quarter 3 to 25% in 2011 Quarter 2.
All 12 regions have experienced the improvement in affordability since mid 2007 with affordability better than the long-term average in all regions. The most substantial percentage falls in average mortgage payments as a proportion of average disposable earnings have been in Northern Ireland (-62%) and Wales (-45%).
Locally, the fall in house prices and mortgage rates has also led to improvements in affordability in all local authority districts since 2007.  Sixteen areas have recorded an improvement of 50% or more. The overwhelming majority have seen a fall in mortgage payments as a proportion of average earnings of at least 25%.
Eight of the ten local areas that have experienced the biggest improvement in affordability since mid 2007 are in Northern Ireland. Carrickfergus has seen the biggest percentage improvement in mortgage payments as a percentage of average earnings (-63%) followed by Castlereagh (-62%) and Craigavon (-61%). Corby and Forest Heath are the other two areas in the top ten.
Martin Ellis, Housing Economist at Halifax, said: "Lower house prices and reduced mortgage rates have resulted in a substantial improvement in housing affordability since the peak of the housing market in 2007.  Housing is now at its most affordable for 12 years, and mortgage payments for a typical new borrower, compared with average earnings, are now comfortably below the long-term average.
"The improvement in affordability has been an important factor supporting housing demand this year. With the prospect of continuing low rates for some time yet, affordability is likely to remain favourable.  These affordability gains, together with a slowly improving economy, should help to support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes."
Other Key Facts

• Mortgage payments account for the lowest proportion of disposable earnings in Scotland (22%), Yorkshire & the Humber (23%) and the North West (23%).
   
• Six of the ten most affordable local authority districts are in Scotland. East Ayrshire is the most affordable local authority district in the UK with typical mortgage payments accounting for 17.7% of average local earnings.  This is followed closely by North Ayrshire (17.8%) and North Lanarkshire (18.0%).
   
• Kensington and Chelsea is the least affordable local authority district in the country with average mortgage payments on a new loan accounting for 75% of average local earnings. Mole Valley and South Buckinghamshire both in the South East are the next least affordable at 54% and 51% respectively.

Slightly Better News for First Time Buyers

The Council of Mortgage Lenders has issued a press release stating that June saw the highest number of mortgages taken out by first time buyers in 10 months.

The 18,100 loans to first-time buyers were worth £2.2 billion – 24% higher by volume and 29% higher by value than in May.

Government abandons controversial phasing-out of cheques

Controversial plans to abolish printed cheques by 2018 have now been scrapped, the bank trade body, the Payments Council, has announced.
The group, which represents banks and payments groups, has now said cheques will be available to bank and building society customers for “as long as customers need them”.
Work started last year on an alternative paper-based system, but the Payments Council said it had now decided that this was no longer the best option and that “retaining the cheque is a better approach”.
Richard North, Chair of the Payments Council said: “Listening to over 600 stakeholder groups, working with the banks and following our appearance before the Treasury Select Committee, we have concluded we should reassure customers that the cheque is staying.”

Loan numbers for home buyers increase - CML

The number of loans for house purchase and remortgaging both increased in May, showing further signs of stabilisation in the mortgage market, according to new data from the Council of Mortgage Lenders. However, lending volumes are still weak on a historic basis.
There were 41,500 loans worth £5.9 billion advanced for house purchase in May, up from 40,800 (£5.9 billion in value) in April.
Despite the monthly increase in house purchase activity, it is still below the level seen in May last year (43,800 advances worth £6.3 billion).
Remortgage lending picked up slightly in May. Some 29,000 remortgage loans were advanced, worth £3.6 billion, compared to 24,700, worth £3 billion, in April.
Compared to May last year, remortgage lending has increased by 9% in value, but remains below the recent peak in March (£4.1 billion).
The majority of borrowers continued to opt for fixed-rate mortgages in May (62%). It is likely that borrowers prefer the certainty of mortgage payments in a period when future interest rate movements are uncertain. Only 22% of all borrowers chose tracker mortgages in May. This represents a significant change from May 2010 when fixed rates were less popular at 46% and tracker mortgages more popular at 36%.
Lending to first-time buyers was virtually unchanged in May: 15,900 first-time buyer loans were advanced compared with 15,800 in April. The value of these loans remained unchanged in May at £1.9 billion. Compared with May last year, first-time buyer activity has fallen by 2.5% in volume (from 16,300) and 5% in value (from £2 billion).
First-time buyers borrowed on average 80% of their property's value in May for the second month in a row. This is still well below the 90% that first-time buyers typically borrowed before 2008, but has eased a little from the 75% experienced throughout 2009 and early 2010.
In May this year, only 3% of first-time buyers took out an interest-only mortgage. Before 2008, it was typical for around 30% of loans to first-time buyers to be on an interest-only basis.
The number of mortgages advanced to home movers edged up in May to 25,600 advances from 25,000 in April, while the value of loans advanced stayed the same (£4billion). This is an increase of 2.4% by volume compared with April. There were larger year-on-year falls in lending to this group than in the first-time buyer sector, down by 7% in volume compared with May last year.
Home movers have typically borrowed just below 70% of their home's purchase price since the middle of 2009 and this continued in May.
CML director general Michael Coogan said: "Over the coming months seasonal factors are likely to push up lending for house purchase. There is no evidence of any drastic changes on the horizon or any significant shifts in direction for the mortgage market. These stable conditions are expected to continue for the rest of the year.
"Funding market conditions appear a little more positive. For example, recent securitisation deals suggest confidence has returned as investors regain their appetite to invest in bonds backed by mortgage assets. Overall this is a positive influence on mortgage market conditions."

Home buyers urged not to forget survey

For many people, buying a home is one of the biggest decisions they will ever make. However, by failing to commission a survey before purchase, homebuyers across England and Wales are risking potential bills running into thousands of pounds.
According to RICS research, a quarter of all homebuyers who fail to have a survey are forced to undertake unplanned building works to their property after purchase.
The average bill for these works, such as damp proofing or repairing a roof, is over £1800 - but the cost can be much higher.
A common misconception is that a mortgage lender's valuation report represents a survey when in fact, it is merely a valuation carried out on the mortgage lender's behalf and is not designed to highlight any potential problems with the property. By commissioning a home survey, any structural problems or urgent defects are highlighted, enabling the buyer to make an informed decision before committing to the property.
The RICS Condition Report is a new home survey which is both simple and affordable. Designed for newer properties and conventional homes, it provides a clear report on the condition of the property, plus details of urgent faults and advice for legal advisors. It does not provide an additional valuation, but sits alongside a mortgage valuation.
Alongside the Condition Report, RICS offers two additional surveys, tailored to the type and age of a property:

• RICS Condition Report: A clear, concise picture of the property with "traffic light" ratings. It shows the condition of the property, offers advice to legal advisors and highlights details of any urgent defects. The lowest priced of the surveys; it is aimed at conventional properties and newer homes;
   
• RICS HomeBuyer Report: Contains all the features of the Condition Report, plus a market valuation and insurance rebuild costs. It also includes advice on defects that may affect the value of the property with repairs and ongoing maintenance advice.
   
• RICS spokesperson, David Dalby, said: "In difficult economic times it pays to be prepared. Nobody wants to be left with a home that needs extensive repairs or one they can't sell on. By having a survey you'll be armed with information on the condition of the property which puts you in a stronger position to decide whether to proceed with the purchase, or negotiate a better deal.

"Interestingly, other parts of the housing market are also using surveys to their benefit. For landlords this can be to assess their investments, while we are also seeing sellers turning to surveys in order to prepare for the sale of property. These highlight any problems that may potentially delay the sale or impact on the price later in the process."

---