News

Economy

Bank united in keeping interest rates and QE unchanged

The minutes from the MPC's meeting showed members voted unanimously to hold interest rates and continue with quantitative easing (QE). However, the minutes also showed members were split about whether the bank should expand QE in 2012.

In the minutes the bank noted the success of recent interventions by the European Central Bank (ECB) to lend money to European banks. It said this had already significantly increased the amount of money they were willing to lend and decreased the chance of the sovereign debt crisis spilling over into the banking system. (BBC 25/1)

UK economy shrinks by 0.2% in last three months of 2011

UK economic activity shrank by 0.2% in the last three months of last year according to a preliminary estimate from the Office for National Statistics (ONS). It marks a sharp drop in economic activity from the third quarter of 2011, when gross domestic product (GDP) expanded by 0.6%. The new figure was worse than had been feared, as most economists had pencilled in a 0.1% fall in activity.

The contraction was driven by a 0.9% fall in manufacturing, a 4.1% drop in electricity and gas production as the warm weather caused people to turn down heating, and a 0.5% fall in construction sector. (BBC 25/1)

UK inflation rate falls to 4.2% in December

Consumer Prices Index (CPI) inflation in the UK fell to 4.2% in December, down from 4.8% in November, according to the ONS. Retail Prices Index (RPI) inflation - including mortgage interest payments - fell to 4.8% from 5.2%. It backs Bank of England predictions that inflation will be 2% by late 2012. The drop in the CPI rate was the biggest monthly fall since April 2009, and the lowest rate since June 2011. (BBC 17/1)

UK unemployment increases to 2.685m

UK unemployment rose by 118,000 in the three months to November to 2.685 million,. The ONS said the unemployment rate also rose to 8.4% from 8.3%, the highest since January 1996.The number of people claiming Jobseeker's Allowance in December rose by 1,200 to 1.6 million. The number of young people looking for work hit a new record of 1.043m, taking the rate for 16-24 year-olds to 22.3%. The figures support the picture of a flat UK economy, with other data showing average weekly earnings, including bonuses, grew at just 1.9% (BBC 18/1).

UK industrial output fell in November

UK industrial output fell 0.6% in November, heightening concern over the strength of the economy. It followed a downwardly-revised 1% fall in the previous month, and meant output was 3.1% lower than a year ago. The surprisingly sharp fall announced by the ONS was driven in part by lower energy - especially gas - consumption due to relatively mild weather. However, manufacturing output was also down in the month, by 0.2%. (BBC 12/1)

UK retail sales rise 0.6% in December due to discounting

UK retail sales volumes rose by 0.6% between November and December, after heavy discounting by stores. The ONS also said that sales were 2.6% higher than December 2010. November's figure was revised down to show a fall of 0.5%, rather than the 0.4% originally estimated. (BBC 20/1)

Consumer confidence at low ebb

	Dec 2011	Nov 2011
Nationwide Consumer Confidence Index	38	40
Present Situation Index	19	18
Expectations Index	50	55
Spending Index	77	77

The main index stands 39 points below its long-run average of 77, and 17 points lower than the same point last year.

Robert Gardner, Nationwide’s Chief Economist, said “While disappointing, the results are not surprising. Right to the end, 2011 was an extremely tough year for UK consumers. With the economy struggling to gain any sort of momentum, labour market conditions became even more challenging in the latter half of the year, with the unemployment rate rising to its highest level for fifteen years. “At the same time, the cost of living continued to rise at more than twice the rate of underlying wage growth, putting further pressure on household budgets and bearing down on sentiment.”

Mortgage and housing market

Mortgage lending unchanged in December

The number of loan approvals for house purchase (53,000) was broadly unchanged in December, and was higher than the previous six-month average (51,000). The number of approvals for remortgaging (32,000) also increased in December, and was broadly in line with the previous six-month average. The number of approvals for other purposes (21,000) was little changed in December, and was also broadly in line with the previous six-moth average (BoE 31/1)

UK house prices decline by 0.2%in January

House Price Indices	Monthly % Change in Prices
	Oct 11	Nov 11	Dec 11	Jan 12	Yr on Yr
Nationwide	+0.4	+0.4	-0.2	-0.2	+0.6
Halifax	+1.2	-0.9	-0.9	n/a	-1.3
HMLR	-0.9	+0.3	0.0	n/a	-1.3

Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said: “Given the challenging conditions prevailing in late 2011 it’s not surprising that house price growth softened at the start of 2012. The demand/supply may move further in favour of buyers in the months ahead. The economy is not expected to gather much momentum until the second half of 2012 at the earliest, which suggests that labour market conditions and buyer sentiment may be slow to improve. Nevertheless, with the flow of properties coming onto the market still more of a trickle than a flood, house prices are likely to continue to move sideways or only modestly lower in the months ahead. (Nationwide)

Housing market - RICS says no pick up in sight

There is no sign of the UK property market picking up in the coming months, the Royal Institution of Chartered Surveyors (Rics) has said. Its latest monthly survey says some sellers are still asking too much for their properties, while some potential buyers cannot raise a mortgage. As a result, surveyors expect the level of sales to stay unchanged in the next three months. (BBC 10/1)

CML Market commentary

The closing months of 2011 saw stronger mortgage lending activity and housing transactions. But this was from low levels, and we would not read too much significance into these recent figures. Immediate economic prospects are challenging and suggest a weak first half for the housing market.

Inflationary pressures have started to fall away sharply, raising hopes that real incomes may stop falling later this year. Looking a little further ahead, there now seems to be a reasonable prospect that real incomes could stabilise and perhaps even start rising moderately by the end of the year. This would boost consumer confidence and help to kindle house purchase demand.

The Eurozone crisis continues to make funding conditions challenging and exposes mortgage pricing to upside risks. (CML 23/1)

Mortgage rationing becomes worse, Bank of England warns

Home buyers will find it even harder to obtain a mortgage in the coming months, the Bank of England says. "Lenders expected a tightening of credit scoring criteria for granting new secured loans to households," the Bank said. (BBC 5/1)

New buyers fall 10.5% as house price pressure mounts

The number of new buyers registering with agents dropped 10.5% in January, as the market continued to be “dogged” by uncertainty over the economy, according to Hometrack. Its latest survey revealed that demand from buyers fell 11% over H2 2011, with the net result of new buyer registrations dropping 23% between August 2011 and January. .(Mortgage Solutions 31/1)

Buy to Let

Demand in the rental sector may have peaked in 2011

Demand in the rental sector may have peaked in 2011, as tenants struggle to meet rental payments, according to the Association of Residential Letting Agents (ARLA). Its research revealed that tenant demand in Q4 2011 remained strong, but was sharply down on the previous quarter, with 55% of members reporting more tenants than available properties in Q4 compared to 74% in Q3. ARLA said that, the drop could be attributed to the traditional seasonal slowdown before Christmas.

During Q4, 39.2% of ARLA members reported an increase in tenants struggling to pay rent, up from 36.7% the previous quarter. Nevertheless, the number of new tenancies being signed remained stable in Q4, with an average of 34 per letting agency. (ARLA 20/1)

Rents see second successive monthly fall

The average rent fell a second successive month in December – down by 0.8% to £711. LSL put this fall down to a “seasonal lull”. Despite this monthly fall the annual rate of rental inflation rose from 3.5% in November to 4.0%. (LSL 20/)

Source: Nationwide, January 2012

The views given above are purely for market commentary purposes and may not reflect the views held by Nationwide Building Society and its subsidiary companies. These views are valid only for January 2012.

The Government will underwrite mortgages for up to 100,000 buyers trying to get on the property ladder, meaning they will only need to pay a 5 per cent deposit for newly-built homes. Help for families needing housing also includes a 'reinvigorated' right-to-buy, the Chancellor George Osborne said in his Autumn Statement.

Discounts of up to 50 per cent will be available for council house sales, with the money used to build a new affordable property for each one sold, he said.

The number of sales to first-time buyers fell to its lowest level in almost three years in October last month according to the National Association of Estate Agents.

But the State's part-guarantee of buyers of new homes - called the Mortgage Indemnity Scheme - will mean people can get on the property ladder with only a relatively small deposit. Typically people are asked to pay a 20 per cent deposit.

Chief executive of Countrywide, the UK's largest property services Group, added: '[These measures] only scratch the surface of the fundamental issues that have restricted the housing market in recent years – housing supply and the high level of deposits required. The prediction that 100,000 families will benefit from the Mortgage Indemnity Scheme may be optimistic, as we're yet to hear the detail of whether it enables lenders to offer cheaper rates.'

Steve Roche, group communications director of Persimmon Homes, said: 'The Get Britain Building Fund, along with the Government and industry-backed mortgage indemnity scheme, will enable mortgage lenders to offer 95 per cent loans on new-build homes, dramatically reducing the deposits people have to save.'This will help both the industry and house buyers alike.'The scheme effectively reduces the risk to the bank or building society lending the money - if the house happened to be sold later on for less than the outstanding amount, the lender would be able to recoup its cost.

However, there was a blow for first-time buyers in today's announcement - their stamp duty holiday will be scrapped in March next year as planned because it 'has been ineffective in increasing the number of buyers entering the market' the Chancellor said.

Currently no stamp duty tax is paid on properties worth less than £250,000, but from 24 March 2012 the 1 per cent rate will be paid on homes worth more than £125,000 (equating to £1,250).

Finally, for existing homeowners, a 5 per cent rate of VAT will be applied to all Green Deal compliant work they have done on their properties, such as installing solar panels.

Source: www.dailymail.co.uk, 29th November 2011

More than half of British workers (52%) would not be able to sustain themselves financially for more than three months, if they were off work due to ill health.

Almost a third (30%) would not be able to last a month, but 9% believed that they would be able to survive for a year or longer. The research, commissioned by Aviva, has uncovered a gap in financial protection, and awareness when it comes to support that would be received should an individual find themselves ill and unable to work.

Almost one in five (19%) know which Statutory Sick Pay they would receive but even more (26%) incorrectly believe they would receive much more.

Steve Bridger, head of group risk, Aviva, UK Health, said that group income protection can help employers to address many of the concerns that the insurer’s research has revealed and provide peace of mind to their employees.

Source: www.insurancedaily.co.uk, November 14, 2011

HSBC survey finds many British parents have not got life or health insurance and have done no tax or inheritance planning

More than half of British parents with dependent children have failed to take any steps to ensure the security of their families, leaving them exposed to the financial risks presented by ill health, redundancy and death, according to research by HSBC.

Only 52% of British parents surveyed said they had life insurance cover to provide money to support their children should they die or fall ill. More worrying is that 19% of parents did not even realise the potential consequences of this lack of life insurance and despite a big majority (81%) of parents aspiring to pass on wealth to their children when they die, most had done nothing about tax and inheritance planning. Two-thirds of parents in Britain have not made a will, while just 27% have a plan for passing on their inheritance.

The Why family matters survey is the latest in HSBC's The Future of Retirement series, which explores changing attitudes towards retirement and financial planning among 17,000 consumers in 17 countries around the world.

It found that in countries like China and India, large minorities of respondents (25% and 32% respectively) would like to spend their retirement living with their children or other family members, but respondents in Europe and North America were least likely to want to do so. Just 3% of Americans and Britons aspire to this.

There was also a big mis-match between the way money is invested and the use for which it is eventually intended. The survey found that 44% of households were using short-term cash deposits to fund retirement, compared with only 22% using longer-term investments such as mutual funds and investments.

HSBC said this mis-match could be partly explained by the global financial crisis, which has shaken confidence in long-term investments. Of those who believe they will be worse off in retirement than their parents, 38% said this was because the problems across the world's economies had reduced the value of their investments and savings.

Christine Foyster, head of wealth development at HSBC, said: "The fact that such large numbers of households are not planning ahead is leaving families greatly exposed to unforeseen events. Protecting the household's financial assets during parents' working lives will not only ensure that families can cope if there is a change in circumstances, but should also be seen as an important part of preparing for retirement."

Source: www.guardian.co.uk, Wednesday 26 October 2011

The Association of Medical Insurance Intermediaries has issued a reminder for clients not to wait until they are diagnosed with a condition when it is too late.

The call from Andrew Tripp, chairman of AMII, comes amid reports that NHS primary care trusts were delaying non-life threatening operations to save money.

Mr Tripp said people who think they will need medical treatment for natural wear and tear, such as knee or hip replacements or cataracts, may encounter issues going through the NHS due to budget cuts and waiting lists. He added: "If they choose to go private then insurance can be a cost-effective way to pay for treatment when they most need it, rather than suffering because they have to wait. However, as with any insurance, you must have taken it out before an event or situation occurs otherwise you have left it too late.

"These conditions that can often befall us as we get a bit older are relatively easy to deal with. The Coalition Government is concerned about pressure on pensions and on rising NHS costs. "Longer waiting lists are certainly not top of its wish list so it makes sense that politicians encourage those who can afford to take out cover for ailments that are quick and easy to treat.

"As a general guide across the market, a knee replacement could cost approximately £10,000 and the medical insurance premiums for basic cover for a couple in their 50s could cost less than £25 a week, or £4 a day depending where they live."

Source: FTAdvisor.com (22nd September 2011)

Banks have pulled the plug on dozens of cheap buy-to-let mortgages after a flood of applications from landlords. More than 50 deals have disappeared recently at a time when investors are seeking to cash in on the strong demand for rented property.

More than 2,600 mortgages were granted a week to landlords between April and June. There are now 1.3 million outstanding buy-to-let loans – a new high, but this week a number of big name mortgage lenders were forced to pull their best rates.On Wednesday, The Post Office withdrew all its buy-to-let mortgages, and Skipton Building Society has stopped offering its ultra-cheap tracker deals.

Buy-to-let specialist Kensington pulled the last deals on the market requiring only a 15 per cent deposit, and new bank Aldermore withdrew its popular fixed rate. Landlords who missed out on these cheap deals and are hoping to cash in on the boom will now have to make bigger mortgage repayments. For example, Skipton’s tracker rate has risen from 3.24 per cent to 3.59 per cent – the equivalent of £44 a month extra on a £150,000 interest-only mortgage.

The property market is stagnating in many parts of the country, with just 78,000 homes sold in August – 6,000 fewer than in July, according to HM Revenue and Customs. Meanwhile the number of first time buyers has almost halved compared with 2007, while their average deposit put down on a house has doubled from £13,222 to £26,250.

Rents are also reaching record levels, with tenants – many of whom are struggling to buy their own home – currently paying a record £713 a month on average.

Source: dailymail.co.uk (24th September 2011)

New data released by the Association of British Insurers (ABI) has revealed that an increasing amount is being paid out to those who hold critical illness and life insurance policies.

Last year 40,000 families and individuals received a total of £1.9bn, with an average payout of £47,166, roughly twice the average salary in the United Kingdom. In 2007 the number of claims being rejected reached 16%, since when the industry has taken action to help policyholders become better informed, reducing the number of claims turned down.

ABI Director of Life and Savings Maggie Craig described critical illness and life insurance as crucial support for people during the most testing times of their lives. Craig added that the insurance sector realised the importance of rapid payouts for such policies, and said it was working hard to ensure swift payment for valid claims and to reduce the number of rejected claims. Earlier this year Legal & General warned those looking to tighten their belts against the temptation to cut their insurance coverage, warning that it was a false economy to axe life or critical illness coverage which can provide vital financial support should the breadwinner suddenly become unable to work.

Source: Insurancedaily.co.uk (30th August 2011)

Cash-strapped Britons are putting themselves at "huge financial risk" by cancelling protection plans in the current economic climate, the managing director of Ageas Protect has warned.

Martin Werth said recent data showed overall protection sales had fallen, with an increase in lapse rates, as concerns about family finances have led people to reduce discretionary spending. He pointed out that the average age of its critical illness claimants was 42, while that of its income protection claimants was 37. This was backed up by evidence from other insurers, he said.

Mr Werth added: "Half the working age population has no protection and the financial consequences of purchase delay is not just the huge financial risk of an uncovered claim, but the risk that a 'health episode' may have a detrimental effect on the customer's insurability, or premium.

"Unfortunately we turn down more than 5 per cent of applicants and more than 25 per cent do not get standard terms. When people have cover they should hold on to it."

Matt Morris, senior policy adviser for London-based IFA Baigrie Davies, said his firm had sold more policies than in previous years, with fewer lapses. He believed the Ageas figures were partly due to governance and new business procedures, and were not indicative of the protection market.

Mr Morris added: "There is evidence to show that in times of financial hardship people tend to protect what they have. People start to pay attention to protection. If protection is sold in the right way, there is no reason why sales cannot be healthy, even in this uncertain economic climate."

Source: FTAdvisor.com (22nd September 2011)

Buy-to-let lenders had their busiest quarter since the 2008 financial crisis.

They approved mortgages worth £3.5 billion were between April and July, a total of 32,000 loans. There was a note of caution however, as the Council of Mortgage Lenders (CML) said its figures still showed the market is running at around one third of the level seen at the peak of lending in 2007. Demand from buy-to-let investors has picked up in recent months as tight mortgage availability has caused the rental market to strengthen.

However, the CML pointed out that remortgaging accounted for 65 per cent of the overall increase in buy-to-let lending in the quarter. At the end of the second quarter, there were 1.34 million buy-to-let mortgages worth £154.5 billion, up from 1.26 million and £148.8billion at the end of the same period in 2010. The CML added that for the first time since 2008 the arrears rates for buy-to-let mortgages were lower than in the owner-occupied sector. At 28,100 or 2.09 per cent of the total, loans over three months in arrears in the buy-to-let sector were 0.05 per cent lower than in mainstream lending during the quarter.

However, repossessions in buy-to-let increased by 9 per cent from 1,700 in the first quarter to 1,900 in the second.CML director-general Paul Smee said yesterday's CML figures showing a 24 per cent increase in first-time buyer loans during May indicated that newcomers to the market were not being displaced by buy-to-let landlords. He added of today's figures: "This is encouraging news for those who want to rent, as long as it is realised that much of the current increase is for remortgage rather than house purchase."

Source: Daily Mail 11th August 2011

LV= paid out 93% of critical illness and income protection claims in the 12 months to the end of June with just 1% of income protection claims and 3% of critical illness claims were rejected as a result of non disclosure.

A total of nearly £9m was paid out in critical illness claims and more than £12 million in income protection claims. The average age of an income protection claimant was 44-years-old while the average age of a critical illness claimant was 47-years-old. Mental disorder was the most common reason for an income protection claim (30%) and Cancer was the most common reason for a critical illness claim (58%). The average annual benefit for an income protection claim was £14,389, paying out for an average of just over seven years.

Mark Jones, head of protection of LV=, said: "Our consistently high percentage of paid claims illustrates our firm commitment to supporting people in difficult times, and through processes such as our tele-interviewing service and intelligent underwriting, we continue to see a very low number of claims declined for non-disclosure. People must make their own provisions for their financial future, and seek professional advice on the best way of doing so."

Source: ftadviser.com 9th August 2011

Banks and building societies are starting to offer higher LTV mortgages. At least 48 lenders offered a 90 per cent LTV mortgage during last month, a rise of 62 per cent on last year.

One of the big problems with the housing market has been lack of finance. An inability to get a mortgage has prevented many aspirant home movers from getting a new property, which has prevented properties from coming onto the market, and for activity to be stagnant.

Now it looks as if, gradually, the market is starting to perk up somewhat. It was always inevitable that after the crisis, there would be an overreaction in the financial markets, and confidence would take a long time to creep back. But what this has meant is stagnancy for a couple of years, with those trying to get on the housing ladder being the worst affected.

Property has remained at high price levels, but the finance has still been very conservatively-priced.

This has also meant that the lifeblood of the property market, first-time buyers, has not been able to get a look-in, and many aspirant homeowners have started to reconcile themselves to a lifetime of renting.

The mortgage market should pick up confidence and offer loans to people with small deposits, but it should be tempered with realism. Thankfully the crisis is still very fresh in people’s minds, so the runaway mortgage sector, with lenders offering loans at greater than 100 per cent LTV, should be avoided.

Source: Daily Mail (22nd July 2011)

Savers happy to lock their cash away for two years are being tempted by a new best buy: the Post Office's 3.75 per cent Isa fixed for 24 months.

Unlike ordinary savings accounts the returns on Isas are paid tax-free, which means savers get the full 3.75 per cent. The Post Office is also offering the best taxable two-year rate at 3.96 per cent. After basic rate tax is deducted, the account pays 3.17 per cent; higher rate taxpayers see net returns drop to 2.38 per cent which makes the 3.75 per cent Isa comfortably the best deal for taxpaying savers prepared to give up access for the whole two years.

Withdrawals are not permitted and if the account is closed early a charge worth 180 days of interest will be levied however savers can transfer in previous years' Isa pots and add up to £5,340 in cash if they haven't contributed to an Isa yet this year.

The account is not available to anyone who has made payments to a cash Isa since 6 April since Isa rules only let savers pay in to one account per year, so customers would need to transfer to the Post Office to take advantage of the two-year deal. They can top up during this process if they haven't got used up their whole £5,340 allowance.

Savers need £500 minimum to open the account, whether that's from a transfer or from new savings. Once opened, top-ups are not allowed.

Source: Daily Mail (22nd July 2011)

The survey revealed that one-quarter of the UK population said they would face money worries after just one week if they lost their job and one in three admitted that they do not put anything aside for emergencies, while more than half have no protection policies in place.

Kevin Paterson, sales and marketing director for Assurant, said: "Consumers need all the help they can get right now. There is a tremendous amount of confusion as to what they can and cannot get from the state."

About two in five UK adults currently describe themselves as either "stressed" or "very stressed", with those with no savings feeling the greatest strain. When asked what would increase their stress levels, three in five adults said "having no income".

Joss Harwood, director of County Durham-based Eldon Financial Planning, said: "As consumers hear more news about our country's financial situation, it in turn makes them more aware of their own money worries. I am not surprised to hear that those without savings are more stressed as they are effectively living on the edge without provisions at a time when many jobs are no longer secure. Some people may even be panicking about losing their lifestyles, rather than worrying about how they will simply survive if they lose their incomes. It is the people who cannot afford financial advice who often need it the most."

Source: Financial Advisor (27th July 2011)

Figures published on 27th July by the National Association of Estate Agents (NAEA) showed the average number of properties for sale per branch in June increased from 68 in May to 74 in June, the highest monthly figure since April 2009, when the average stood at 76.

The number of sales agreed also increased, from an average of eight per branch to nine. The NAEA said this suggested the increase in sellers reflected confidence in the market rather than a glut of unsold properties. The NAEA data also showed the percentage of sales to first-time buyers decreased slightly from 24 per cent in May to 20 per cent in June.

During June, the number of house-hunters entering the market dropped for a third consecutive month. In June 263 people registered per branch compared with 275 in May, a decrease of four per cent.

Wendy Evans-Scott, president of the NAEA, said the leap in available housing stock suggested increased confidence amongst sellers. She said: "They think there is a much better chance that their home will sell. For house-hunters, this is welcome news as it offers a wider choice of properties to pick from. However, efforts are still required to assist those looking to get onto the housing ladder if we are to see buyer activity match that on the sale side."

Source: Financial Advisor (27th July 2011)

Scottish Widows has paid out more than £728m in life insurance claims and £426m in critical illness claims since 2000, according to data from the company.

The figures show that a total of 30,800 life and CI claims had been paid in this period and on average Scottish Widows paid out £1.3m in life and £744,000 in CI claims, a total of more than £2m, every week for the past 11 years.

Clive Allison, protection market director, said: "Since 2000 we have helped more than 30,000 families who have made either life or CI claims. "The industry has come a long way in the past few years to raise awareness of the importance of having adequate protection in place. Also confidence has increased among consumers that life companies will pay out when making a claim.

"This is down to a number of factors, including the Association of British Insurers' code of conduct on non-disclosure which was introduced in 2008, and a greater emphasis on simplifying the process when making a claim. However the UK population is still hugely under-insured so Scottish Widows continues to work extremely hard to highlight to its customers the importance of financially protecting themselves with products such as life and CI."

Mel Kenny, chartered financial planner for London-based Radcliffe & Newlands, said: "As an industry we get hung up on the percentages whereas the consumer looks at the pounds and pence."

"While I do not think that Scottish Widows is that renowned for protection, these huge pay-out figures do bring it home how important life and CI cover has been to people's lives."

Source: Financial Adviser 05.05.11