Overseas Property Investment Consultancy & UK Property Investment Consultancy

Imminent interest rate rise?

Last month, a member of the Bank of England’s Monetary Policy Committee (MPC), Andrew Sentance voted in favour of raising the interest rate by 0.25%.  He is the first MPC member to have voted in favour of raising interest rates since August 2008, and he did it again this month.  Could this be the beginnings of a growing trend?  and if so are we looking at imminent interest rate rises?

I believe not.

Interest rates have now been at a historical low of 0.5% since March 2009.  This is an astoundingly low level and in fact one that has never before been reached.  To bring it into context, the lowest base rate level reached during the last 100 years was 2%; it remained for 7 years between 1932 and 1939.

The MPC are involved in a complicated balancing act.  On one side they have the threat of increasing inflation whilst on the other they have the risks attached with fledgling economic recovery. Although stability is returning to the housing market and wider economy, this recovery is fragile and carefully economic management is required to keep it on track and allow it to strengthen.

Inflation, although significantly above the Bank of England’s 2% target is on a downward trend and generally the committee is of the opinion that this will continue.  If this is the case, then the pressure to raise the base rate in order to curb inflation diminishes.  Interestingly, the Consumer Prices Index (CPI) stood at 5% in September 2008, considerably more than the current 3.2% level.

This reduction in pressure to increase rates is reinforced by the results of our most recent monthly survey.  The number of people who believe that rates will increase during the next 12 months has reached its lowest level since January (63%).

I believe that raising interest rates at this stage is unnecessary and could cause some destabilisation of the housing market and reduce consumer spending, which in turn could have further reaching effects on the UK economy.  Although I appreciate that the base rate will need to increase at some point, I think this is unlikely to happen before the effects of the VAT increase early next year have been assessed and economic recovery has become more established.  Therefore, although I am of the opinion that rates could increase within the next 12 months, this is most likely to be towards the back end of this timeframe, and even then by only small increments.

If this scenario is correct then we have many more months to enjoy interest rates at levels that have never before been experience.  What a great time to invest in property.

Three quarters would invest in property

Latest results from our monthly confidence tracker survey show that a huge 75% of respondents would choose property as their first investment choice. In contrast, just 2% of people who took part in the survey during June said that they would put their money into shares. Interestingly, gold received 17% of the vote.

When asked if the current historically low level of interest rates has increased their desire to buy a property, two thirds (67%) said yes with 79% of the opinion that right now is a great time to buy a property in the UK. 65% of respondents share the view that property prices will continue to rise over the coming 12 months, with 4% believing this could be by as much as 15% – 20%.

On the subject of overseas property a very respectable 65% believe that this is currently a good time to buy a foreign property with 62% actively considering a foreign property purchase. Once again the region attracting most attention from potential property purchasers is the United States, particularly Florida. A number of European countries including Spain, France, Italy and Cyprus also ranked highly amongst those people looking for a second home.

Although the stock market has been performing rather well over the last 12 months, in more recent weeks it has taken a bit of a tumble with the FTSE 100 losing nearly 1000 points between Mid April and the end of June. In comparison the property market has demonstrated far more resilience to recent global economic shocks and has already regained a great deal of the value that was lost over the last few years. The results of this survey clearly demonstrate the confidence that the general public has in the property market.

Will rates remain at 0.5% for the rest of the year?

For the 16th consecutive month, The Bank of England Monetary Policy Committee (MPC) have voted to keep UK interest rates on hold at 0.5%. Although this was widely expected there have been growing calls for the base rate to be increased in an effort to curb inflation.

Last month MPC member Andrew Sentance voted to increase the rate by 0.25%, becoming the first committee member to vote for an increase since August 2008. Mr Sentance is of the opinion that the rate needs to be raised in order to bring down inflation which remains stubbornly high. In April the Consumer Prices Index (CPI) reached 3.7%, the highest it had been for 17 months and well above the government’s 2% target. Although this has fallen back a little, the rate still stands at 3.4%.

In 2 weeks time the minutes of this month’s meeting will be released. It will be interesting to see the voting figures. General consensus is that the current historically low rate level will remain for the remainder of this year at least.

The members of the MPC have to manage a balancing act that is as tricky as it has been in a long while. Even when change does come it will most probably be in the form of small 0.25% increases, so for the short term at least interest rates will remain low.

Change is in the air

The new Conservative/Liberal Democrat coalition government has now been in place for over a month. This got me thinking, with all their manifesto pledges regarding property what have they actually done so far? The answer is – quite a lot.

Almost immediately it was announced that Home Information Packs (HIPS) would be abolished. It is widely believed that these packs have achieved little more than reducing the number of properties coming to the market as well as the time taken to bring a property to market. The Energy Performance Certificate (EPC) will however remain. I believe this is the ideal compromise as although HIPS were undoubtedly a bad idea, a whole industry has built up around the EPC’s and it would have been wrong to destroy peoples businesses, especially given that EPC’s are actually a good idea.

Of course, with compromise in the air some manifesto pledges had to be forgotten and one of these was the conservative’s plans to increase the inheritance tax threshold. With huge increases in property values over the last decade or so, the current threshold is a great deal lower than it should be if it were to have kept pace with the increases. Shelving the Conservative’s plans unfortunately means that property owners in particular will not be able to pass on as much as perhaps they would like to, free of tax.

Also of impact to property investors is the announcement that Capital Gains Tax (CGT) will be increased to 28% for higher rate tax payers. There has been a lot of uncertainly and fear surrounding this in recent weeks but in reality the increase was nowhere near as high as was expected.

The new government then turned its attention to new developments. Firstly they reversed a Labour decision to classify gardens as brown field sites, giving local authorities greater powers to block proposed developments based on local objections.

Next they looked at housing density and abolished the ‘minimum density targets’ for new developments set by the previous government. The policy which dictates that at least 30 homes are built on every hectare of development land has been blamed for a profusion of apartments as well as threatening the existing character of towns and cities in addition to more traditionally green and open areas. There have also been signs that an existing policy which details that new developments must contain a set amount of social housing may also be reformed or scrapped.

Most recently has been the announcement that the Financial Services Authority (FSA) is to be scrapped and more power given to the Bank of England. Many will see this as a good move given FSA failures during the recent credit crunch and subsequent recession.

So there we have it, one month down and some major changes already in place. As property investors will we be affected? In a word, yes.

The new government has certainly hit the ground running and without doubt some of these announcements are good news, unfortunately some are not so good for us, but time will tell whether the positives will out way the negatives. One thing is always certain though; property investment is a great route to wealth and financial independence and right now offers some incredibly exciting opportunities and we have some of the best. Grab them while you can, with economic recovery in the air they may not exist for long.

Government figures show annual house price inflation back in double digits.

New figures from The Department for Communities and Local Government (DCLG) showed April house prices were 10.1% higher than a year ago.

This represents the strongest rate if inflation since October 2007. The report indicates growth of 0.4% during April, broadly in line with other market reports.

Wales has recorded the highest annual growth at 11.3%, whilst England trailed slightly behind at 10.9%. Scottish house price growth was considerably lower at 2.2% but Northern Ireland saw average prices falling by 8.9%. The Council of Mortgage Lenders (CML) says that lending is 15% higher than a year ago.

RICS
Meanwhile, the most recent survey from the Royal Institution of Chartered Surveyors (Rics) shows a “sharp increase” in the amount of property reaching the sales market.

The report says that 22% more surveyors reported a rise in prices than reported a fall in the three months to May. RICS spokesperson Ian Perry said: “Surveyors are generally confident that sales will continue to pick up over the summer months. The increase in supply as a result of the abolition of Hips is helping to support this optimism.”

Confidence in property remains high

The results from our latest survey are now in and they reveal that confidence in property both in the UK and overseas remains high.

84% of respondents to the May survey say that right now is a great time to buy property in the UK. 68% said that now is also a good time to buy overseas property with 53% currently considering buying in a foreign country. The United States and the Caribbean still topped the most favoured overseas locations with Turkey and Spain also scoring highly.

Looking at the results in more detail only 6% said that they expect UK house prices to fall over the coming 12 months, the lowest figure since the introduction of the survey nearly a year ago. Whilst almost 3 quarters expect interest rates to increase within the next year 61% say that they are still feeling the benefit of historically low rates, with 49% indicating that current levels have increased their desire to buy UK property.

At a time when the media seem to be re-focusing their attention on economic doom and gloom the results of this survey are very encouraging. At a time when stock markets have experienced such enormous volatility the housing market has fared rather well, recording significant growth over recent months. The UK housing market is very resilient and it is this factor that makes property such a great place for people to put their money.

Call to change leasehold laws

There are calls for the rules surrounding leasehold homes to be clarified amid claims that some freeholders are charging too much for contract extensions.

Several cases have seen leaseholders charged tens of thousands of pounds to extend their contracts in addition to ground rent and legal fees.

In England and Wales around 3m people live in leasehold properties and technically never actually own them. The problem is that many leaseholders simply do not understand the system and a small number of free holders are taking advantage of this.

In a leasehold situation, even though the leaseholder can hold a mortgage on the property, it is the free holder who owns the land. If the remaining time on the lease falls below 80 years, the free holder can ask for a cash sum to renew it.

If a leaseholder feels that they are being asked to pay too much they can take the case to a legally binding tribunal. However, before reaching this point, the leaseholder should attempt to negotiate a fairer price with the free holder. There are a number of online calculators that can work out a fair price based on a number of factors, such as, the lease length, ground rent, and when the property was purchased. An independent valuer may be able to work out a more accurate price and lend further weight to negotiations.

House prices continue to rise

Latest figures from the Land registry show that prices in England and Wales are continuing to rise strongly.

The annual rate of house price inflation increased to 8.5% as prices rose in April by another 0.2%, the fastest rate of growth since September 2007.

According to the Land registry, the cost of an average home now stands at £165,596.

According to the report, all 10 regions of England and Wales have experienced rising prices in the last year with London showing the strongest growth with prices up 14.8% in the twelve months to April. Prices here rose 1.6% in April alone.

Sales across the UK for the first 4 months of the year were 26% higher than in the same period last year.

Home Information Packs become history

Home Information Packs (HIP’s) have been suspended by the new coalition government.

Following through with a policy that had both Conservative and Liberal Democrat backing, Housing Minister Grant Shapps said: “Today the new government is ensuring that Home Information Packs are history. By suspending home information packs today, it means that home sellers will be able to get on with marketing their home without having to shell out hundreds of pounds upfront.”

HIP’s were introduced in 2007 in England and Wales. It was believed that they would speed up the house selling process by making sellers provide much of the required conveyancing information when properties are first put up for sale. The packs have been widely criticised by sellers and estate agents who believe that they have done little more than hinder the recovery of the housing market by reducing the number of new properties put up for sale.

If this is correct, we should see a significant increase in market activity over the coming weeks and months.

UK Property market continues to pick up

According to the Royal Institution of Chartered Surveyors (RICS) the UK property market is continuing its spring upturn.

Its latest monthly survey of 245 members who work as estate agents reveals that prices are continuing to rise and that sales have also increased. During April, 17% more surveyors said prices were rising rather than falling, up from 9% in March.

The report also showed that the number of homes on the market was greater than the number of enquiries from potential new buyers. However, many buyers choose not to register with estate agents and monitor the market via other means, such as the internet.

Generally, optimism of RICS members has increased significantly with regard to both sales and prices.

Speaking on behalf of the RICS, spokesman Jeremy Leaf said: “The start of spring has seen renewed optimism with the good weather improving sentiment and surveyors expecting an increase in both sales and house prices”.