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Bank of England Stands Pat on Interest Rate Outlook, Focus on Brexit Reaction

The Bank of England reiterated its stance that interest rates could move in either direction depending on the outcome of negotiations for the U.K.’s withdrawal from the European Union.

In the Inflation Report hearings delivered to the U.K. Treasury Select Committee, BoE governor Mark Carney repeated his view that Brexit was causing tension for British consumers and businesses but promised that the central bank would “provide all stimulus possible” in the event of a no-deal outcome.

Gertjan Vlieghe, a member of the BoE’s Monetary Policy Committee, told the committee that, in the event of a shock to consumer confidence from a ‘no-deal’ Brexit, the central bank would likely hold policy steady or cut interest rates.

However, that risk appeared to have shrunk considerably Tuesday, after both the U.K.’s major parties appeared to shift their policy stances on Brexit. Prime Minister Theresa May is set to propose to her cabinet that the government rule out the possibility of leaving the EU without a transitional agreement in place. The opposition Labour Party, meanwhile, has said it will back a second referendum on Brexit if there is no majority in parliament for a withdrawal agreement.

Carney, however, noted that if the economy performed as currently forecast a gradual increase in rates would be warranted.

The hearings come after the Bank slashed its growth forecasts earlier this month. It now sees the British economy growing only 1.2%, the slowest pace since the financial crisis, amid uncertainty surrounding the U.K.’s departure from the EU and the broader economic slowdown worldwide.

“The fog of Brexit is causing short term volatility in economic data, and more fundamentally is creating a series of tensions in the economy,” Carney said at the Feb. 7 press conference following the BoE’s decision to hold interest rates steady.

“Although many companies are stepping up their contingency planning, the economy as a whole is still not yet prepared for a no deal, no transition exit,” he warned.

The BoE left the possibility of rate hikes “at a gradual pace and to a limited extent” on the table at that meeting.

Source: Investing

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Buy-to-let products hit 12-year high! Is it time to plough into the rental market?

If you’re looking to get into the rental market, you may well find yourself spoilt for choice when shopping for a mortgage. According to price comparison expert Moneyfacts, there are some 2,162 buy-to-let products to choose from right now, the highest number since October 2007 when 3,305 mortgages were available.

Lenders are falling over themselves to grab a slice of buy-to-let despite the uncertainties created by the Brexit saga and the possible consequences of it on the British housing market. “It is encouraging that buy-to-let landlords have more mortgage choice than they have had at any time in almost 12 years,” Moneyfacts finance expert Darren Cook commented, noting that product numbers have jumped by 397 over the past year and by 706 since the same point in 2017.

Costs are rising Whilst competition might be on the up, the fight amongst the UK’s banks and building societies has not made investment in the rental market any more cost-effective for landlords. As Cook commented: “It is also evident from our research that heightened competition to try and attract buy-to-let business has not resulted in a fall in interest rates, as has recently happened in the residential mortgage sector.”

The average rate for a two-year fixed-rate mortgage has edged both higher and lower over the past two years, but the current level of 3.12% stands at a premium to the 2.92% average seen around six months ago and the 2.96% witnessed in March 2018.

Meanwhile, the average rate on a five-year fixed-rate mortgage currently sits at 3.61%, up from 3.46% in September and 3.43% a year ago.

Dive in or stay away? Rising mortgage rates are the last thing that proprietors need right now because of the stream of tax changes in recent years that have pushed up the cost of owning and letting out property, from an increase on stamp duty to 3%, to axing tax relief which allowed mortgage interest to be subtracted from rental income before tax was calculated.

Bigger payments to HMRC aren’t the only problem, though. There’s a galaxy of certificates and therefore additional charges that proprietors need covering everything from maintenance to safety, to the listing and management of their properties, extra costs that all add up.

The government now has a huge appetite for restricting the activity of landlords through extra costs and tighter renting rules. It’s been identified as a critical vote winner given the ocean of Britons struggling to get onto the housing ladder as a result of the country’s huge property shortage. So if you grab a slice of buy-to-let, you’ll to be braced for investment here to get a lot more expensive, as well as restrictive, in the years ahead as government policy evolves.

What’s more, you’ll need to be prepared for Bank of England interest rate hikes, possibly as soon as later this year, and a subsequent increase in mortgage costs. A possible house price dip as we have seen in London over the past year or so could be on the horizon as well to smack the value of your investment portfolio. All things considered, I think buy-to-let is far too complicated and costly to participate in today, and I for one would rather use my money to invest elsewhere.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Source: Investing

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No-deal Brexit would lead to food shortages and cost business billions, government reveals

A no-deal Brexit would lead to food shortages, higher prices in the shops and cost UK firms billions of pounds, a new analysis from the Government has revealed.

Ministers also admitted that up to a third of “critical” infrastructure projects were now behind schedule, partly due to firms failing to view a no-deal scenario as “sufficiently credible”.

Members of the public are also failing to prepare for a no-deal Brexit, according to the 15-page document, which warned that industries like the automotive sector would be “severely” impacted by new tariff and non-tarriff barriers if the Commons does not back the Withdrawal Agreement negotiated by Theresa May.

“In the absence of other action from Government, some food prices are likely to increase, and there is a risk that consumer behaviour could exacerbate, or create, shortages in this scenario. As of February 2019, many businesses in the food supply industry are unprepared for a no deal scenario.”

The stark analysis warned that harsh new customs arrangements would be implemented if the UK is treated as a third country by the EU in the event that no managed exit is agreed between London and Brussels.

“Every consignment would require a customs declaration, and so around 240,000 UK businesses that currently only trade with the EU would need to interact with customs processes for the first time, should they continue to trade with the EU,” they wrote.

“HMRC has estimated that the administrative burden on businesses from customs declarations alone, on current (2016) UK-EU trade in goods could be around £13bn pa.”

On Whitehall’s preparedness, the document said: “In February, departments reported being on track for just under 85 per cent of no deal projects but, within that, on track for just over two-thirds of the most critical projects.”

According to a Government survey, 55% of British adults did not expect to be impacted by a no-deal Brexit.

They added: “Despite communications from the Government, there is little evidence that businesses are preparing in earnest for a no deal scenario, and evidence indicates that readiness of small and medium-sized enterprises in particular is low.”.

The study also warned that consumers would be hit by rising food prices and shortages due to a “very significant reduction” in the amount of goods able to pass through the Channel crossings which the government say could last for months.

Downing Street had been initially reluctant to release the report but was forced into publishing it after a Commons vote.

The warnings come just hours after Theresa May vowed to give MPs a vote on whether they would be willing to accept a no-deal Brexit or a delay to Article 50 if she is unable to secure their backing for her deal.

She added: “If we have to, we will ultimately make a success of a no-deal.”

Responding to the report, Labour MP Martin Whitfield of the Best for Britain campaign, said: “These are truly shocking admissions by a government looking to abdicate responsibility for the oncoming chaos.

“We’ve known for a while that businesses aren’t ready for Brexit and that it’s disrupting their work already – big or small. Now we know a third of the most critical government projects aren’t ready, while the economy is due to shrink. The government has full ownership of this mess.”

Source: Politics Home

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How to ride the pound sterling rollercoaster through a no-deal Brexit

Sterling has been particularly sensitive to significant developments in Westminster and Brussels – analysts and investors are watching closely.

The value of the pound affects the price of our imports, such as food and raw materials, and our exports, such as cars. So while a fall in sterling’s value might help exporters, the knock-on effects are that our weekly food shops and our overseas holidays are likely to become more expensive.

So how did we get into this situation, and what should investors do?

The UK economy was relatively stable during 2018. The labour market has strengthened, supported by a benign global growth backdrop, allowing the Bank of England to raise interest rates for the first time in a decade.

However, it’s clear that the UK has suffered a bout of idiosyncratic economic weakness since the middle of 2016, which has weighed on the exchange rate and interest rates.

The recent political instability has cast an even greater shadow of uncertainty over the UK. In fact, chances of a no-deal Brexit have probably increased slightly in the last few weeks thanks to the parliamentary deadlock. Although the majority of MPs do not want that outcome, the fear is that May will be faced with a cliff edge before a deal is done.

Parliament will no doubt keep trying to pass a deal eventually, but, as history shows, policymakers are notoriously difficult to predict, meaning that deriving an outlook for the UK feels like peering into the fog through a kaleidoscope.

Focusing on the wider outcome of Brexit on our society and economy is important, but investors will be equally concerned (if not more so) with the impact on their portfolios.

The stark fall in sterling after the EU referendum reminded Britain how much its currency matters, and why investors are right to prepare for periods of poor performance. One strategy to guard against downturns is to be globally diversified, so many investors (ourselves included) will likely have chosen to hold a larger allocation of overseas currencies.

But that doesn’t mean simply ditching sterling. Indeed, we also worry about the fate of the euro if negotiations turn sour. It is possible that the value of the euro will also slide against the US dollar even if it gains against the pound. This could have ramifications for single currency investors or those doing business on the continent.

And there is a place for sterling in your portfolio. Despite all the politics, we still think that there’s a chance of the final deal resulting in a softer Brexit, or at least a less negative exit than markets have been pricing in.

If a final deal is reached, we anticipate higher interest rates, a stronger pound, and a moderation to inflation expectations. Paradoxically, this outcome may support the euro as well, at least in a global context.

We believe that once a decision on the deal is made, investors could benefit from this subsequent rebound in sterling. If this arrives in the next few months, as expected, British holidaymakers may be in for a pleasant surprise as the pound in their pocket packs more of a punch.

However, a no-deal scenario is still a possibility, and it would likely create political and economic turmoil. We would expect to see exchange rates plummet, with the pound potentially being worth less versus the euro and dollar, leaving a monetary policy dilemma for the Bank of England.

With less room for the Bank to manoeuvre at present, maybe we would not see a repeat of the interest rate cut and quantitative easing which followed 2016’s referendum result.

With such uncertainty, the rollercoaster ride is likely to continue. Whatever happens, keep an eye on sterling – it’s in for a bumpy ride.

Source: City AM

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Buy To Let Property Rent Rises On The Up

The number of tenants experiencing rent rises in the private rental sector rose in January for the first time since September last year.

According to the latest January Private Rented Sector (PRS) Report from ARLA Propertymark, the number of tenants experiencing rent rises increased in January, with 26 per cent of agents witnessing landlords increasing them, compared to 18 per cent in December.

This is the highest figure recorded since September, when 31 per cent of tenants were experiencing rent rises in their private rental properties.

The year-on-year figure for rent rises in private rental properties is also up, rising by 7 per cent when compared to January 2018.

The uplift in the rate of rent rises in January has come despite the average number of available private rental properties also increasing on a monthly basis, up from 193 in December to 197 in January.

This is possibly due to the increase in tenant demand also registered in the month. Demand from prospective tenants increased in January, with the number of house-hunters registered per branch rising to 73 on average, compared to 50 in December.

ARLA Propertymark Chief Executive, David Cox, said: ‘This month’s results are another huge blow for tenants. With demand increasing by 46 per cent from December, and rents starting to rise in response to all of the cost increases landlords have experienced over the last few years, tenants are in for a rough ride.

‘Last month, there were three landlords selling their buy to let (BTL) properties per branch, and as landlords continue to exit the market, rent prices will only continue to rise.’

He continued: ‘With the Tenant Fees Act passing its final hurdle in the House of Commons and receiving Royal Assent this month, tenants will continue bearing the brunt, as agents and landlords start preparing for a post-tenant fees world.’

Source: Residential Landlord

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Help to Buy smashes through £10bn milestone

The Help to Buy equity loan scheme allowed 1,000 sales a week to be completed in 2018, according to the Ministry of Housing, Communities and Local Government.

The ministry’s statistics, published today (February 26), showed Help To Buy equity loans exceeded £10bn for the first time in the third quarter of 2018.

Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said the statistics show that Help to Buy has become a cornerstone of the UK property market.

Ms Davies said the government’s programme continues to stimulate the bottom of the housing ladder, providing essential support to the whole of the UK property sector.

However in Budget 2018, chancellor Philip Hammond announced Help to Buy will come to an end in 2023.

She said: “These figures show a continuing trend in what looks set to be the strongest year so far for Help to Buy sales, with total completions since the scheme began likely to have passed the 200,000 mark by the end of 2018, with around 1,000 sales a week completing with the support of Help to Buy in 2018.

“We expect Help to Buy to remain invaluable in supporting home buyers into the next decade.

“The support will also help keep the property market on an even keel during a period of heightened uncertainty as a result of the UK’s expected departure from the EU this year.

“Given the important role Help to Buy plays in lifting households into home ownership and the large number of people who have not been able to climb onto the first rung of the property ladder, long-term solutions are required to ensure the continuing prosperity of the housing market, post-2023.”

Mark Dyason, managing director of the specialist property broker Thistle Finance, said in an increasingly glacial market, Help to Buy has kept the new build sector afloat and enabled many first time buyers to get on the ladder.

But he warned when it finally comes to an end, the fallout for the biggest developers that have benefited from it the most could be devastating.

Mr Dyason said: “The major property developers have done exceptionally well out of Help to Buy but at some point the supply of the drug will stop and they will have to go cold turkey.

“Help to Buy is in much the same vein as low rates since the Global Financial Crisis. They have kept the economy going but equally they have kicked the can down the road.

“The Help to Buy scheme is arguably a hollow victory with the potential to cause all manner of problems both for the buyers who have used it and the developers that have offered it.

“We live in an era of short-termism but the fall-out from artificial props like Help to Buy could be long-term.”

Source: FT Adviser

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Best London Property Investments For Buy To Let

The best London property investments for buy to let have been revealed in the 2018 lettings report from Foxtons.

According to the London lettings agent, the best London property investments over the past year have been three-bedroom apartments, which have seen the biggest year-on-year increase in average weekly rent, growing by 3.9 per cent to reach £658 per week in 2018.

This was followed by one-bedroom flats, up by 2.2 per cent to an average of £366 per week. Two-bedroom flats and studios saw rents rise by 1.6 per cent and 1.5 per cent respectively to averages of £461 and £289 per week.

However, when seeking the best London property investments, it is also preferable to avoid ground floor flats.

According to Foxtons, buy to let landlords renting out standard ground-floor flats are suffering losses, with the ‘rental premium’ – the buying price per square foot compared with the rent per square foot – commanded by such properties down at -9.4 per cent. In contrast, the premium for ‘raised ground floor’ flats (properties above street level, often accessed by a flight of steps) is 6.2 per cent, and a premium of 4.7 per cent was seen for ‘lower ground’ (i.e. basement) flats.

When it comes to location, London property investments in Zone 1 saw the strongest growth in annual rent, though Zone 2 was the most popular with renters.

Zone 1 saw the average rent grow by 3.9 per cent year-on-year to hit £554 in 2018. In Zone 2 rents average £459 per week – an increase of 1.7 per cent – and in Zones 3-6 it’s £394 (2.2 per cent).

Zone 2 properties attracted the most interest from renters, with 41 per cent of the prospective tenants registering with Foxtons in 2018 requesting a Zone 2 location.

By comparison, 29 per cent of tenant registrations were for Zone 1 properties and 30 per cent were for Zones 3 to 6.

Source: Residential Landlord

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UK Investment Property Rental Growth Slowing

Investment property rental growth in the UK is slowing according to the latest Landbay Rental Index.

Annual rental growth in the UK without London is at its lowest point in nearly six years at 1.16 per cent, the lowest since the 1.13 per cent seen in February 2013.

Rental growth in London has seen relative stagnation over the last couple of years since the Brexit vote, but across the other English regions total rental growth has been seven times that of London (3.69 per cent to London’s 0.52 per cent).

However, the latest indications show that the rest of the UK is also seeing a slowdown in rental growth. Wales is currently at the lowest it’s been since April 2014 (1.39 per cent) and in Northern Ireland growth of 0.54 per cent is the slowest since the Rental Index began collecting data in January 2012.

Scotland, however, has seen annual rents grow at 1.66 per cent, having steadily grown over the last six months. The average rent in Scotland is now £746, higher than Northern Ireland (£573), Wales (£656), and creeping up to the English average excluding London (£776).

This Scottish growth is led by high annual growth in Edinburgh City (5.88 per cent), Inverclyde (3.56 per cent), and Glasgow City (2.49 per cent). Only Aberdeen City (-6.62 per cent) and Aberdeenshire (-5.42 per cent) are dampening the Scottish rental growth rate.

CEO and founder of Landbay, John Goodall, said: ‘Falling rents in London have masked relatively strong growth in the rest of the UK since the Brexit vote, but we are now firmly in the midst of a nationwide rental growth slowdown. This may be some relief to renters, but the cost of renting a property remains high. House prices continue to outpace wage growth, dampening the ability of aspiring homeowners to save for a property of their own, meaning demand for rented accommodation remains robust.’

He continued: ‘Rental growth may be slowing, but the pace of change varies wildly between regions. Landlords and brokers alike need to be tuned into these variations in order to maximise their profits, using variations in rental growth and yields over the past year to pick out some of the most promising regions for buy to let. Consistent rental demand will obviously drive returns in the long-term, but by selecting the right location yields will be even greater.’

Source: Residential Landlord

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Number of buy-to-let mortgages at post-crisis high

The number of buy-to-let (BTL) mortgage products on the market has reached a post-financial crisis high giving landlords the most choice in nearly 12 years.

Almost 400 BTL products have been added to the market in the last year, taking the total to more than 2,000 and the highest number since October 2007, when 3,305 deals were available.

According to Moneyfacts there are 2,162 BTL deals available today – up from 1,765 last March and 1,982 in September, including 467 for limited company landlords not using special purpose vehicles.

However, in contrast to the residential mortgage market, where intense competition is driving interest rates down, BTL lenders have pushed rates up over the last five months.

Between March 2017 and September 2018 the average two-year fixed rate buy-to-let mortgage was around 2.86% to 2.96%. However, it is now at 3.12%.

The average five-year fixed rate deal has also increased since September 2018, rising from 3.46% to 3.61% – although this is not quite as high as the 3.77% in March 2017.

For limited company products not involving special purpose vehicles, the average two-year fixed rate is at 4.08% and the average five-year fix is at 4.53%.

Moneyfacts spokesman Darren Cook said: “The disparity in the direction of movement between BTL and residential interest rates may be due to the way these two types of lending are primarily assessed. BTL mortgage providers generally consider the potential rental income and affordability during assessment, whereas residential mortgage providers typically look back at income earned by the borrower and affordability.”

Source: Your Money

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Is the great property market crash of 2019 almost upon us?

I’ve seen one or two speculative headlines lately exploring the possibility of a crash in the property market, perhaps by as much as 50%, they scream.

Well, that would be nice, wouldn’t it? If we see the cost of homes plunging to half their value now, I’d make some drastic changes to my investing strategy. I’d pile into property and property-backed investments because the great disconnection between prices and affordability will have mended. Once again, property would be affordable, and I think that would sow the seeds for the next bull market in real estate.

The two-decade property bull
I can remember the last time that prices dropped so low that property investing seemed like a no-brainer. It was around 21 or 22 years ago, and it’s etched in my memory because I did well in property in the following bull market myself. Some friends of mine recently sold a property they bought back then too. I did a quick back-of-a-fag-packet calculation and worked out that the price at which they sold was around double what they ‘should’ have made if the value of their home had merely kept up with inflation over the past couple of decades.

I think my rough sums help to illustrate that something is out of kilter in the property market. And, oh, how many of us have been willing prices to plunge. Prices have been so high for so long that a whole generation has almost been locked out of affordable property.

However, through 2018 there were signs that the property market could be topping. At the very least it seems to have paused its meteoric rise. Could 2019 finally be the year that we see prices fall in a meaningful way? Maybe. And one thing that seems to be dragging on buyer and seller confidence is the long-running Brexit saga. Of course, we’ve still got to pass the official EU leaving date of 29 March, and any extension period if one arises. Then, after that, we need to settle into the new post-Brexit environment. I think the whole Brexit-thing has the potential to dampen enthusiasm in the property market for the rest of 2019.

Two ways for affordability to be restored
Overlay the affordability issue, and it won’t take much to get the market sliding, in my view. How about recession in Europe after Brexit? Or rising interest rates making mortgages more expensive to service? It might feel like fantasy given how low interest rates have been for so long. But look at the economic indicators Britain is throwing off at the moment: massive employment, wages rising faster than inflation, and the biggest budget surplus on record in January. Indeed, the UK is trading well and things could keep on getting better, which could push inflation higher. The traditional damper for inflation is higher interest rates.

Then again, with wages on the rise, perhaps we’ll see more stagnation in the property market allowing affordability to catch up, rather than a dramatic plunge in property prices. Either way, I see the buy-to-let investment proposition as unattractive until property is affordable again. Yet there’s a massive opportunity to invest in the stock market, and the uncertainty of Brexit could be helping that situation. Dividend yields, in general, are higher than they’ve been for years, so that’s one market I would pile into.

Source: Yahoo Finance UK