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Bank of England deputy governor flags concerns over ‘low for long’ interest rates

Economic downturns are at risk of becoming more severe as a result of prolonged low interest rates, the deputy governor of the Bank of England has warned.

The current environment of ‘low for long’ interest rates will make “demand management of the economy more difficult in downturns”, according to Jon Cunliffe.

The Threadneedle Street official flagged a series of challenges for financial stability in the wake of recent monetary policy shifts.

Cunliffe said that a “slow or an unwilling adjustment” to weaker returns from lower interest rates could lead to both greater risk taking and less resilience among companies in the financial sector.

“In short, the adjustment to a low for long world is likely to lead to upward pressure on financial sector risk taking and downward pressure on resilience. We have started to see evidence of these effects in some sectors. One would expect such pressures to continue,” Cunliffe said in a speech to the Society of Professional Economists in London.

He added: “A low for long world is likely to be a more challenging environment for financial stability. The first and, in my view, most important policy conclusion to draw from this is the need for active and powerful macro-prudential institutions and policy.”

European economies have been adjusting to a downward push in interest rates, as central bankers attempt to rejuvenate markets that have been slowing down in the last 12 months.

Last month the European Central Bank (ECB) embarked on fresh stimulus measures to boost the eurozone, including cutting a key interest rate.

Cunliffe, who is among the contenders to replace Mark Carney as the next BoE governor, did not address Brexit or the BoE’s near-term policy plans in his speech.

However, he added that “releasing buffers can have a powerful effect in a downturn by reducing the pressure on banks to cut back on lending and so avoid a credit crunch amplifying the macro-economic shock.”

“The question perhaps is whether that buffer needs to be made more powerful in a low for long world given the greater risk of severe downturns.”

By Sebastian McCarthy

Source: City AM

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Buy To Let Property Investors Enjoying The Cambridge Effect

The residential property market in Cambridgeshire is performing well, impacted by the ‘global brand’ of Cambridge and the diversity of its market trends.

Research by property consultants Bidwells has found that Cambridge and the surrounding county has seen its residential property market rise three times quicker than the UK national average.

In the next 20 years, population growth in the Cambridge area is expected to be 24.5 per cent, placing pressures on demand on the city. Additional factors contributing to the success of the rental market are Brexit, high performing schools, improved transport links and the significant increase in housing throughout Cambridgeshire.

Rental costs have increased by approximately 3 per cent in the last 12 months with an average rent of just over £1250pcm in Cambridge. The strength of migration into Cambridge provides one of the key drivers of the residential lettings market.

One of the main reasons of this influx is due to the expansion of the Biomedical Campus where the total jobs on site at present are circa 12,300 with 7,500 to be created for the coming year, providing a total of 19,800 employees eventually on site.

It is not only the current influx of AstraZeneca employees that is significant but also other large companies and institutions such as Cambridge University, ARM and Addenbrookes Hospital, that have under-pinned the lettings market for many years now and will continue to do so in future. More recently companies such as Amazon, Microsoft Research and Apple to name a few, have joined the expanding technological highway of silicone fen.

Brexit, and the general uncertainty towards house values has meant that many people are opting to rent, boosting demand in the private rental sector.

Secondly, the number of high performing schools and colleges with a world leading university continues to attract many people wishing to live and work in Cambridge. Vitally, 64 per cent of residents in the area said that living within walking distance to a school was very important to them.

The confirmation of a Cambridge South Train Station opening next year highlights that Cambridge is an ideal location for London commuters too.

Source: Residential Landlord

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Rents grow as housing market slows

The average rent in the UK is now £967, up by 2.5% on the same time last year.

When London is excluded, the average rent in the UK is now £797, this is up by 2.2% on last year.

Average rents in London are now £1,694, up by 3.3% on last year.

Nationwide’s House Price Index reported that house prices rose by just 0.2% in September, down from 0.6% in August and marking the 10th month in a row that the annual house price growth was recorded as under 1%.

All 12 of the regions monitored by HomeLet showed an increase in rental values between September 2018 and September 2019.

Five of the regions monitored by HomeLet showed an annual increase of over 3%, the North West, the East Midlands, the South West, Greater London and the North East.

The region with the largest year-on-year increase is the North West, showing a 4.4% increase between September 2018 and September 2019

As the UK’s largest tenant referencing firm, HomeLet references over 500,000 tenants every year. The HomeLet Rental Index provides the most comprehensive and up-to-date data on rental values in the UK.

The trends reported within the HomeLet Rental Index are brand new tenancies, which were arranged in the most recent period, providing an in-depth insight into the lettings market.

RegionSep-19Sep-18Annual VariationAug-19Monthly Variation
North West£739£7084.40%£741-0.30%
East Midlands£653£6293.80%£655-0.30%
South West£846£8183.40%£852-0.70%
Greater London£1,694£1,6403.30%£1,6890.30%
North East£535£5193.10%£5310.80%
West Midlands£718£7012.40%£720-0.30%
Yorkshire & Humberside£657£6442.00%£6550.30%
Wales£634£6212.10%£636-0.30%
Scotland£676£6632.00%£6710.70%
East of England£927£9151.30%£930-0.30%
Northern Ireland£673£6641.40%£6641.40%
South East£1,045£1,0430.20%£1,064-1.80%
UK£967£9432.50%£970-0.30%
UK excluding Greater London£797£7802.20%£802-0.60%

Source: Property118

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Removing stamp duty would boost last time buyers

Nearly half of over 55s would consider moving if they didn’t face stamp duty, with a change therefore boosting sales to so-called last time buyers, new research suggests.

The nationwide study from independent equity release adviser Key found widespread support for scrapping stamp duty for last time buyers to encourage older home owners to downsize.

Around 15% of home owners aged 55 and over, the equivalent of 1.2 million people, say they would definitely consider moving if stamp duty was abolished for last time buyers while another 30% say not having to pay stamp duty would influence their decision to move.

Separate research among financial advisers found overwhelming support for scrapping the charge with 77% saying that they would back the move subject to terms and conditions.

‘While downsizing is an emotive issue, increasingly people are looking at how they find a suitable property to support their later life living needs. Whether it is adapting their current property or downsizing to something smaller and more convenience for family and services, all of these choices have financial implications,’ said Will Hale, Key’s chief executive officer.

‘Scrapping stamp duty for last time buyers would mean that those people who want to move would have one less barrier to overcome as due to the lack of suitable properties finding something in the right location can be costly. Indeed, we find that increasingly customers are using equity release to raise additional capital to buy their dream retirement home,’ he pointed out.

‘For wider society, this move would arguably not only mean more families could move into larger homes appropriate to their needs and the property market would receive a boost but would ideally be cost neutral as the increased number of transactions should cover any deficit,’ he added.

He also pointed out that stamp duty on residential transactions fell by 10% in the 2018/2019 tax year to £8.37 billion with part of the decrease due to stamp duty relief for first time buyers with around 218,900 first time buyers benefiting.

House owners buying again pay no stamp duty up to £125,000 but then pay 2% on the portion of the house price between £125,001 and £250,000 rising to 5% on the sum up to £925,000 and then to 10% on prices up to £1.5 million.

Source: Property Wire

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BoE might not be able to cut rates if Brexit delayed again – Ramsden

Bank of England Deputy Governor Dave Ramsden said he did not share the views of some of his colleagues who have suggested the British central bank might cut interest rates if the Brexit crisis drags on beyond the current Oct. 31 deadline.

In an interview with The Telegraph newspaper, Ramsden said Britain’s economy had been so damaged by uncertainty about Brexit – chiefly via a steady fall in investment by companies – that it could hamper the BoE’s ability to help it.

Referring to a scenario raised recently by the BoE of “entrenched uncertainty” if the deadline for leaving the European Union is pushed back again, Ramsden said: “I see less of a case for a more accommodative monetary position.”

Fellow BoE rate-setters Michael Saunders and Gertjan Vlieghe have suggested that another delay to leaving the EU might mean lower rates in Britain.

Prime Minister Boris Johnson says he will take Britain out of the EU on Oct. 31, with or without a deal, but lawmakers have passed legislation which they think will force him to seek a delay if no transition agreement is struck in time.

Ramsden told The Telegraph that he was cautious about the economy’s growth potential due to Britain’s poor record on productivity which contracted at the fastest annual pace in five years in the second quarter.

Company wage costs were “picking up quite significantly, which will drive domestic inflationary pressure” while spare capacity in the economy might not have opened up much despite the weakness in underlying growth, he said.

“I think supply potential, the speed limit of the economy, is also slowing through this period. That comes through for me pretty clearly in the latest productivity numbers.”

The global trade war was weighing on firms’ willingness to invest around the world too, Ramsden said.

Several BoE officials, including Governor Mark Carney, have said if Britain leaves the EU without a transition deal, they would probably move to cut rates.

Ramsden said higher public spending announced by finance minister Sajid Javid would also be a factor for the BoE as it would mean “more money going into the economy.”

He declined to comment when asked by The Telegraph whether he had applied to replace Carney, who is due to leave the BoE at the end of January.

Reporting by William Schomberg

Source: UK Reuters

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Brexit deal hysteria sparks dramatic gains for UK stocks

London-listed companies with exposure to the domestic economy soared on Friday for their best day in nearly a decade as hopes that Britain can seal a Brexit deal triggered explosive gains and a major reversal of fortunes for the much-shunned UK market.

Investors pounced on everything from banks like RBS (RBS.L) to housebuilders and retailers such as Kingfisher (KGF.L), which owns DIY chain B&Q, after British Prime Minister Boris Johnson and his Irish counterpart, Leo Varadkar, said they had found “a pathway” to a possible Brexit deal.

The buying spree targeted some of the market’s most beaten-down stocks and those considered most vulnerable to a downturn in consumer spending if the country crashes out of the European Union without a deal.

The FTSE 250 .FTMC surged 4.2%, while the Dublin bourse .ISEQ, often considered a barometer of Brexit sentiment, jumped 3.7% to its highest since May.

Source: UK Reuters

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Brexit deal hopes push pound to highest in over three months

Sterling surged on Friday as investors rushed to reprice the prospect of a last-minute Brexit deal, after the European Union gave its chief negotiator the go-ahead to re-open negotiations with London.

The pound has rallied more than 3% since Thursday, its biggest two-day gain since mid-June 2016, before the British public voted to leave the EU. On Friday, it surged by more than 2% to a three-and-a-half-month high.

Many investors were positioned for another Brexit delay as the most likely outcome, believing that the chances of an agreement before the end of October were virtually zero. The surprising news that talks were back on squeezed those betting against the pound, exaggerating the move higher, traders said.

EU Brexit negotiator Michel Barnier said on Friday that he’d had a “constructive” meeting with his British counterpart, Stephen Barclay, and the 27 countries in the EU gave him the go-ahead to try and agree withdrawal arrangements before the Oct. 31 deadline.

Barnier told member states that Britain has changed its position and now accepts that there cannot be the customs border on the island of Ireland, two EU sources said.

That followed a meeting on Thursday between the Irish and British prime ministers, who released a joint statement saying they could see “a pathway to a possible deal”.

The pound jumped 2% to $1.2708, its highest since late June at GBP=D3, in late London trading. It gained as much as 1.6% to 87.03 pence against the euro EURGBP=D3.

British stocks also rallied, gilt yields rose and money markets no longer fully priced in a 25-basis-point cut in interest rates by the Bank of England before December 2020.

Derivatives traders also regained confidence in the pound, with bullish bets exceeding bearish views on Friday for the first time since January 2018, according to the currency derivatives market, suggesting further gains for sterling.

Traders scrambled to cover positions amid the newfound optimism that a Brexit deal would be reached, said Kenneth Broux, FX strategist at Societe Generale.

“I think it’s very important to specify that sterling liquidity is very thin so volatility is high,” Broux said.

But he added that given the broadly bearish positions in sterling markets, “the obvious conclusion is that we’ll see a squeeze higher”.

Frederik Ducrozet, a strategist at Pictet Wealth Management echoed these sentiments. Irish officials have raised expectations for a deal, he said, and “if you get a path to a deal, there could be a massive squeeze in rates going higher and a re-steepening of yield curve.

“If that’s the case, then what we’ve seen today could just be the beginning of a bigger move,” Ducrozet said. “But we have been here before, so expectations may be a bit more limited.”

`TIME IS PRACTICALLY UP’
Despite the flurry of activity, it remains uncertain on what terms the UK will leave, when, and even whether it will do so at all.

Sounding a more cautious tone, top EU official Donald Tusk said “time is practically up” for Britain to reach a Brexit deal. That hurt the pound temporarily.

One dealer in London attributed price swings to “algos” – or computer-generated trading algorithms – in a headline-driven market.

Hopes are that a meeting between British and EU negotiators will pave the way for a Brexit transition deal at an Oct. 17-18 summit.. But some doubt Johnson will get the agreement past Britain’s parliament.

Deutsche Bank’s forex strategist George Saravelos said he was “turning more optimistic on Brexit” and no longer negative on the pound, while JPMorgan said the Anglo-Irish statement may have “changed everything”.

(For a graphic on ‘Sterling holds onto Thursday’s gains’ click tmsnrt.rs/2Mt66aq)

The sterling rally undermined UK’s export-heavy FTSE 100 .FTSE stocks index, but domestically focused UK retailers, banks and housebuilders benefited, rising 4% to 6%.

Irish stocks also rallied. Irish government bond yields fell .ISEQ IE10YT=RR.

Reporting by Elizabeth Howcroft

Source: UK Reuters

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Brexit impasse leads to stand-off in housing market as buyers and sellers both stay away

Both buyers and sellers are sitting on their hands, as the unpredictable Brexit crisis wears on.

The RICS said that there is little sign of the impasse in the housing market ending, with appraisals down on this time a year ago.

It said that new instructions across the UK have slipped to the weakest in three years, with sales, buyer demand and supply all in negative territory.

The RICS said that average stock levels on estate agents’ books are at record lows, with activity among buyers and sellers slipping in virtually all parts of the UK.

House prices have slipped across London and the south-east, said the RICS, but are up in Northern Ireland, Scotland and the north-west.

Most of the RICS estate agents responding to the latest survey, covering September, expect no pick-up for the rest of this year.

However, looking further ahead, 18% more RICS agents expect prices to rise over the next year than do not.

RICS chief economist Simon Rubinsohn said: “There are good reasons for thinking the latest dip in both buyer enquiries and vendor instructions is a response to the endless wrangling about Brexit, as the October 31 deadline approaches.

“However, unless there is a speedy resolution to the ongoing impasse, it does seem inevitable that the stand-off between purchasers and sellers will deepen, making it harder to complete transactions.

“This will not only be a direct hit on the housing market itself but could have ramifications for the wider economy as the normal spend on furniture, fittings and appliances that typically accompanies a house move is also put on hold.”

The RICS this morning also reported a decline in landlord instructions but a rise in tenancy demand.

The survey sample drew 323 responses, covering 547 branches.

By ROSALIND RENSHAW

Source: Property Industry Eye

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London house prices suffer steepest fall since financial crisis

London house prices fell at their fastest rate since the financial crisis in the third quarter, according to Halifax.

Homes in the capital saw their values sink 1.7 per cent year on year, their worst performance since autumn 2009. Meanwhile south east house prices dropped 1.3 per cent.

UK house prices grew at their slowest rate in six-and-a-half years in the third quarter of 2019, the bank’s house price index showed.

The value of British homes rose just 1.5 per cent year on year in the third quarter, a drop from 1.8 per cent in the previous three months. That is its worst quarterly increase since the start of 2013.

That left the average UK house price at £233,808, a drop from the second quarter average of £234,026.

Quarter to quarter, house prices rose 0.4 per cent in the three months to the end of September, versus a 0.4 per cent decline in the three months to the end of June.

Paul Smith, economics director at IHS Markit, which compiled the data, warned the UK housing market is still “fragile”.

He said Brexit uncertainty is stoking fears for buyers and sellers alike.

“Despite the low mortgage rate environment and rising earnings growth helping to ease affordability constraints, UK-wide house price inflation sank to a six-and-a-half year low,” Smith added.

“We suspect that political and economic uncertainty associated with Brexit continues to weigh on the market. This is especially the case in the south of England, where prices are falling and, in the case of London, at the fastest rate since the height of the financial crisis.”

Still, London house prices still remained above £480,000, almost £160,000 more expensive than prices in the south east, where buyers can expect to pay an average £323,055.

By Joe Curtis

Source: City AM

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Second charge mortgage market volumes rise by 12%

Second charge agreements were up 12% year-on-year in August, the latest figures from the Finance and Leasing Association have revealed.

There were 2,343 new second charge agreements in August.

The value of new second charge business saw a yearly increase of 10% at £102m.

Fiona Hoyle, acting director general and head of consumer and mortgage finance at the FLA, said: “The second charge mortgage market recorded its 12th consecutive month of double-digit new business growth in August.

“In the first eight months of 2019, new business volumes were 21% higher than in the same period in 2018.”

Richard Tugwell, intermediary relationship director at Together, added: “It’s clear that secured borrowing is growing in popularity.

“People are increasingly recognising it as a cost-effective way of securing funding for a range of needs, from house improvements to debt consolidation, while intermediaries recognise the importance of including a second charge option in their advice and recommendations.

“It is gaining more traction as an alternative to unsecured lending or re-mortgaging where factors such as redemption penalties, existing lender further borrowing policy and short term funding rates make these solutions less viable.”

Martin Stewart, director at The Money Group, commented: “ It is great news for a great product and some of the hard work being done by the industry to educate brokers about second charge mortgages.

“We have not necessarily seen an increase ourselves, our enquiries tend to arrive like buses and then it could be months before we see another one.

“One aspect that we should keep an eye on is whether second charge lenders are advancing because first charge lenders are retreating.

“We are without doubt entering a period of uncertainty and it will be interesting to see who has an appetite to continue lending.”

Robert Owen, managing director of mortgages and bridging at United Trust Bank, said: “It’s pleasing to see continued growth in the second charge marketplace as new products and technology has been brought into the market to improve the customer journey and the service to our brokers.”

Pete Mugleston, managing director at Online Mortgage Adviser, also commented: “We’ve seen an increase in enquiries and customers searching for alternative products to more traditional remortgages, with many homeowners opting to renovate and extend their property over moving and citing reasons such as increased cost (tax), the potential for further house price reduction (buying at the wrong time) and a lack of suitable property on the market to move to.

“It appears as though with the uncertainty around currently, whilst we’re still having record numbers of purchase enquiries, movers aren’t quite sure it’s the right time and more are deciding to stay put.”

Kevin Thomson, sales director at Connect for Intermediaries, believes more education is needed.

He said: “We always look for the best solution for the end client and often a remortgage can be better.

“We feel there is still a lot of education needed for mortgage brokers to really understand seconds and look at second charges and the variety of different purposes they can be used for.”

By Michael Lloyd

Source: Mortgage Introducer