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Scrapping the mortgage market affordability test ‘is not as reckless as it may sound’

The Bank of England (BoE) announced yesterday that its Financial Policy Committee (FPC) will withdraw the so-called mortgage market affordability test, designed to avoid another 2007-style credit crunch.

Introduced in 2014, the test specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage.

“Following its latest review of the mortgage market, the Financial Policy Committee has confirmed that it will withdraw its affordability test Recommendation,” the BoE said in a statement.

The move means that lenders will no longer have to check whether homeowners could afford mortgage payments at higher interest rates.

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The decision to withdraw the affordability test comes despite the Bank of England having raised interest rates for a fifth time in a row to 1.25% last week as part of efforts to tackle soaring inflation, meaning some mortgage borrowers could be in line for higher repayments.

The Bank of England, which originally consulted on the changes in February, confirmed that it would scrap the affordability test after determining that other rules, including those that cap mortgages based on the income of borrowers, were “likely to play a stronger role” in guarding against an increase in household debt.

Some experts yesterday described the rule changes as “baffling” in light of rising interest rates. But Mark Harris, chief executive of mortgage broker SPF Private Clients, believes the move could prove sensible.

He said: “Scrapping of the affordability test is not as reckless as it may sound.

“The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front. Lenders will also still use some form of testing but to their own choosing according to their risk appetite.

“It could have a positive affect on certain borrowers who have been disadvantaged when it comes to getting on the property ladder. For example, first-time buyers who have been affording rents far in excess of actual mortgage payments but have failed affordability assessments regardless.

“The rate environment and expectations have changed significantly since the rules were introduced when borrowers were tested to ensure that mortgage repayments could be met should rates be in the region of 6% to 7%.”

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Lawrence Bowles, director of research at Savills, believes that from a market perspective, removing the current stress testing “could mitigate some of the impact of higher interest rates”.

He commented: “In theory, at least, it should open up a little more capacity for house price growth than is currently looking fairly constrained in the mainstream housing market.

“This said, a fairly high proportion of recent buyers have worked around the “standard variable rate plus 3%” stress test by locking into five-year fixed rates, meaning it will only preserve or open up additional borrowing capacity for part of the market. Lenders will still stress test applicants to reflect where they expect interest rates to be five years from the start of the loan, following the Mortgage Conduct of Business rules.

“Improved capacity for growth would also be dependent on how far lenders are prepared to push loan to income multiples under responsibly lending rules and caps on what they can lend at high loan to income ratios. It is unlikely to open up the mortgage-credit floodgates.

“It should allow lenders to be slightly more flexible which will come as welcome relief to some would-be-buyers struggling to keep up with current criteria because of significant price growth of the past two years – but saving for a deposit will remain the most significant barrier to home ownership.”

By Marc Da Silva

Source: Property Industry Eye

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Property industry reacts to fifth consecutive interest rate increase

Interest rates have gone up again for the fifth time in just a matter of months.

Mortgage holders, house hunters and savers will be affected by the Bank of England’s decision to increase the rate from 1% to 1.25%.

Homeowners on Standard Variable Rates or tracker mortgages will be hit the hardest in the short-term by the latest interest rate increase.

Industry reaction:

Grianne Gilmore, head of research at Zoopla, said: “This rise in rates will translate into higher mortgage costs for those looking to buy a home. For buyers with a 30% deposit buying an average priced home of £250,00 in the UK, a quarter point rise in mortgage rates this will add hundreds [£264] to their annual mortgage bill. Most homeowners will be protected from the current raft of interest rate rises as three quarters of those with outstanding mortgages are on fixed-rate deals.

“Even with five base rates since December last year, buyer demand in the housing market has remained strong all through the start of this year, and is still 50% above the five-year average – so those looking to sell should consider making a move while demand is at this level. With further interest rate rises on the cards in the coming months, and a cloudier economic outlook, buyer demand will ease through the rest of 2022.”

Lawrence Bowles, director of research at Savills, said: “Further increases to interest rates, combined with the strong price growth experienced over the past two years and the cost of living squeeze, will combine to limit the capacity for growth over the next few years. But rates are still low in a historical context, so it remains difficult to see the trigger for a meaningful house price correction. Mortgage rules in place since 2014 mean that buyers have had to show they can afford their repayments at interest rates 3% higher than expected, which means they are likely to be able to weather these increases in the base rate.

“These changes are less likely to have an impact in the prime residential markets. Most buyers in these markets are less reliant on mortgage finance when buying a home. Given the recent negative performance in equities markets, we may see a flight towards safe haven assets such as housing.

“Savills latest market forecast projects that price growth in the next four years (2023-2026) will average a total of 5.1% across the UK as a whole. This may be of some relief to many would-be buyers, many of whom will feel they have been chasing the market over the past two years.

“However, it’s clear that the Bank of England intends to act forcefully in the face of further persistent inflationary pressure, which could reduce capacity for price growth in markets where borrowing is already high relative to income.

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Iain McKenzie, CEO of The Guild of Property Professionals, said: “Hot on the heels of the US Federal Reserve, and its greatest rise in almost 30 years, the Bank of England has today prioritised curbing inflation by raising interest rates by 0.25%.

“Getting inflation under control will aim to improve the cost of living and help people to keep up with their mortgage and rent payments.

“Homeowners are facing increases at all angles and many will still be worried about the effects that a fifth straight hike could have on their mortgages.

“People on tracker mortgages or with a variable rate could see their repayments increase again which will be unwelcome at a time when everything from energy and fuel to food and drink is going up in price.

“Homeowners on fixed-rate mortgages are currently in the safest position, as this interest rate rise won’t affect them for the time being. It is important to keep track of when your fixed rate is up for renewal and be ready to secure a new deal.

“Our research indicates that around 1.5 million fixed-rate mortgages will end this year and next, so these interest rate rises will soon affect you when the time comes to renew.

“Homeowners should sleep soundly though that the value of their property is still very robust. The increasing demand to buy which we have seen in the last two years will continue to ensure that any short-term issues in the economy won’t cause your home to lose value.”

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Richard Davies, MD at Chestertons, stated: “Anyone who has been following the news would have been likely to have expected the Bank of England’s decision to increase the bank rate. In anticipation, many house hunters were rushing to seal a deal on their property purchase last month and lock in a more favourable fixed rate. According to the Bank of England, 81% of outstanding mortgage loans are now on a fixed rate with an average rate of 2.06%.”

“We expect the new rate rise to impact particularly on new home owners whose mortgage loan to value is above 75%, those on a variable rate as well as property buyers in London, where the average mortgage value has surpassed £392,000. If we take that average and consider the recent rate increase, London homeowners could be facing an annual increase in mortgage payments of almost £600. A big addition to the already rising cost of living.”

Jason Tebb, CEO of OnTheMarket, commented: “This latest rate rise was factored in by the money markets, given continued high inflation, but we don’t expect it to quash the remarkable buyer and seller sentiment in the housing market.

Even with another quarter-point rise, interest rates remain relatively low. We are gradually moving towards a more rebalanced market in terms of supply and demand, with evidence emerging of a rise in the number of new instructions. Yet this will take time and until then, the ‘new normal’, an elevated version of the pre-pandemic market continues. Regional differences are also a consideration, with ‘one size does not fit all’.

As long as buyers remain confident about obtaining the mortgages they need and being able to afford them, modest increments in rates, while unwelcome, are unlikely to result in a slamming on of the brakes. It remains the case that many buyers simply need to move.”

Dominic Agace, chief executive of Winkworth, remarked: “We are beginning to see a divergence in the impact of the cost of living and interest rates and their impact in the property market. Country markets, where there have been rapid price increases since the pandemic, are now cooling in terms of demand. Although demand is easing in London where prices have remained fairly static, it still remains ahead of 2021.

“We expect the interest rate increase and wider economic concern to impact on demand, but expect London markets to outperform this trend, remaining positive through the autumn market. In both cases, there is sufficient underlying demand, headroom in interest rates and a strong enough labour market to allow several more rises before there will be concerns about price corrections. So far, we are seeing an easing rather than seeing a cause for concern. We would expect the slow trajectory of interest rates with five year mortgages cheaper than two year fixes to lead us this way.”


Source: Property Eye Industry

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Base rate increased to 1.25%

The Bank of England (BoE) has increased the base rate by 25 basis points to 1.25%

The Monetary Policy Committee (MPC) voted by a majority of 6-3 to increase the bank rate by 0.25 percentage points, to 1.25%. The members in the minority voted to increase the bank rate by 0.5 percentage points, to 1.5%.

The increase marks the fifth base rate rise since December 2021 after a decade of historic lows.

The MPC minutes say that UK GDP was weaker than expected in April, partly reflecting a further decline in Test and Trace activity.

The BoE now expect GDP to fall by 0.3% in the second quarter, which is weaker than anticipated at the time of the May report.

The committee expects inflation to be over 9% during the next few months and to rise to slightly above 11% in October. The increase in October reflects higher projected household energy prices following a prospective additional large increase in the Ofgem price cap.

Just Mortgages national operations director John Phillips says the increase “feels like rates are on the upwards swing of a pendulum which is rapidly gaining momentum”.

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“Although this increase will translate into higher mortgage rates, the housing market remains resilient and feedback from our brokers across the country tells us that activity for purchases and re-mortgages remains high.”

Commenting on the rise, Quilter mortgage expert Karen Noye says: “The last time interest rates were above 1% was back in 2009 and Gordon Brown was trying to shore up the economy following the financial crisis. While we are now living in very different fiscal times, interest rates have once again risen past 1% and it could spell the start of a difficult period for the economy and particularly for house prices.”

“Further rate hikes are certainly not out of the question, and this could start to impact house prices. The housing market is already showing signs of a slowdown and how well it can weather further rate rises, alongside raging inflation, is yet to be seen but the prognosis is not good.”

“Once again, the biggest losers are first time buyers. They face a steep uphill battle to get on the housing ladder having to contend with rising interest rates, which make mortgages less affordable, inflation eating away at their deposits and the rest of the cost-of-living pressures. With wages failing to keep up with runaway house prices this is likely to be one of the most difficult times in the last few decades, if not longer, to be trying to get your foot on the housing ladder,” Noye adds.

Yesterday, the US raised key interest rates by three quarters of a percentage point to a range of 1.5% to 1.75%, the third increase since March.

Forecasts after the announcement in the US showed officials expect the Federal Reserve rate to be 3.4% by the end of the year.

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At the start of May, the BoE increased the base rate by 25 basis points to 1% after MPC voted by a majority of 6-3 with the remaining three saying they would prefer to increase the bank rate by 0.5 percentage points, to 1.25%.

Previous expectations were that inflation would peak at “around” 7.25% in April but were revised upwards prior to the MPC meeting in March because of the Russian invasion of Ukraine and its attendant effect on commodity prices alongside further supply chain disruption.

Data from the Office for National Statistics (ONS) showed that inflation in the UK had climbed to 9% in April.

The latest figure is driven by increases in fuel prices, energy and food costs. The ONS reported that energy prices rose by 46.5% on the month, with electricity up 40.5% and gas 66.8%, as the Ofgem price cap was increased.

In May, MPC member Michael Saunders said that, in his opinion, inflation may exceed the 10% peak forecast for Q4 2022 in the latest monetary policy report (MPR).

Saunders explained that the MPR forecast assumes several economic factors, including weakness in spending, cuts in employee hiring – with unemployment rising – and supply chain problems easing.

The report forecast expects inflation to fall to “slightly above” 2% two years later.

However, Saunders details a belief that demand will be more resilient than the MPR forecast calculates.

Phoebus Software sales and marketing director Richard Pike says: “Today’s increase is one that most people were expecting and, hopefully, preparing for. The thing to understand is that this is a global problem, just yesterday the US increased its interest rates by the biggest percentage in 30 years, we are not alone in having to deal with spiralling inflation. Covid and the war in Ukraine have both taken a huge toll and the knock-on effect will be long lasting.”

“In this rising inflation and interest environment, even though the increments are small, real wages are reportedly already struggling to keep pace. So it is inevitable that some households will be starting to feel the pinch. It is encouraging, therefore, to read that the FCA has today reminded lenders of their responsibility to provide help to customers struggling with payments. However, this does of course mean that lenders will need the resources to identify vulnerable borrowers at an early stage to be able to offer the help that is required.”

Air Mortgage Club chief executive Stuart Wilson adds: “Today’s interest rate rise of 1.25% marks the next instalment of the Bank of England’s attempts to counter rising inflation – now well above official targets, surpassing 9% in May. In the face of rising inflation and a steadily increasing base rate, older people – especially those on fixed incomes – are increasingly considering all their options.”

By Bek Commane

Source: Mortgage Finance Gazette

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BoE: Net mortgage borrowing rises to £3.6bn

Net borrowing of mortgage debt by individuals amounted to £3.6bn in December, according to the Bank of England’s latest Money and Credit update.

The report also showed mortgage approvals for house purchase rose to 71,000 in December, above the 12-month average to February 2020 (66,700).

Consumers borrowed an additional £0.8bn in consumer credit, on net. The effective rate on new personal loans fell by 16 basis points to 6.27% in December.

Sterling money was unchanged in December, down from a £14.1bn increase in November.

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Households’ holdings of money weakened, with net flows of £2.7bn compared with £5.1bn in November.

The effective interest rate paid on individuals’ new time deposits with banks and building societies fell to 0.36%.

Large businesses borrowing from banks fell to £0.3bn in December, whilst small and medium sized businesses repaid £0.6bn.

Private non-financial companies (PNFCs) redeemed £3.2bn in net finance from capital markets.

Dave Harris, chief executive of more2life, said: “Today’s figures suggest that December provided a quieter end to what had been a busy and turbulent year for the residential property market.

“Fuelled by the stamp duty holiday, we saw house prices climb as demand outstripped supply – especially for first or second time buyer properties.

“With gifting high on the agenda for over-55s, we also saw the later life lending market grow with the Equity Release Council highlighting that £4.8m had been released by new and returning customers in full year 2021.

“And the market’s growth wasn’t just limited to the amount of equity released – average loan sizes and the number of products in the sector both grew noticeably in 2021.

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“As we look ahead to 2022, the industry needs to focus on continuing to build this momentum by creating greater awareness and education around such products, among both advisers and borrowers.”

Paul Heywood, chief data and analytics officer at Equifax UK, added: “Consumers were dealt a triple blow to their finances in December, as inflation, the festive period and a widely debated base rate rise exhausted purse strings.

“Any consumer confidence that grew in November was quickly diminished, as demand for credit dropped and net borrowing of mortgage debt fell in line with November figures.

“We already knew that 1.7 million households defaulted on or missed at least one rent, loan, mortgage, bill, or credit card payment in December 2021, so it comes as no surprise that households were unable to inject more money into their deposit accounts.

“Lenders must be mindful of these difficult circumstances and consider using Open Banking to spot the signs of financial difficulty in advance.

“Doing so will strengthen protection against over indebtedness and help consumers to make the most informed decisions when it comes to their spending.”

Lisa Martin, development director of TMA Club, said: “Today’s figures show that 2021 ended on a quieter note when compared to the unprecedented levels of activity seen throughout the year.

“The low levels of mortgage lending since October were not altogether unexpected, especially since the market saw near record levels of activity in the lead up to the stamp duty holiday.

“The ongoing threat of interest rate rises, coupled by the increased cost of living, will lead to an increase in remortgage activity levels throughout the coming months.

“However, there is still demand among homebuyers, and brokers will need to help their customers lock into appropriate, affordable products while they can.”

By Jake Carter

Source: Mortgage Introducer

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BoE: Mortgage borrowing rises to £6.6bn in May

Net mortgage borrowing climbed in May to £6.6 billion from £3 billion in April, the latest Bank of England (BoE) data has revealed.

Despite this significant leap, the BoE said borrowing still remained below the record figure of £11.4 billion achieved in March of this year.

Mortgage approvals for house purchases inched up slightly in May to 87,500 from 86,900 in April. This was also lower than the peak of 103,200 in November 2020.

Today’s data also revealed approvals for remortgage – which only captured remortgaging with a different lender – increased slightly to 34,800 in May, from 33,400 in April. This remains low compared to the months running up to February 2020, the BoE said.

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The ‘effective’ rate – the actual interest rate paid – on newly drawn mortgages went up by two basis points to 1.90% in May.

The BoE said this was marginally above the rate in January 2020 (1.85%), and compared to a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages remained unchanged at a series low of 2.07%.

Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said: “It’s not surprising that the mortgage market is continuing to perform well, with homebuyers keen to move before the first change to the Stamp Duty holiday at the end of June.

“There’s also a lot of competition amongst lenders, with mortgage rates nearing record lows in some cases – this is of course great news for borrowers”

He added: “We expect figures for June to be even higher, and for activity to return to more normal levels after the threshold for Stamp Duty has been lowered to £250,000.”

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Meanwhile, Karen Noye said these figures demonstrated how buyers were ‘soaking up the last of the favourable stamp duty conditions before tapering began’.

“Once the holiday has fully come to an end in October we may enter into a market where buyers choose to wait and see and the number of people looking to buy significantly reduces,” she said.

But she warned the end of furlough and other schemes could change the landscape going forward.

“For some time, the housing market has been propped up by government schemes and initiatives like the stamp duty holiday and then 95% mortgage scheme, which has encouraged people to borrow at times where they may have chosen to sit on their hands.

“Once the government’s helping hand has been withdrawn, we may see people opt for a wait and see approach and mortgage borrowing could plummet.

“Similarly, part of the reason the market has been so hot as of recent is due to people wanting to move to properties with gardens or home offices in light of the restrictions on movement and working.

“As things get back to normal this frenzy may start to fade and people feel happier to stay put as cities open back up and outside space is lower on the agenda.”

By Kate Saines

Source: Mortgage Finance Gazette

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BoE: Outstanding value of residential loans up 3.6%

The outstanding value of all residential mortgage loans was £1,561.8bn at the end of 2021 Q1, 3.6 % higher than a year earlier, according to the Bank of England’s (BoE) mortgage lending statistics.

The value of gross mortgage advances in 2021 Q1 was £83.3bn, 26.5% higher than in 2020 Q1, and the highest level since 2007 Q4, while the value of new mortgage commitments was 15% higher than a year earlier, at £77.5bn.

Meanwhile, the share of gross advances with interest rates less than 2% above bank rate was 59.1% in 2021 Q1, 13.3% lower than a year ago.

The share of mortgages advanced in 2021 Q1 with loan-to-value (LTV) ratios exceeding 90% was 1.1%, 4.1% lower than a year earlier, and the lowest level since these statistics began in 2007.

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The share for house purchase for owner occupation was noted at 64.1%, a rise of 17.3% on 2020 Q1.

The share of gross advances for remortgages for owner occupation was 18.0%, a decrease of 14.2% since 2020 Q1, and the lowest since these statistics began in 2007.

The value of outstanding balances with some arrears increased by 5.1% over the quarter to £15bn, and now accounts for 0.96% of outstanding mortgage balances.

Paul Stockwell, chief commercial officer at Gatehouse Bank, said: “Buyers’ insatiable appetite to move home has meant the value of new mortgages started the year at highs not seen since before the 2008/09 financial crash.

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“There has been frenzied activity in the market with movers searching for larger homes and more outdoor space, while the extension of the stamp duty discount to the end of June added more fuel to the fire in the first quarter of this year.

“The biggest stamp duty savings run out in just a few weeks’ time, yet measures from other housing indices suggest the frantic competition for property continues unabated.

“While lending may fall from these current highs, we still expect it to be an incredibly busy summer for the housing market.”

By Jake Carter

Source: Mortgage Introducer

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Bank of England carefully monitoring rise in house prices

The Bank of England is carefully monitoring the rise in house prices which has been largely fuelled by the extension of the stamp duty holiday.

A year ago activity in the housing market collapsed in the wake of the first lockdown with transactions dipping to a record low of 42,000 in April 2020.

Since then there has been a complete turnaround in the housing market in the past year, buoyed by the extension of the stamp duty cut introduced last summer.

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The tax holiday was originally due to end in March before the Government announced an extension to June. BoE figures published last month showed mortgage borrowing rose by a net £11.8bn in March, the strongest rise since the series began in April 1993.

“I think what we’re seeing in the housing market at the moment is being driven mainly by the tax holiday,” the BoE’s deputy governor Jon Cunliffe told the BBC today.

“There are some signs that people are making different housing choices and that may affect the future. It’s something we’re watching very carefully.”

House prices shot up 1.8 per cent month-on-month to 10.9 per cent last month, the highest level in nearly seven years. It followed a 2.3 per cent rise in April.

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The new record average house price is £243,000, up by almost £24,000 over the past twelve months, according to new Nationwide data released today.

Cunliffe’s comments come after Sir Dave Ramsden, another one of the central bank’s deputy governors, said the Bank of England expects the price pressures to be temporary.

“There is a risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure,” Ramsden told the Guardian. “That’s something we are absolutely going to guard against. We are looking carefully at the housing market and a raft of real-term indicators.”

Inflation is at 1.5 per cent and is expected to rise above its two per cent target for a short period in the coming months.

By Angharad Carrick

Source: City AM

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UK inflation doubles in April as lockdown restrictions ease

UK inflation has more than doubled in April as energy and clothes prices pushed the consumer price index up to 1.5% amid the easing of lockdown restrictions.

A rise from March’s 0.7% readout, the figure comes more in line with the Bank of England’s expected rate of 2% by the end of the year.

Statistics published by the Office for National Statistics (ONS) identified rising household utility, clothing and motor fuel prices as the biggest drivers of the increase which was still partially offset by a large downward contribution from recreation and culture.

Gas and electricity saw big jumps with price rises of 9.4% and 9.1% respectively between March and April driven by a spike in global demand for wholesale gas.

A bounce in oil prices from $20 per barrel last year to around $70 today also put pressure on inflation and will continue to do so as demand increases as the global economy opens up again.

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Ambrose Crofton, global market strategist at JP Morgan Asset Management, said that “a confluence of factors including Brexit-related trade frictions, rising commodity and freight prices are adding cost-push pressure” to the manufacturing side of the economy.

End of furlough scheme could keep inflationary pressures at bay

Inflation is likely to increase further throughout the year as “the economy gradually reopens, the recovery picks up steam and supply constraints intensify in the sectors that were hit by the pandemic,” according to Silvia Dall’Angelo, senior economist at the International Business of Federated Hermes.

Dall’Angelo said higher wholesale gas prices could lead to hikes in regulated utility prices later in the autumn, pushing CPI inflation close to 3%.

But she notes that as inflationary drivers are “set to be largely cost-push and hence temporary” with residual disruption to the labour market likely to show up at the end of the furlough scheme in September, underlying inflationary pressures could be contained.

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Economic recovery could be a Trojan horse for inflation

However AJ Bell financial analyst Laith Khalaf said that “at current levels, UK inflation is nothing to fret about, but there is rising concern that the fiscal and monetary response to the pandemic has sown the seeds of an inflationary scare further down the road.”

The Bank of England showed no signs of tightening the reins just yet as it announced it would make no changes to monetary policy earlier this month with interest rates remaining at 0.1% for now despite its improved economic forecasts.

Khalaf said: “For the moment, the Bank of England is dismissing consumer price increases as a natural bounce back from the depths of the pandemic last spring. But the economic recovery could be a Trojan horse, smuggling inflation into the UK, right under the nose of central bankers.”

Khalaf noted that inflationary fears are already starting to creep into the market with the 10-year gilt yielding 0.9%, up from 0.2% at the beginning of the year.

Despite this Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson, notes real yields “remain very negative as guidance about interest rates continues to hold down nominal yields, even in the face of expected strong growth and rising inflation”.

“While breakeven rates on UK gilts are towards the upper end of where they have been over the last two decades, it is not clear that they are at a level that should be unduly concerning for the Bank yet.”

By Harriet Habergham

Source: Portfolio Adviser

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Bank of England predicts 7.25% growth in economy as interest rates held at 0.1%

The UK’s economy could grow by more than 7% in 2021, according to the latest Bank of England forecast – the fastest pace since the Second World War.

Their projection is that the UK gross domestic product (GDP) – a measure of the size of a country’s economy – will rebound by 7.25% and mark the best year of growth since official records began in 1948.
This represents a sharper recovery than the central bank’s previous forecasts, with 5% growth previously expected.
It comes after the pandemic saw the UK suffer the biggest drop in output for 300 years in 2020, when it plummeted by 9.8%.

But the Bank’s quarterly set of forecasts showed it downgraded its growth outlook for 2022, to 5.75% from 7.25%.

The rosier view for the economy this year came as the Bank’s Monetary Policy Committee (MPC) held interest rates at 0.1%.

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The Bank kept its quantitative easing programme on hold at £895 billion, although one member of the MPC voted to reduce it by £50 billion given the brighter recovery prospects.
In minutes of the latest decision, the Bank of England said the lockdown is set to see GDP fall by around 1.5% – far better than the 4.25% drop first feared.

It also sharply cut its forecasts for unemployment over the year.

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The Bank said: “GDP is expected to rise sharply in 2021 second quarter, although activity in that quarter is likely to remain on average around 5% below its level in the fourth quarter of 2019.

“GDP is expected to recover strongly to pre-Covid levels over the remainder of this year in the absence of most restrictions on domestic economic activity.”

But it warned over “downside risks to the economic outlook” from a potential resurgence of Covid-19 and the possibility that new variants may be resistant to the vaccine.

Source: iTV

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Bank of England holds interest rate at 0.1%

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain the bank rate at 0.1%.

The BoE has warned banks to be prepared for the possibility of negative interest rates within six months.

The committee confirmed that the COVID-19 vaccination programmes are improving the economic outlook, and since the MPC’s last meeting, they say financial markets have remained resilient.

UK GDP is expected to have risen slightly in Q4 2020 to a level around 8% lower than in Q4 2019, which is stronger than expected in the MPC’s November report.

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The bank suggests that there would be a “rapid” recovery in GDP towards pre-pandemic levels this year, due to the vaccination programme.

However, the BoE outlined that the outlook for the economy remains “unusually uncertain, and that it depends on the evolution of the pandemic, measures taken to protect public health and how households, businesses and financial markets respond to these developments”.

The MPC has said that it will continue to monitor the situation closely, and if the outlook for inflation weakens, the committee is ready to take any “additional action necessary to achieve its remit”.

Nick Chadbourne, chief executive of LMS, said: “It’s no great surprise that Bank Rate remains at 0.1%, and it’s good news for homeowners as it keeps mortgage rates down.

“LMS data shows that on average, borrowers taking advantage of low rates decreased their monthly payments by £236 in December.

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“Recently we’ve seen lenders prepare for a busy remortgage market in Q2 with a steady stream of high loan-to-value products returning to the market and the introduction of increasingly competitive rates.

“While product transfers can offer a great deal in terms of ease and efficiency, as competition between lenders grows, borrowers should be seeking advice to ensure they are accessing the best deals available on the market.”

Ian Warwick, managing partner at Deepbridge Capital, added: “The pace at which the vaccine rollout has progressed has been incredibly encouraging and will provide much needed hope for people and businesses alike.

“The government has worked hard in an incredibly difficult environment to create a capital lifeline to many businesses via the BBLS and CBILS, as well as long-term support for growth-focused companies via the likes of the Enterprise Investment Scheme, but now we would urge that there needs to be even greater support – both via financial and via sustainable growth initiatives.

“Agile companies, which have survived 2020 and provide a product or service which has a genuine medium to long-term solution to a recognised problem, will continue to develop and grow but require capital to do so.”

Frances Haque, chief economist at Santander UK, said: “The MPC’s decision to leave bank rate unchanged at 0.1% was expected this month given rapid rollout of the COVID-19 vaccines, which will help boost confidence and support growth in the UK economy.

“However, the Bank of England remains committed to intervening should the financial markets and the UK economy need additional support measures as we move through 2021.“

By Jessica Nangle

Source: Mortgage Introducer

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