Archive for June, 2010

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Stamp Duty Under Scrutiny

Wednesday, June 30th, 2010

With the housing market under pressure, there are concerns that Stamp Duty – the tax levied on property transactions – is a barrier for many buyers. As far as the budget was concerned, it didn’t get a mention. The Budget document said that the stamp duty exemption for first-time buyers on homes up to £250,000 is “under review”. The Building Societies Association took a positive line on this phrase, but it sounds a bit ominous.

Most people pay 1% duty on the purchase of properties costing more than £125,000 up to £250,000. But the 0% band for first time buyers was introduced by Alistair Darling in March on the basis that it would last for two years. This was seen as a boost for new entrants to the market, who in most cases now need to save big deposits in order to get a mortgage.

Many thought the Tories would follow through on their promise to get rid of the duty altogether for properties below the 250k threshold. But it seems that the government sees the tax as a valuable source of revenue in tough times. Budget figures suggest that it foresees big rises in the sums flowing into the Treasury, partly because they expect the number of house sales to grow significantly, by as much as 22% next year.

The thresholds – the amounts at which Stamp Duty becomes payable – have been frozen for years, so as property prices rise, more buyers are caught in the net. And with stamp duty you pay on the whole amount. This means that a house costing, say, £255,000 will fall into the 3% band and land the purchaser with a £7650 bill. An additional factor is the new 5% band for homes costing over £1 million, due to come into force next April under plans put in place by the previous government.

With future prospects unclear, many looking to buy their first home will be keen to take advantage of the current exemption – and interest rates at historic lows. Over the past two years that hasn’t been easy, with lenders exercising caution in the wake of the credit crunch and recession. The good news is that there are more mortgage deals available requiring lower deposits than previously.

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Housing Market Nerves

Wednesday, June 30th, 2010

House prices in Britain just rose by 0.1% in June, compared to 0.5% in May, and 1% in March and April, suggesting that the recovery in the housing market is slowing down markedly. In addition, the annual rate of house price inflation slid from 9.8% to 8.7% in May, putting the average house cost at just above £170,000. The figures come from the Nationwide in its latest monthly survey of house prices.

This, as we have reported, is not wholly unexpected. Thanks to the provisions in the recent budget, and the scrapping of Home Information Packs (HIPs), more houses have been put on the market, unmatched by an increase in demand from potential buyers. With imminent cuts in the public sector, and the probability of a rise in unemployment, the housing market is expected to cool further down through the second half of 2010. And according to recent Bank of England figures, mortgage lending remains flat, to the surprise of some analysts. All this has contributed to fears, bolstered by lowering consumer confidence around the globe, of a second downturn.

Nonetheless, house prices have risen by 3% this year according to the figures. Over the last three months, the strongest growth has been seen in the South West, North West and London, with rises of 3%, 2.6% and 2.5% respectively. The East Midlands saw slower growth, while in Northern Ireland prices continued to fall.

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Banking On The Banks

Wednesday, June 30th, 2010

Fears about the prospects for the world economy sent share markets tumbling across the world yesterday. As ever, at the centre of the storm are governments and banks, with questions being raised about whether either can cope with their debts. Some even suggested a repeat of the events of 2008 – when trader ditched all but the safest assets – was on the cards.

The eurozone is again in the spotlight, with protests in Greece against spending cuts and a scaling down of support for the banks by the European Central Bank. But other parts of the world are chipping in with their quota of bad news – expectations for the Chinese economy are being reigned in, while in the US consumer confidence has fallen.

As ever, too, Britain’s big financial sector is a double-edged weapon. Latest figures make the UK’s banking industry the second most powerful in the world, after that of the United States, with no less than four British banks in the global top 15. RBS, 83% owned by the taxpayer, is the fourth biggest lender, while Barclay’s is the world’s fourth most profitable bank. It’s anticipated that the banks in which the taxpayer has a stake could bring the Treasury handsome dividends as profits return and the shares are sold.

The hope is that, not for the first time, the financial markets overdid things yesterday. There are already signs that the eurozone banks are in better financial health than was feared, with the news that they are seeking to renew debt at lower levels than expected.

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Uk Tops League – For Flat Rents

Tuesday, June 29th, 2010

Yes, apparently, the UK tops a league table for the most expensive countries in Western Europe for flat sharing. We may well be paying an extra £63 more per person than our French, Spanish or Italian counterparts, with the average flat-share rent coming to about £348 a month. France is in second place with a monthly rent of £285, followed by Italy at £282.

Naturally, the exchange rate, recently more favourable to the pound, plays its role. The demand from first-time buyers, unable yet to secure a mortgage deal, is equally to blame. In 2009, residential mortgage lending was down by 21.4% in the UK, while they were in positive figures in other countries, especially in France where it was up by 29.2%.

As we reminded our readers recently, research suggests that people are better-off buying property in most places across UK – with the prominent exception of London – than to rent. Interest rates on mortgage deals, the exchange rate, and the availability of new houses are currently in favour of purchases. Meanwhile, the range of mortgage products aimed at those with smaller deposit is gradually increasing again.

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Interest Rates May Need To Rise

Tuesday, June 29th, 2010

Could an era of low interest rates and cheap credit be reaching its end? That’s the conclusion from a report by the Bank of International Settlements, which brings together more than 50 of the world’s central banks.

The bank’s argument is that continued low rates risk a repeat of the reckless behaviour which led to the global financial crisis. They admit that drastic cuts in rates were necessary to prevent meltdown. But now they think near-zero rates are encouraging risky behaviour such as taking on too much short term debt, and a failure to face up to economic realities – not to mention inflation.

The bank also takes a stern view of the so called “stimulus programmes” used by governments to tackle the recession. They diagnose that side effects of the intensive care given to national economies could “send the patient into relapse.”

Governments, they argue, must take urgent action to cut their deficits and the direct support given to banks. And they conclude that the aid given to economies has limits which in many cases have been reached. Without action, demands on welfare from an aging population would help to make the debt burden in Britain and other countries “unsustainable.”

In a separate move, G20 leaders agreed that new rules to make sure banks have sufficient capital should be phased in. The idea is that the tax payer will never again be faced with the need to rescue banks “too big to fail.” Banks will need to build up their own reserves, and private investors will need to take on the risk of a bank collapse. But the other side of the coin is that it will cost banks more to borrow – and that again means more expensive credit for the rest of us.

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Return Of The Fiver

Tuesday, June 29th, 2010

They make only rare appearances and, when they do turn up, tend to be in a sorry state. But five-pound notes may be making a comeback after it was announced that £5-only cash machines are to be installed across the country.

The Bank of England has been trying to get more of the notes in circulation for years, but the banks have resisted putting them in ATMs, arguing that it means more work for them filling the machines. The few notes around stay in circulation and change hands frequently before eventually finding their way to banks in damaged condition.

The first 21 new machines will be housed in newsagents, and it’s understood there will be no charge for making withdrawals from them. There is thought to be demand for the fiver, partly because of the inconvenience of handing over large notes to receive handfuls of pound coins in return. And for many on tight budgets, taking out smaller amounts in smaller denominations may be helpful.

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Remortgaging Revival

Tuesday, June 29th, 2010

With interest rates at their lowest levels for years, latest figures suggest that a growing number of borrowers are taking the opportunity to secure mortgage or remortgage deals.

May saw mortgages approved for house purchase rise to their highest level so far this year, according to data from the British Bankers’ Association. The big banks sanctioned a total of 36,709 loans during the month, continuing the trend from March and April. But it’s remortgaging which is leading the way, with 24,626 customers taking out new or replacement loans on their existing property.

Separate figures from HM Revenue and Customs show that property sales remain flat, however. Sales in May increased by just 1000 to 73,000, less than half the total for the same month in 2007 or 2008.

Taken together, the numbers suggest that many are choosing to stay put and consolidate their financial position – or perhaps improve their property – rather than move.

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Five Gold Rings: Paying For The Olympics

Tuesday, June 29th, 2010

In a controversial move, it’s been revealed that sports fans wishing to make card payments for tickets to the 2012 Olympics will only be able to use Visa credit or debit cards. Similar rules will apply to those wishing to withdraw cash or make purchases at the various venues during the London Games. The restriction is part of a deal with Visa, one of the Games’ sponsors – a group which also includes BP.

Stressing the disadvantage of the Visa deal to American Express and MasterCard holders, consumer watchdog Which? said that it was “outrageous for some UK sports fans to be discriminated against in this way.” But Olympic organisers defended that move, pointing out that such arrangements were essential in financing the Games. Visa said that a prepaid card was available to make purchases, while payment by cheque or cash remained an option.

Meanwhile, London Olympics officials are sticking to their financial plans, in spite of the new climate of austerity. It’s thought that the sale of some ten million tickets will net £441 million, about a quarter of the Games’ operating costs. While ticket prices have yet to be released, the average of £44 perhaps gives an indication – though tickets for the opening and closing ceremonies, and for seats at flagship events like athletics, swimming and cycling could command considerably more.

Lord Coe also argues that the billions invested in construction projects for the games will pay economic dividends and preserve jobs. Sponsorship deals like the one with Visa, and international funding, mean that the operation of the event is to a degree insulated from government cuts.

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Budget: Retirement Prospects

Tuesday, June 29th, 2010

Quite a bit of attention was heaped on pensioners in the Budget, along with some controversial discussions on retirement age and prospects. In all, the government promised a budget that would “reinvigorate retirement”. All very well. But, what were the measures that were actually proposed?

Most importantly, from April 2011, the link between basic state pension and earnings is to be restored, under something called a “triple lock”. Then, the state pension will go up by the greater of the increase in average earnings and inflation, or by 2.5%. Also, the new coalition looks set to continue the setting up of a scheme introduced by the previous Labour administration, which would see workers automatically enrolled into pension schemes. It is expected that this may be introduced as early as 2012.

The most controversial proposed measure is to bring forward the increase in retirement age for men from 65 to 66, to as early as 2016 – and for women to be treated on similar lines within a few years. Indeed, an increase in retirement age to 70 has not been dismissed. Equally, the government wants to get rid of the default retirement age of 65. This gives employers the right to remove workers once they reach that age. A similar measure, just proposed in France, has provoked widespread outrage with workers and pensioners taking to the streets to strike and protest. The new retirement age being mooted there is 62.

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Cameron Gets Lift As Leaders Agree To Differ

Tuesday, June 29th, 2010

At the G20 summit in Canada, David Cameron pulled off several publicity coups and made the most of photo opportunities with Barack Obama. The two leaders were pictured swapping bottles of beer – while it’s said British officials could hardly contain their glee when the Prime Minister was offered a lift in the Presidential helicopter. “I hope you will know what I mean when I say I thought the special relationship took off during the time we spent together,” he told Mr Obama later.

David Cameron and his Chancellor are claiming success on the economic front too. The summit, they say, gave its backing to Mr Osborne’s tough budget. It is true that the final communiqué – the statement of the meeting’s conclusions – gives the green light ahead to those countries, who want to get on with tackling their debt problems faster – countries, like Britain “experiencing significant fiscal challenges.”

To an extent, that is making a virtue out of necessity. Different countries want to take different approaches to their economic problems, and the leaders have decided to let each other get on with it. The same applies to action to rewrite the rules for banks, where countries have been left to introduce bank levies on an individual basis.

The UK and Germany are putting in place austerity measures to reach the agreed deficit reduction target faster. Mr Obama is facing signs of a dip in the US recovery, and warned: “We must recognise that our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today.” His anxiety is reflected in an IMF’s report on the G20 countries’ plans. The IMF want more cooperation, and a different mix of policies to cut debt and get consumers, in some countries at least, spending again. They warn of “serious downside risks” – meaning lower growth and more job losses.

The British leaders believe they are winning converts to their view – that not cutting now is the thing that will hamper growth and the recovery. Whether they are right will help to decide how many of us can hold on to jobs and pay our mortgages over the coming months.

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