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Emergency Budget: Tough For The Housing Market?

On June 22, Chancellor of the Exchequer George Osborne will deliver the much-anticipated Emergency Budget. The prospect of an increase in Capital Gains Tax (CGT) has been widely discussed recently, and Go Remortgage news has indicated how it might affect the housing and mortgage markets – among other ways by favouring foreign investors who will undoubtedly want to take advantage of the weak pound. But, what else might the average homeowner or buyer expect out of the budget?

First, there’s value-added tax (VAT), which, it is widely speculated, will rise. Despite opposition, it looks likely to apply to most refurbishments and newly built properties, and thus could have an adverse effect on the housing market. Second, the Chancellor may introduce changes to Private Residences Relief, which enables homeowners to sell their sole/main residence free of CGT. By tightening up the definition of “main” residence, the budget may end up subjecting a significantly larger number of properties to CGT.

Third – and this might be a sore point for Tory voters – it’s unlikely that there will be any major extension of the current inheritance tax (IHT) nil band beyond £325,000, towards the £1 million trailed pre-election. In fact, further constraints could be brought in. According to current rules, a non-domiciled taxpayer can be subject to the IHT if they have been resident in the UK for the last 17 out of 20 years. With so-called non-doms not having had the best of the political weather recently, this period could be shortened to the last seven out of nine years. This would align it with the test used for the remittance basis charge – which is levied for choosing to have overseas earnings taxed only when they’re brought into the UK.

Finally, whether the budget will reduce capital allowances in order to fund a possible corporation tax cut remains uncertain. However, if it does happen, then, property investors may not be able to recover as much of their costs as they used to, which would undermine their business.
All in all, this looks bound to be a tough budget. We’ll keep you posted with more analysis as the story unfolds.

Category: Current Market News Tags: Economy, Housing Market, Markets
03-Jun-2010 | Posted By Adam | Comments (0)

Buffett Buffeted

Warren Buffett, the legendary US investor who regularly features in the list of the two or three richest men on the planet, also has the reputation of a guru. He regularly adds pithy statements about the business world to a record of backing winners that speaks for itself. But Mr Buffett now admits that, like so many, he failed to foresee the subprime mortgage collapse with all the consequences that had for the banks and the global economy. Perhaps for this reason he was reluctant to appear before the US Financial Crisis Inquiry Commission (FCIC) yesterday, and had to be subpoenaed. The accusation is that the agencies took far too positive a view of mortgage products – packages of loans, some of them highly dodgy, sold as investments. And among the agencies is Moody’s, in which Berkshire Hathaway, Mr Buffett’s company, has a big stake.

Mr Buffett, in what one analyst described as stumbling performance, took the view that the agencies simply made the same error that he did – “a mistake that virtually everybody in the country made.” The problem is that the errors of the agencies are seen to have had such dire results. Mr Buffett’s reputation as the Sage of Omaha may suffer. But then it’s one largely foisted by the media on a man whose demeanour and generosity, as well as billions, have impressed many.

Category: Current Market News Tags: Business, Economy, Headlines
03-Jun-2010 | Posted By Abigail | Comments (0)

King Cool About Homecoming Chickens

A vigorous debate has opened up about the future direction of interest rates. The call by the prestigious Organisation for Economic Cooperation and Development for substantially higher rates chimes in with the thinking of many – not least hard pressed savers. They reckon Britain’s economy has bounced back from recession in a more lively fashion than many think. And latest figures show manufacturing output growing for a twelfth straight month in what one analyst called “a spectacular bounce”. A more worrying indicator is the inflation index, which at 3.7% is almost double the Bank of England’s target. This could suggest that there is less slack in the economy than previously thought – by the Bank’s monetary policy committee among others.

The OECD fears that inflationary psychology can develop, whereby to compensate for price increases workers claim higher rewards, leading to price increases . . . and so on. Some regard higher prices simply as chickens coming home to roost from the Bank’s quantitative easing programme: the massive asset buying spree – designed to counter the recession – which has injected £200 billion into the economy. Now, they argue, there is nothing for it but to take harsh medicine.

But Bank Governor Mervyn King is staying cool, insisting that inflation will drift back down without dramatic action on rates. “Despite its volatility, inflation remains low by historic standards, and on track to meet the target in the medium term,” Mr King writes in his foreword to the Bank’s 2010 annual report

This is music to the ears of those who fear that action to raise interest rates from their historic lows will strangle a fragile recovery at birth. They point out that with big spending cuts and tax increases on the way, the last thing business and homeowners need is another tight squeeze from rates. Savers may be frustrated – but borrowers are right to be equally wary about their prospects. Rising mortgage payments, plus higher taxes, could spell disaster for many household budgets – and for the economy. It’s not surprising that some commentators have a simple response to the OECD’s advice: ignore it. But with city economists seeing scope for rate rises, if not at the pace foreseen by the OECD, borrowers will want to ensure they have the loan and mortgage deals best suited to their needs and plans for the future.

Category: Current Market News Tags: Economy, Markets
03-Jun-2010 | Posted By Abigail | Comments (0)

Oil Spill: Counting The Cost

As BP makes yet another attempt to stem the flow from its oil well, 5000 feet down off the US coast in the Gulf of Mexico, investors as well as environmentalists are counting the cost.

Ever since the explosion of the Deepwater Horizon rig on April 20 – which it should be remembered cost 11 lives – everything to do with the disaster has been on a vast scale. One expert said this morning that the spill was now the largest ever release of oil into the environment by man outside wartime. A Louisiana National Guard lieutenant dealing with the consequences said, “My heritage has been trampled on.”

Most will have been appalled by the graphic pictures of the impact on communities, landscape and sea life. Another aspect of the disaster is financial. The clean-up operation has been costed at $4 billion or £2.7 billion. And with every kind of legal option being explored, the company looks set to face lawsuits and fines running into billions, while the US attorney general has launched a criminal investigation.

At one point on Tuesday, shares in BP had plunged almost 17% – the worst one-day fall in 18 years. It’s calculated that about a third has been wiped off the valuation of the company as the share price has fallen. And this could spell bad news for Britain’s pensioners, with estimates suggesting that BP accounts for one in every seven pounds invested by UK pension funds. The company remains a formidable operation, and, as undersea robots are again used to try to cap the well, there’s no shortage of reasons for wishing them success.

Category: Current Market News Tags: Economy, Headlines
02-Jun-2010 | Posted By Abigail | Comments (0)

Parents Seek Investment To Trust

Among the casualties of the spending regime being brought in by the new government are Child Trust Funds. These were one of Labour’s more eye-catching innovations, designed to give children a financial platform as they entered adulthood, and to encourage saving. Babies born on or after 1 September 2002 received a £250 voucher from the government (£500 if from a family on a low income) with a further payment being made at seven. The money was invested in a range of approved funds, and could only be accessed as the child turned 18. The scheme is to be phased out – quickly, with birth payments going down to £50 or £100 from 1 August, when the age-7 top-up will also be scrapped. All payments will cease on 1 January 2011, though those who wish will be able to make contributions up to the limit of £1,200 a year.

Whether that will be an attractive option is questionable. Depending on the mix of investments originally selected, parents could now find funds earn poor returns as the market contracts and interest rates taper off. One analyst suggests that funds will become the equivalent to obsolete deposit accounts, though there is the option of switching providers.

The funds always had a mixed reception. Many did use them to give a child or grandchild a better start in life (sums to the tune of £14.4 million being added to 640,000 account each month according to one calculation). But many, particularly from the target group of low-income families, did not. And there was always the criticism that the fund became freely accessible aged 18 – when they might just as likely be squandered as devoted to a university education.

Now charities and other organisations are demanding a new tax-free savings option for children. Some say that, come 2020, a whole generation will enter higher education with financial backing, and argue that the scheme’s economic benefits shouldn’t be thrown away. Others take the robust view that the funds were an obvious target for a government keen to make savings: it’s estimated that abolition will save £520billion in 2011-12. Investment specialists argue that a new vehicle, such as a children’s ISA, should be introduced to replace the funds.

Category: Money Saving Advice Tags: Economy, Markets
02-Jun-2010 | Posted By Abigail | Comments (0)

Housing Market Sees Tentative Growth

Growth in the housing market slowed in May, with prices rising just 0.2% thanks largely to uncertainty caused by the general election, research has revealed. As the prospect of a hung parliament loomed large, both buyers and sellers were hesitant to enter the market, leading to downward pressure on all key market indicators. Indeed analysis from Hometrack, the property intelligence group which conducted the research, suggests that significant increases in house prices were seen only in a fifth of postcode areas, more than half of which were in London and South East.

That said, there’s still an underlying upward pressure on prices, with the rise in agreed sales largely outstripping the number of new homes coming on to the market, as it has over the past three months. The sluggishness, meanwhile, is expected to continue well into the autumn, as a nervous market waits for the emergency budget. If the CGT raise were to take effect only from the next tax year we could expect a big surge in the number of houses coming to market as investors hurried to take advantage of the current 18% rate.

Category: Current Market News Tags: Housing Market
01-Jun-2010 | Posted By Abigail | Comments (0)

Brokers Remain Bright

With economists drawing mixed conclusions about the UK’s prospects, mortgage brokers are optimistic about the future, according to recent tests of opinion. A poll of some 300 brokers, conducted by NatWest Intermediary Solutions at a recent forum, found that almost two thirds of brokers (63%) were expecting to do more mortgage business in the second half of the year than in the first. The majority also said they had arranged more mortgages in the early months of 2010 than they had in the same period last year. Many also indicated that they expected fixed-rate deals to become more popular. Meanwhile, in spite of concern about mooted Capital Gains Tax rises, surveys are pointing to a healthier market for mortgages aimed at property investors.

Leading brokers feel that, with uncertainty about interest rates and the range of fixed rates and other deals on offer, borrowers will be keen to talk through the options available. “We will help to review all factors for each individual client,” said a spokesman for broker GoRemortgage. In doubtful economic conditions clients will also be looking to minimize their repayments and if necessary take on increased borrowing in the most cost effective way possible.

Category: Go Remortgage News Tags: Economy, Housing Market
01-Jun-2010 | Posted By Abigail | Comment (1)

UK Rides Economic Seesaw

Britain’s economic prospects look finely balanced, with strengths and weaknesses both being highlighted in recent reports. There have been signs of a slowdown in Britain’s key service sector, with a CBI survey pointing to flat sales for business services and falls in sales of consumer services. The hospitality industry, including hotels, bar and restaurants, is among those hit. According to latest data on consumer confidence, we remain cautious about choosing to spend money – on meals out or on hair and beauty appointments, for example.

The service sector as a whole is vital for Britain’s economic recovery, accounting as it does for more than two thirds of Gross Domestic Product.

Meanwhile, the British Chambers of Commerce last week raised its forecast for growth this year to 1.3%, but cut its predictions for next year a shade to 2%. It also seems likely that the new Office for Budgetary Responsibility will lower Treasury forecasts which currently put growth at 3-3.5% next year. The BCC calls the recovery “tentative” and the risks of a lapse back into recession “high”.

As we reported last week, latest projections from the Organisation for Economic Cooperation and Development (OECD), paint a positive picture for growth in the global economy, and also for Britain in particular – in comparison to recent years. With low interest rates, a competitive currency and a flourishing manufacturing sector, there are plenty of pointers to vigorous recovery for the UK. But the OECD report also highlights the chance of further crises stemming from further government debt problems, in the eurozone for example, and risks from inflation.

The organisation is calling for more rapid rises in UK interest rates to hold back price increases. What Britain’s policy makers and others will be hoping for is that the squeeze from budget cuts and tax hikes, which is already dampening the mood of us consumers, will mean that interest rate rises can be gradual and kept to a minimum. This could allow modest growth to continue, fending off the feared ‘double-dip’ scenario.

Category: Finance News Tags: Economy
01-Jun-2010 | Posted By Abigail | Comments (0)

Osbourne To ‘Take Sting Out’ of CGT Rise

Amidst fears that the proposed increase in Capital Gains Tax (CGT) will deter entrepreneurs and middle-class families from investing, and what with the Daily Telegraph running an anti-CGT campaign, Work and Pensions Secretary, Ian Duncan-Smith has said that the chancellor is taking account of public concern. He said that “major exemptions” are likely to be included to help “take the sting” out of the proposals.

Meanwhile, a group of twelve businesses and economists has written to the Sunday Telegraph strongly encouraging the government to look again at the CGT rise, arguing that it is tantamount to a “tax on growth, enterprise and jobs,” thereby discouraging savings and investments.

“In addition, it may cause all this damage and yet raise no revenue, as some investors take expensive avoidance measures and others hold on to their assets in order to delay paying the tax,” the letter added.

Chris Huhne, the Lib Dem energy and climate change secretary, disagreed, and cautioned against making concessions. In an interview with the Sunday Times, he argued that critics of the CGT proposals lacked “an awareness of the constraints that we’re facing and the sense of competing priorities”. He went further and criticised opponents for focussing on a single issue without being aware of the larger economic issues the government is facing.

Category: Finance News Tags: Economy, Markets
31-May-2010 | Posted By Abigail | Comments (0)

Demise of Packs Boosts Property Instructions

It looks like the scrapping of the Home Information Packs, HIPS, has already begun to make a difference. Countrywide, Britain’s biggest estate agency and property services group, has reported a 34% increase in new property registrations in England and Wales, within a week of the government announcement. Property website Rightmove has reported a similar increase in the number of new listings. Other estate agents are expected to report similar findings in the coming weeks, analysts say.

In fact, year-on-year registrations have gone up by 68%, Countrywide said, the biggest increase since HIPS were extended to three-bed flats in September 2007. The increase was most striking in the north of England and Midlands, according to aggregate figures from the offices that make up the estate agency group.

The majority of registrations were in the £100,000-£150,000 bracket, suggesting they may have come from people keen to move up the property ladder who have previously been put off by the cost of the packs typically in the region of £250-£350 – not to mention the effort and red tape involved.

It’s possible, though, that the increase of supply in properties will depress prices if it continues, while the proposed rise in Capital Gains Tax could have a similar effect.

Category: Finance News Tags: Housing Market, Industry, Markets
31-May-2010 | Posted By Abigail | Comments (0)

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The Go Remortgage Blog

Emergency Budget: Tough For The Housing Market?

Buffett Buffeted

King Cool About Homecoming Chickens

Oil Spill: Counting The Cost

Parents Seek Investment To Trust

Housing Market Sees Tentative Growth

Brokers Remain Bright

UK Rides Economic Seesaw

Osbourne To ‘Take Sting Out’ of CGT Rise

Demise of Packs Boosts Property Instructions

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