Wednesday, 30 November 2011

House prices up? Hang on, weren't they down yesterday?

Are house prices rising or falling? Rising, Nationwide Building Society said today. Falling, according to Land Registry figures released yesterday.

Nationwide branch - Which house price index should you believe?
'This latest set of Nationwide house price data is about as misleading as it gets,' said one observer

If that's not confusing enough, you can always look at the house price data from the Department for Communities & Local Government, the Royal Institution of Chartered Surveyors, Halifax, estate agents such as Savills and Rightmove and specialist index providers such as Hometrack and Investment Property Databank
For home owners and businesses, whose financial futures are inextricably linked to the value of the UK's housing stock, trying to make sense of the information is near impossible.
Nicholas Ayre of Home Fusion, a home buying agency, said: "This latest set of Nationwide house price data is about as misleading as it gets. Low transaction levels and low supply have led this data to bear scant resemblance to reality.
"Demand is glaringly weak, and as we enter what could potentially be an apocalyptic year for the global economy, it is likely to weaken further. Rising unemployment, collapsing consumer confidence and consistently high inflation do not make for a robust property market.
Although index providers like to present their data as the most comprehensive and trustworthy on the market, all of them are flawed – the methodology, sample size and historical relevance of the main indices vary enormously.
"At Heart Finance  we search the entire market in order to help you find the best deal you possibly can.
We are committed to offering our customers the highest possible 
standards of service
We recognise that both we and our customers have everything to gain if we look after your best interests and treat you fairly in all aspects of our dealings with you
Only recommend a mortgage or financial services product that we consider suitable for you and that you can afford – Our lenders charge the lowest fees of all - and always the most suitable from the available options 

The Halifax, the UK's biggest mortgage provider, samples roughly 13,500 properties per month, just over 10pc of the market for house sales. Nationwide does not reveal its figure, so we can assume it is considerably smaller.
Like Nationwide, Halifax takes its data from mortgage valuations at the point they are approved by the bank or building society. What this means is the valuation may not actually represent a sale, which is the only true measure of value.
Although both institutions claim that through the application of complex mathematics they can transform geographically and socially biased information into a true reflection of the whole nation's housing market, there remains a suspicion that the Halifax index is biased towards the North of England and Nationwide to the South.
How else do you explain recurring discrepancies?
So which index should you follow? The answer, unfortunately, is none of them and all of them.
Some brokers do not even look at the monthly figures because they tend to jump about all over the place, but rather pay attention to are the quarterly figures.
It is worth bearing in mind that mortgage lenders take their data from little more than half the market, missing great swaths of deals and data. Surprisingly, around 40pc of the UK's housing stock is owned outright – no debt, no mortgage, and therefore no visibility by Nationwide and Halifax.
Figures from the Land Registry are more complete. The agency captures all sales and in the good times that can be up to 120,000 a month.
Mr Ayre said: "[Nationwide's data] came just a day after figures from the Land Registry showed that prices are falling across the UK – and that is a far more accurate reflection of where the market is at."
However, the index comes out at least a month after Nationwide and Halifax. And as it records the price at the point of sale rather than when the mortgage is approved, it lags the market further. Experts also point out that given periodic changes to the economy, different sections of the population are buying and selling houses at different times, which could also skew the results.
The Government tried to deal with this by setting up its own index, the Communities and Local Government House Price Index. By drawing from a pool of nearly 50,000 mortgage valuations from 60 mortgage lenders, the index has a wider base than its peers. But it's still far from perfect.
Critics say that the index is too recent, so it is difficult to know how it behaved over previous cycles.
This would enable indices not just to plot the market performance, but to predict it. This is where house price indices move from being headline-grabbing marketing gimmicks, which was how many of them were conceived, into real business tools.
By modelling how markets have behaved in the past, economists, governmental and commercial, use the data to make decisions on core policies such as interest rates.
The Royal Institution of Chartered Surveyors, which has been carrying out its survey since 1978, trumpets the fact that the information it gathers is used by the Bank of England. Although the survey does little more than test sentiment among estate agents, it has 30 years of data to work from and is seen as one of the best forecasting tools on the market.

From the Telegraph 

Monday, 21 November 2011

Increasing squeeze on consumer finances sees households fearing for future prosperity

Household finances worsened and confidence in prosperity prospects dived at their sharpest pace since the summer in November, confirming the ongoing squeeze facing consumers.
The Markit Household Finance Index dropped from 35.0 in October to 34.6 this month, where any figure below 50.0 indicates worsening finances.  
The survey average since it began in February 2009 is 37.6.
A little more than a third of respondents said their financial situation had deteriorated since October, only 6 per cent seeing any improvement. 
everyday life household
Tough time: Many more people felt worse off than those who felt any richer 
The outlook appears bleaker for those on lower incomes, with a widening disparity between those on higher pay levels. 
In the lowest group (less than £15,000 a year) just over half felt poorer in November, and in the second-lowest income bracket 45 per cent felt the same.But in the wealthiest group just 19 per cent noted finances deteriorating, while nearly as many - 14 per cent - felt richer.  
More public sector workers felt worse off (32.9 on Markit's scale) than  those in the private sector (38.6), and public sector employees are more pessimistic about the year ahead (55 per cent expecting deterioration) than their private sector counterparts (45 per cent). Overall, nearly half of respondents (48 per cent) expect their financial situation will worsen in twelve months' time against a quarter who think it will improve.
Tim Moore, Markit senior economist, said: 'While all eyes are on whether the UK economy will double-dip, the latest survey is a timely reminder that the household recession hasn’t even paused for breath.
'Measures of households’ cash available to spend and their willingness to make major purchases were both even worse than at the peak of the recession.'

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    It was 18-25 year-olds who saw the steepest rise in debt levels of all age categories, while they reported the fastest falls in both their savings and willingness to spend since the survey began almost three years ago.
    'Scratching below the surface illuminates uneven strains across household income categories,' Moore added. 'Most starkly, the overall figures mask the survey’s widest ever divergence between the financial situation of the top and bottom income groups.
    'As might be expected following the recent surge in youth unemployment, respondents in the lowest age group saw a particularly sharp deterioration in their finances.'
    Households' willingness-to-spend on major purchases remained close to the record low after January's VAT rise, with 49 per cent less keen to splash out. And three times as many people (32 per cent) reported a drop in household savings compared with 10 per cent seeing an increase.
    Adding to concerns over the prospects for Christmas shopping the British Retail Consortium reported today that shopper footfall fell 2.3% year-on-year between August and October. October itself saw the sharpest year-on-year drop in footfall so far in 2011. Further worrying news came from John Lewis revealing that their department store sales were down by 3.2% down year-on-year in the week’s trading to 19 November.
    Howard Archer of IHS Global Insight said: 'Ongoing turmoil in financial markets and heightened fears over global as well as domestic growth prospects is unlikely to do much for consumers’ confidence and willingness to spend. 
    'The only really good news for consumers at the moment is that it is very clear that the Bank of England is not going to raise interest rates for some considerable time - We do not expect a move before mid-2013 - [but then] net savers suffer. 
    'On a longer-term basis, October’s dip in consumer price inflation (to 5.0% from 5.2%) should mark the start of a substantial downward trend that will increasingly ease the squeeze on households’ finances. Even with CPI falling back markedly though, the overall environment will still be very tough given likely further significant rises in unemployment, ongoing muted wage growth and continuing tight fiscal policy.'

    By The Mail Online

    First-time buyers could see deposits slashed to 5%

    First-time buyers trying to raise a deposit to get a foot on the housing ladder are to receive a helping hand from taxpayers.
    The Coalition is today expected to start a scheme to underwrite mortgages worth hundreds of millions of pounds for new homes.
    First-time buyers biggest barrier to entry to the property market is the current high deposit demands needed for a good mortgage rate. The benchmark sum needed to be raised is 20 per cent of a home's value, according to industry figures, which means potential homeowners need to save £26,000.
    First-time buyers have found it increasingly difficult to get on the property ladder with banks often demanding deposits of at least 20 per cent
    First-time buyers have found it increasingly difficult to get on the property ladder with banks often demanding deposits of at least 20 per cent
    David Cameron will promise tough action to help young people own their home. 
    Smaller deposit mortgages are still available, but at a much lower level than before the credit crunch arrived and they come with interest rates of almost double those charged to borrowers with larger deposits.
    Under the new mortgage indemnity scheme, likely to be introduced in conjunction with housebuilders, the Government will underwrite a percentage of each loan on newly built property – meaning buyers will not have to raise as much towards a deposit. They would be able to get more mortgages at up to 95 per cent loan to value.

      A foreword to the proposals, by both David Cameron and Nick Clegg, the Deputy Prime Minister, said: 'One of the most important things each generation can do for the next is to build high quality homes.

      A deposit makes a difference

      Building society Nationwide is a lender that offers mortgages to first-time buyers with a 5 per cent deposit, but they come at a price.
      A five-year fixed rate mortgage at 95 per cent loan-to-value has a rate of 6.44 per cent, while a similar mortgage at 70 per cent loan-to-value has a rate of 3.59 per cent.
      That makes a difference of £165 per month on a 25 year repayment mortgage - with the smaller deposit buyer paying £670 and the larger deposit buyer paying £505.

      'But for decades in Britain we have under-built. By the time we came to office, house-building rates had reached lows not seen in peace time since the 1920s. 
      'The economic and social consequences of this failure have affected millions: costing jobs; forcing growing families to live in cramped conditions; leaving young people without much hope that they will ever own a home of their own.
      'These problems – entrenched over decades – have deepened over the past few years. 
      'The housing market is one of the biggest victims of the credit crunch: lenders won't lend, so builders can't build and buyers can't buy. 
      'That lack of confidence is visible in derelict building sites and endless For Sale signs.
      'It is doing huge damage to our economy and our society, so it is right for government to step in and take bold action to unblock the market.' 
      In decline: How first-time buyer numbers have tumbled to record low levels. (Source: CML - 2011 figure extrapolated from incomplete data)
      In decline: How first-time buyer numbers have tumbled to record low levels. 
      A central part of the new housing strategy is a new £400million 'Get Britain Building' fund, which it is hoped will pay for the construction of up to 16,000 homes including 3,200 affordable properties. The money will be used to invest in ready-to-go construction sites. Ministers hope diggers will be on site by July next year, and say the project could support up to 32,000 new jobs.
      Mr Cameron and Mr Clegg said in their foreword: 'These plans are designed to spread opportunity in our society.
      'For too long, millions have been locked out of home ownership. We want to build an economy that works for everyone, one in which people who work hard and play by the rules can expect to own a decent home of their own.' 

      How a mortgage indemnity guarantee could help

      A mortgage indemnity guarantee would reduce the risk of mortgages where borrowers put down a small deposit and protect lenders when homeowners fell into negative equity.
      It would act as an insurance against negative equity if a home had to be repossessed. If a home had to be sold for less than its mortgage value, the lender could claim on the guarantee.
      The aim is to allow potential buyers to access mortgages with just a five per cent deposit and still get a good rate, rather than the current average deposit for first-time buyers, which is running at 20 per cent.
      According to Council of Mortgage Lenders completion figures this means the average first-time buyer needs to find £26,000.
      That is lower than the average 25 per cent deposit the average first-time buyer had to find at the height of the property slump in 2009, which equated to £33,000.
      However, the long term average loan-to-value for first-time buyers prior to the arrival of the banking crisis in 2008 was 92 per cent. Throughout the 1980s and 1990s, the average loan-to-value for first-time buyers was higher at 94 per cent.

      "At Heart Finance  we search the entire market in order to help you find the best deal you possibly can.
      We are committed to offering our customers the highest possible 
      standards of service
      We recognise that both we and our customers have everything to gain if we look after your best interests and treat you fairly in all aspects of our dealings with you
      Only recommend a mortgage or financial services product that we consider suitable for you and that you can afford – Our lenders charge the lowest fees of all - and always the most suitable from the available options 

      Mortgage lenders voice their support
      Nationwide, the UK's third biggest mortgage lender and largest building society, has confirmed that it will participate in the New Build Indemnity Scheme, it also called for the cash Isa savings limit of £5,340 a year to be doubled to help those saving for a deposit. 
      Graham Beale, chief executive of Nationwide, said: 'There is clearly a housing shortage in the UK and we recognise the importance of the housing sector to the wider economy. This scheme seeks to boost the supply of properties available with modest deposits and, as such, we are pleased to be part of it, helping to shape its design and development. 
      'We would really like to see people who are saving for a deposit given more help through higher Isa limits and the flexibility to move their funds between cash and equity Isa products, without the restrictions that are in place now.'
      The Council of Mortgage Lenders has also thrown its support behind the idea. CML director general Paul Smee commented: 'This scheme is good news for home-buyers, developers and indeed the UK economy.
      'Lenders will be able to reduce the level of deposit needed by home-buyers in the new build sector, enabling more buyers to buy and so supporting the flow of new housing development, with all its positive consequences for jobs and the economy as a whole.'
      The revival of right to buy
      Mr Cameron will also announce plans for up to two million council houses to be sold to their tenants under a revival of Margaret Thatcher's 'Right to Buy' scheme.
      Ministers are to offer heavy discounts – worth up to 50 per cent – in a bid to persuade people to buy their homes. The proceeds will then be ploughed back directly into building new homes in the area.
      The Government hopes the fresh drive could result in a further 100,000 homes being built, creating 200,000 jobs.
      The original Right to Buy scheme of the 1980s – which offered discounts of up to 60 per cent – was one of the most popular policies of the Thatcher era. Although the scheme continued under Labour, the discount was capped at £38,000.

      By the Mail Online 

      Inflation has turned £100 into less than £20

      One stockbroker explains the corrosive effect of inflation.

      Increasing inflation combined with low interest rates means many offshore savers will be getting poor rates of return on savings accounts
      The dangers of inflation Photo: Larry Lilac / Alamy

      How would you feel if you bought a security for £100 back in 1971, and it was worth less than £20 today? Unfortunately, if you are over 60 years old, as I am, you will probably have done exactly this, as this is how much the purchasing power of sterling has fallen over this period.
      To put it the other way around, had I gone into a supermarket 40 years ago and bought a trolley of goods for £20 and then returned to the supermarket today to buy the same trolley of goods, it would cost me £240.
      Inflation is the most insidious investment risk, but its destructive power is frequently ignored by investors and financial regulators alike. There is a tendency to believe that if you save a pound, then, providing you get your pound back, plus a return while you were not using the money, all is well.
      Wrong! Money is simply a form of exchange and its true value is determined by what it can purchase, not by its face value.
      For the value of your money on deposit to hold its purchasing power, you would have to generate an interest income, after tax, equal to the rate of inflation. Even to a standard-rate taxpayer, that demands a return of 6.25pc with inflation at 5pc. What is more, you can't spend it – you have to save it.

      from The Telegraph 

      Monday, 14 November 2011

      Redundant?? The Taxman could pay up!

      Redundancy tax rebate: do you qualify?

      The tax rebate system can confuse accountants, but there are some facts to remember about PAYE.

      Money in purse
      Your pay-as-you-earn position could lead to more money in your purse from an income tax rebate.
      Unemployment is running at levels not seen since the early 1990s, with more than 2.5 million people out of work, but if you are one of the thousands who has been made redundant, there could be some good news. Thanks to the way the pay-as-you-earn tax system works, you could be due a sizeable rebate.
      PAYE covers nearly 30 million people meeting their tax obligations this way. The system is operated by your employer which deducts tax based on your allowances and earnings, split across 12 months of the year. For example, if you earn £30,000 a year and your personal tax allowance is £7,475 for this tax year, your tax-free allowance would be £622.92 a month and your salary £2,500 a month. The allowance would be subtracted, meaning you would be taxed on £1,877.08.
      The system works reasonably well – until you are only working for part of the year, because then you won't have received all your annual allowance and will have overpaid tax. In short, if you were made redundant within a tax year and did not work for the remainder of that year, you should be due a rebate.
      The amounts you could recoup are not insignificant. John Whiting, tax policy director for the Chartered Institute of Taxation, has worked out that someone earning £50,000 who was made redundant after six months would be due a sizeable sum. He said: "In 2010-11, PAYE would give you a personal allowance of £6,475. Assuming your salary is all you have, your tax bill would be £9,930 for the year. Then suppose you were made redundant after six months, having earned £25,000. Tax of 50% of £9,930 would have been deducted, giving a figure of £4,965. If you had no other income, you would be due the full personal allowance. Your tax bill for the year should be £3,705, so you'd be due about £1,260 back."
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      Patricia Mock, director of Deloitte private client services, said she suspected that people are often not aware of what they are due. "If you were made redundant and received redundancy pay, probably the first £30,000 will have been exempt from tax. But there are occasions when it is not. If you have an employment contract which says you will receive a set amount if you are made redundant, that would be taxable. If it is not a written state of affairs, then you would get the payment tax-exempt."
      If you have worked outside the UK, the amount could be even higher. "As well as the £30,000 exemption, if you have been working outside the UK and then got a termination payment, you can get a pro-rata amount exempted from UK tax," Mock said.
      Depending on where you spent your time abroad, you may have been liable to pay tax in the other country, but it is important to ensure you claim this foreign service relief if it is relevant.
      If you have shares in the company you are being made redundant from, these will also need to be considered when it comes to paying the right amount of tax, said Carol Dempsey, partner at PricewaterhouseCoopers.
      "Let's say someone was made redundant in November, and everything they were due was paid in November, you would have expected them to receive their tax allowance to November, and their shares up to November. If this payment was made before the P45 was issued, then they may be able to reclaim a rebate in respect of December, January, February and March.
      "But if they were then re-employed in February of the same tax year, you would expect the tax amount to be dealt with through PAYE."
      HM Revenue & Customs has already said it will be paying rebates of around £300-£400 to up to 6 million people, and some of these will be payments linked to redundancy. However, about 1.2 million people will be told they need to pay the Revenue an extra £500-£600 on average.
      If you owe the Revenue money, it is better to find out sooner rather than later, while you have the money to pay the tax at the start of the process. You can claim a rebate using form P50, if you are sure you will not be working again in the tax year, Mock said. Otherwise, you should make your claim through your tax return.

      from the Guardian 

      Saturday, 12 November 2011

      Homebuyers may soon be out of woods

      After three years, 90% mortgages have returned. Rates are down, too - and, if you're lucky, there are no fees...
      For two years, first-time buyers in the capital have struggled in the face of a dearth of affordable properties and lack of mortgage availability. After the credit crunch, banks - scared of defaulting borrowers and negative equity - tightened their lending criteria, forcing prospective home purchasers to build up a deposit of 20%, or in many cases significantly more.
      Now, however, banks' miserly funding to first-time buyers looks to be easing. The past fortnight has seen lenders including Barclays return to the 90% mortgage market after a three-year absence, helping the availability of the products to grow by a fifth over the past year.
      There are currently 253 mortgages at 90% loan-to-value on the market, up from 101 this time two years ago, according to financial comparison site Moneyfacts. As the same as availability has grown, interest rates have also fallen. The average rate on a two-year fixed-rate mortgage with a 10% deposit has dropped from 6.1% in January to 5.39% today. On a five-year home loan under the same terms, the average rate is now 5.87%, down from 6.55% at the start of the year.
      On Thursday, through its mortgage arm Woolwich, Barclays bought more competition to the market by introducing new "zero fee" deals. Buyers with a 10% deposit can secure a three-year, fixed deal at 4.99% with no arrangement fees. Over five years, the fixed-rate rises to 5.49%, with a £499 fee - less competitive than HSBC's currently five-year fixed-rate offering of 4.89% with no fee on 90% LTV. Says Andrew Hagger at Moneynet: "A 0.6% difference in interest rate may not sound much in isolation, but on a £150,000 mortgage for 25 years, the HSBC deal is £3675 cheaper over five years."
      Alternatively, the Chelsea Building Society has an offset mortgage fixed at 4.19% for two years. It has a hefty £1495 fee, but is a good option for those keen on an offset deal - where the balance of the mortgage on which interest is payable is reduced by the value of savings in a linked account.
      These are unusual on large mortgages and mean that overpayments or bonuses can be offset against the outstanding balance. At the same time, borrowers withdraw their savings at any point.
      "Lenders are trying harder to offer borrowers with a 10% deposit more help to get on the property ladder, and Barclays' return to the market will provide more competition," says Aaron Strutt, of broker Trinity Financial Group. "We have had more enquiries from first time buyers and we have been able to help them - although they must have an excellent credit score to be accepted."
      "At Heart Finance  we search the entire market in order to help you find the best deal you possibly can.
      We are committed to offering our customers the highest possible 
      standards of service
      We recognise that both we and our customers have everything to gain if we look after your best interests and treat you fairly in all aspects of our dealings with you
      Only recommend a mortgage or financial services product that we consider suitable for you and that you can afford – Our lenders charge the lowest fees of all - and always the most suitable from the available options 

      The cheapest deal at 90% LTV is currently the Chelsea's two-year fix at 4.09%, with a £1495 fee. "It really does pay to shop around," adds Strutt. "To access the most competitive mortgages we advise our clients to try and raise a 15% if possible, as the rates are more competitive, but selected lenders are starting to make life easier for first-time buyers so a 10% deposit is now sufficient."
      Those with an even smaller deposit will have to pay a higher premium for a mortgage. Skipton Building Society offers one of the only home loans for buyers who need a 95% mortgage, fixed for two years at 5.99%, although the arrangement fee is low at £199.
      Still, more mortgage won't necessarily translate into more buyers in the capital. "It's encouraging to see one of the big players of the mortgage market once again competing seriously for first-time buyers' business," adds Hagger.
      "But unfortunately the combination of unemployment concerns and ultra-cautious lending criteria may result in a limited take up of these low deposit deals."

      From The Evening Standard