Interest Rise more and more probable

 

Interest rates could rise after Bank of England chief economist Spencer Dale changes stanceInterest rates could rise as early as March after the Bank of England revealed that this month's meeting of policy makers as its most hawkish in years.

The pound rose more than half a cent against the dollar to $1.6238 after it emerged that Spencer Dale, the Bank's chief economist, had joined those calling for an immediate rate rise. The minutes from this month's meeting of the Bank's Monetary Policy Committee (MPC) also revealed a hard swing towards higher rates among the neutral members on the committee. "Some thought that the case for an increase had ... grown in strength," the minutes said.

Mr Dale is the first internal Bank member to break the house line that rates should remain at their current historic low of 0.5pc for the time being, and it was the first effective 6-3 split since July 2007.

Andrew Sentance has been calling for a rate rise since June and pressed harder this month by voting for an increase to 1pc. Martin Weale repeated his January call for a 0.25 percentage point rise, a position now backed by Mr Dale. At the other end of the spectrum, Adam Posen again voted for an extra £50bn of quantitative easing.

Interest rate futures nudged up two basis points after the minutes were published, suggesting the markets are more confident than ever about their predictions for a May increase. However, Simon Ward, Henderson's chief economist, said: "The minutes suggest that Bank Rate will rise in two weeks' time if revised fourth-quarter GDP figures and surveys for February indicate that economic recovery is continuing."

Despite the bullish tone, the minutes cautioned that "there was merit in waiting to see how indicators of how the economy performed at the start of the year to help assess whether or not the decline in GDP in the fourth quarter presaged sustained economic weakness".

Mortgage approvals still low

LONDON (SHARECAST) - The number of mortgages approved last month was down 21% from January 2010, as conditions in the UK housing market continue to be subdued.

Just 28,932 loans were approved for house purchases over January, according to the British Bankers’ Association (BBA).
While this was slightly up from the 28,907 approved in December, it remains below the 36,555 approved a year before, and well under the 70,000-80,000 level considered to be a reflection of a stable housing market.
“We are seeing little change in the borrowing environment for households or businesses at the start of 2011," said the BBA's statistics director, David Dooks.
"In both unsecured borrowing and company finance, the emphasis is on repayment rather than new borrowing."
The average value for mortgage approvals was £135,000, 2.7% lower than January 2010.
Remortgaging loans saw a steady expansion over 2010, with 26,109 loans approved in January, 28% higher than the 20,407 approved the previous year.
Net mortgage lending, which does not account for redemptions or repayments, grew 75% over the month to £1.6bn, from £0.91bn in December, as a result of the poor weather in December, which delayed many home purchases.

While this is a considerable increase, the monthly figure in December was the lowest since June 1999, and lending in January remained substantially below the £2-3bn level seen in 2009.

Interest Rates: An other one join in for the rise

Minutes for the Bank of England’s latest meeting could reveal another policymaker crossed the floor to vote for interest rates to rise, increasing the momentum towards tighter lending conditions. There is fierce debate among Bank policymakers about the path ahead. Even if the split stayed the same, the minutes of the February gathering are expected to show a shift in sentiment among the nine-strong Monetary Policy Committee towards a rate rise sooner rather than later.

Governor Mervyn King referred to “real differences” in the MPC’s views when he presented the Bank’ quarterly inflation report earlier this month, fuelling speculation of a deepening divide.

The nine members of the committee are divided as to whether to raise rates now, to stop expectations that prices will continue to rise getting entrenched, or hold off from a course of action that might threaten growth, given that the full impact of government austerity measures have yet to hit.

The previous meeting saw Martin Weale join his colleague Andrew Sentance in voting for a rate rise, while the other seven MPC members, including Mr King, kept voting for no change.

Adam Posen, at the “dovish” end of the MPC, was the lone voice calling for further easing of conditions, via more quantitative easing, on top of keeping rates at their record 0.5pc low.

Warning about fixed rates !!!!

Nationwide Building Society is warning home owners to ignore calls from mortgage brokers to rush out and sign up to a fixed-rate mortgage.

'Think twice before you rush to get a fixed rate mortgage' 

 

The dilemma for home owners over whether to fix their mortgage sooner rather than later intensified last week. Higher than expected inflation numbers raised the prospect of an interest rate rise before the summer, with economists expecting more increases to follow before the year was out.

But Chris Rhodes, Nationwide's product and marketing director, warned that mortgage brokers had the incentive of their fees to urge borrowers to fix. Business for many brokers has been tough, with the number of mortgages taken out at low levels.

Mr Rhodes said the decision to fix was not clear-cut. "Churning mortgages gets them [brokers] a fee," he said.

Lenders price fixed-rate deals according to so-called swap rates, which are the rates at which banks borrow in the market – these loans are not priced directly on Bank Rate. Over the past few weeks the market has been factoring in rate rises and so swap rates have risen. Consequently fixed-rate mortgages have become more expensive.

If Bank Rate does rise, so will swap rates, and mortgages will become even more expensive.

Inflation creates shock and enigma for investors and Borrowers

Inflation may be a world away from its dizzy peak of 29pc in 1973, but it is going up and people will be starting to feel the pinch. The question is: how can people deal with the prospect of rising inflation?

Home owners

Rising inflation raises the prospect of a rise in interest rates - and this is the conundrum for property owners. Should they opt for a fixed rate now or wait? Their dilemma is worsened by the prospect of falling house prices. As prices fall, the amount of equity they have in their home reduces. The difference between having 30pc equity and 10pc equity can be as much as three percentage points on your mortgage rate.

An imminent rate rise didn't seem a probability a couple of months ago. But higher-than-expected inflation has put a spanner in the works and now some reckon a rate rise this spring is a distinct possibility. "Swap" - or wholesale - rates have ticked up, suggesting that the market is anticipating a rate rise. Some providers have withdrawn their best deals from the market in recent days.

If it's peace of mind that you are after, then opting for a fix now could be the best move.

"Those who are not so heavily geared [i.e. have plenty of equity] with their mortgage and have sufficient disposable income may find it worth gambling on interest rates staying low," said Mark Harris of Savills Private Finance, the mortgage broker.

Savers make losses of £400 per year beacuse of Inflation

Savers are effectively losing £400 a year due to the rising cost of living, new figures have revealed.

Official figures showed the Government’s preferred measure of inflation, the Consumer Prices Index, rose to 4 per cent in January amid higher oil prices and the increase in Value Added Tax.

The rise means a basic rate taxpayer with £10,000 in a typical instant access savings account paying just 0.67 per cent earns £53.60 a year net, but effectively loses £400 once inflation is taken into account. It produces a total net loss of £346.40 in a year.

For a higher rate taxpayer, the net loss is equivalent to £359.80, according to the calculations by personal Moneynet. Savers have seen a better rate of return on Individual Savings Accounts, where the average interest rates have risen to 2.34 per cent, the highest since January 2009.

But experts warn that the increases are of little comfort to savers at a time when inflation is rising at such a fast rate. .

Energy Companies fail to provide Annual Statements

Households are left in the dark about energy bills as more than 60pc claim not to have received an annual usage statement, despite new compulsory new rules by regulator Ofgem.

All households were to receive an annual statement by December 1 last year depending on their supplier's billing cycle. The statement details each household's current energy plan, yearly consumption and predicted bill, any discounts that are available and advice on how to change supplier.

The research by comparison site uSwitch.com highlighted potential design or layout flaws that could be making it difficult for customers to identify an annual statement and to use the information to make informed choices, as Ofgem had intended.

Ann Robinson, director of consumer policy at uSwitch, said: "Annual statements are a linchpin of Ofgem's push to get the competitive energy market working properly, but consumers clearly don't think they are coming up to scratch.

"The statements appear to be poorly labelled, difficult to understand and do not stand out from ordinary energy bills. As far as consumers are concerned, annual statements as they currently stand are not fit for purpose."

Marie Clair, spokesman for the Plain English Campaign which argues the need for clearer bills, said: "Annual energy statements are confusing and inconsistent. Suppliers have fallen into the trap of using language that is familiar to them but unclear and often meaningless to the consumer.
"There needs to be consistency in the way suppliers present the information and the language they use. Common sense would suggest that the best bits are taken from all the suppliers and pulled into one standard format adopted by all. This would really benefit consumers and turn annual statements into a meaningful and useful piece of communication."
Energy UK, which represents suppliers, attributed the delays in statements to the volume of customers.
"With 26 million homes in the UK, this has been a huge undertaking. Those who have not yet received their annual statements should get them soon," he said.