Weekly Round-up, 11th December, 2015.
Higher and Higher.
According to the latest analysis from the Halifax, house prices in the latest three months (September-November) were 1.4% higher than in the preceding three months (June-August). The quarterly rate of change fell from October’s 2.8% to the lowest since December 2014 (0.3%). Prices in the three months to November were 9.0% higher than in the same three months a year earlier. This was lower than October’s 9.7%, but within the narrow range seen throughout 2015.
House prices fell by 0.2% between October and November. This followed last month’s 1.0% increase, continuing the monthly volatility seen since the summer. The quarter on quarter change is a more reliable indicator of the underlying trend.
Before deducting outstanding mortgage balances, The Halifax suggest the value of the UK’s private housing stock in August 2015 was estimated at £5.1 trillion. This compares with £3.3 trillion in 2005; an increase of £1.8 trillion – or 53% – over the past decade, according to recent research from Halifax. The increase of £1.8 trillion since 2005 is equivalent to £76,316 per household in the owner-occupied and private rented sectors.
Insurers this week have set out the six key stages in getting those affected by flooding back into their homes and businesses as soon as possible, as the important process of drying out and repairing properties gets under way.
Insurers, claims handlers and loss adjusters who did not already have local teams in affected areas began arriving over a week ago, before Storm Desmond took hold, in anticipation of severe flooding. Representatives will be there for many months to come to help the thousands of affected families and businesses get back on their feet. Fresh flooding in Cumbria demonstrated some of the difficulties being faced on the ground.
Repairing a property after a flood can be long and complex and the process can only begin once the building is fully dried out. While this work is happening insurers will be supporting customers with emergency payments and, where necessary, arranging temporary accommodation or trading premises for homeowners and businesses.
UK consumers have reported that all the major barriers to property purchase have fallen, the BSA’s final Property Tracker of 2015 reveals.
Raising a deposit – the single biggest barrier since 2010 – is now at its lowest level for six years. However, it still presents a barrier to over half of consumers with 52% saying it is a hurdle to overcome. This is down from 59% in September 2015 and the high of 69% in September 2011.
From September to December 2015, access to mortgage finance as a barrier to home ownership dropped from 41% to 38%. The affordability of monthly mortgage repayments fell from 35% to 33% and lack of job security is now at 26%, down from 28%.
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy in order to meet the 2% inflation target and in a way that helps to sustain growth and employment. At its meeting ending on 9 December 2015, the MPC voted by a majority of 8-1 to maintain Bank Rate at 0.5%. The Committee voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.
Twelve-month Consumer Price Inflation remained at -0.1% in October, a little more than 2 percentage points below the inflation target. The BoE expects Inflation to have been slightly positive in November, and is projected to rise further as some of the large falls in energy and food prices at the turn of last year drop out of the annual comparison. Nevertheless, core inflation remains subdued, and CPI inflation is expected to stay below 1% until the second half of next year.
And finally…Bad Santa!
Brazilian police are hunting for a Sao Paulo Santa Claus who apparently kicked-off the Christmas shopping season by stealing a helicopter. The thief rented the aircraft late Friday from an air taxi service at the Campo Marte airport in Sao Paulho ho ho for a Black Friday “surprise”, the Sao Paulo State Security Secretariat said last week.
“During the flight, the Santa forced the pilot to fly to a small farm outside of Sao Paulo city, where they were met by a third person,” the Secretariat said. There was no suggestion that the farm was a grotto or that it was close to the North Pole. The pilot was tied up and the two perpetrators flew away.
After several hours, the pilot managed to escape and alert police. There has been no sign of the helicopter, a Robinson model 44, and the motivation for the theft is unclear – The Reindeer Union were unavailable to comment on rumours of strike action. The Brazilian authorities have said they are hoping for the helicopter’s safe return in the New Year.
Promise to help.
Sitting down to write this week’s blog, it was clear that the only topic this week should be the flooding in the North West of England. The events in Cumbria should have us all digging out the home insurance renewal document that typically gets put in a draw to check our alternative accommodation clause.
Those of us who give advice to customers about protecting their lifestyle should always talk about home insurance, yet many believe this advice (or non-advice) is best delivered through the internet – price over quality being a key driver, the fact that a premium can’t be beaten stops the conversation or even prevents the conversation from starting.
The around the clock press coverage has demonstrated the impact that flooding has on peoples’ lives – it’s real and devastating and we should all commit to raising the subject of having good quality Home Insurance in place so that if the worst happens, those affected do not have to rely on Government influence to make things right again.
The Association of British Insurers has sought commitment from its members and we now we have an ‘After the Flood Charter’, a statement of action that all involved in the clean-up process will abide by. There will be proactive contact with customers, and claims lines will have sufficient resource operating around the clock. Emergency teams have been deployed and there are emergency payments being made to support flooded families and businesses alongside money already made available for alternative accommodation and premises.
The assessment of damage and contamination will happen quickly as will the repair process, and communication will be ramped up to keep people informed and involved throughout the restoration process – which may take many months to complete.
There will be additional discussions about future prevention measures with those people with properties where flooding is a real and constant threat. Insurers will continue to work towards ensuring ‘Flood Re’, the new reinsurance scheme that will allow high flood risk homes’ residents to access affordable home insurance going forward, will be up and running by April 2016.
Mortgage and Protection Brokers can do their part too. We all know business is about customers and what the piece of paper being sold to them promises to do in the event of a life changing event. The piece of paper doesn’t just say it will remove money from the bank account each month. The piece of paper says it will do all it can to help should the worst happen, support where it can, find help where it can, find people to put things right and, ultimately, it promises to pay. But what it doesn’t do is say is it can save money on a premium – in most things in life the less you pay, typically the less you receive in return. The role of the industry is to ensure we don’t under-estimate the impact of home insurance when its needed and denigrate it to the cheap box. It’s real, it’s important, it’s a thing of value and not something to dismiss to the internet. It’s time for customers to understand they need advice on protecting their home.
Commercial Director, HLPartnership
Weekly Round-up, 4th December, 2015.
Research by the Financial Conduct Authority in association with three home insurance providers suggests that average home insurance premiums increase in the first five years until they plateau. Their survey suggests that customers underestimate the benefits of shopping around and overestimate the amount of time it takes. The evidence for the motor insurance providers varies by insurer, with consumers showing fewer signs of inertia and some firms showing little evidence of price increases at renewal.
The FCA found that putting last year’s premium on renewal notices causes between 11% and 18% more consumers to switch or negotiate their home insurance policy. The effect is larger for consumers offered higher price increases at renewal however they also found that simplifying renewal notices, sending information leaflets, and sending reminders has little or no impact on consumer behaviour.
Savings to be had.
UK home buyers have collectively saved £1.9 billion since stamp duty was reformed in December 2014, according to My Home Move, a provider of mover conveyancing services. My Home Move’s analysis demonstrates the large savings made by UK home buyers since the reforms, with home buyers saving an average of £1,500 each since the reforms.
Stamp duty reforms made on December 4th 2014 abolished the old “slab” system of stamp duty and benefited anyone purchasing a home priced under £937,500. 87% of estate agents recently polled by My Home Move said that last year’s stamp duty changes have had a positive impact on the market.
According to a study by Portus Consulting, more than one in ten (11%) expect to work beyond 76 while one in 20 says they will never stop working. Two out of three people believe they will have to work past 65, mainly because they do not expect to have enough money to retire, research finds.
Almost three quarters (74%) of those who expect to stay in work fear they will not be able to afford to retire, while 13% expect to still be supporting their children financially. The research shows that half of people over 65 and currently working are doing so because they do not have enough money to live on. Just two out of five surveyed believed they would have adequate income in retirement.
On a more positive note, 26% of those who expect to work beyond 65 say they would do so because they enjoy working, and don’t want to become bored if they retire.
Call for action.
This week saw The Council of Mortgage Lenders outline a range of calls to action for regulators, government and the mortgage industry itself to improve the market for older consumers who legitimately wish to borrow in retirement to meet various needs.
The CML’s report “Retirement borrowing: reality, perceptions, projections and potential” clearly shows quite how complex and interconnected the issues are when lending to older borrowers. The overarching message is that improving this market in a meaningful way requires significant collaboration both inside and outside the mortgage industry.
However, it is clear that the will to improve this market exists – one of the most significant achievements of the work to date goes beyond the production of this report itself, and lies in the fact that so many different participants have come together with a common will to address the issues. Those involved range from mainstream lenders and lifetime mortgage providers, to pension providers, financial advisers, compliance experts, groups representing older customers, retirement housing providers, think tanks, other trade bodies, and regulators. Keeping this momentum going is the most important output from the work at this stage.
The report follows the publication last month of externally-commissioned research on the demand for retirement borrowing. Within the report itself, we identify a range of next steps and calls to action.
A team of aspiring scientists believe they have bust a popular myth that toast is more likely to land butter side down. Graham’s The Family Dairy carried out the experiment with the help of Molly (six), Lily (five), and four-year-old Ernie.
The team buttered 100 slices of toast before knocking each one from the kitchen table at the company’s base in Bridge of Allan, Stirling. The results showed 69% landed butter side up, and they have now shared their research in a YouTube video.
“There’s nothing more frustrating than dropping your toast when getting ready for work or school but we wondered why it always seemed to meet a messy end,” said Carol Graham, the company’s marketing director. “We decided to conduct our own experiment with some little scientists who had a great time testing out the theory – and creating chaos in the kitchen as they did so…they disproved the belief that toast always seems to land butter side down, but our team also discovered that the more butter on each slice, the more likely it was to avoid landing awkwardly”. It seems that more spreading alters the shape, creating a slight curve and changing the pattern of its fall. So those who like to spread liberally are in luck.
The Autumn Statement.
The Autumn Statement will have come as a shock to many in our industry as the Chancellor again singled out landlords as a key source of revenue for his economic road to recovery. The introduction of a 3% levy on Buy to Let can be seen in many ways – the chancellor imposing a tax on the property magnate, or simply a way of taking income from those that cannot afford to buy a house via the back door (or front door for those renting 1st floor flats). You could argue that increasing the costs of buying a Buy to Let will simply result in an increase in the rent as landlords look to recoup their costs of purchase.
So who is the winner? There will be some serious calculations being made across the Buy to Let sector as the raft of new rules, tax changes, and incentives work their way through. Of course the first challenge will be to monitor the market for gaming – once the preserve of a landlord stating Buy to Let and living in the property to avoid affordability rules and income challenges. Now we have the potential for Buy to Let being declared as residential because affordability exists but the landlord doesn’t want to pay an additional 3% on the purchase price.
Watch out for the surge of landlords pushing property purchases through in the first quarter next year in a rush to beat the deadline – will the market be able to accommodate such pressures whilst IT teams press to implement the Mortgage Credit Directive and put in place code that allows London postcodes to have a 40% loan from the government applied to them? Just when the IT project list was reaching the end of “regulatory changes” there will be new gant charts being constructed, timetables produced and programme teams gathered together around white boards.
Some of you out there may be making the connection with the government’s diminishing shareholding in the UK’s largest Buy to Let lender and the sudden move to apply the breaks to what has been a growing market that ultimately meets the demands of a population that needs to be more transient as they move for jobs and quality of life. Some of you may consider it a way of taxing those pensioners who are using their funds under the new freedoms. Some of you may agree that it’s a way of rebalancing the first time buyer/landlord statistics. Ultimately, if we aren’t building enough homes or encouraging last time buyers to downsize, then any changes the Government make will have little impact other than to push up rent.
Surely there are better ways – refund stamp duty to last time buyers to encourage downsizing and improving chain numbers, remove stamp duty for residential all together to help affordability and deposit saving, or even making stamp duty a monthly amount based on the council tax band and removing the one-off payment at point of purchase. Ultimately targeting the business end of the housing market will not necessarily have the impact the Government want to see, namely a strong housing market with opportunities for all who want to be on that ladder.
Commercial Director, HLPartnership