Weekly Round-Up: 23rd February 2018
Quicker than expected?
In his latest report to the Treasury Select Committee, the Governor of the Bank of England Mark Carney has highlighted that, since November, the prospect of a greater degree of excess demand over their forecast period and the expectation that inflation would remain above the target have further diminished. The report highlights the need to therefore to set monetary policy so that inflation returns sustainably to its target at a more conventional level.
As a consequence, the Monetary Policy Committee (MPC) has judged that, were the economy to evolve broadly in line with their February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report. This suggests a bank base rate rise sooner than originally predicted but still a gradual rise as stated in earlier statements.
At its February policy meeting, all members thought that the current policy stance remained appropriate to balance the demands of the MPC’s remit. The outlook for growth and inflation was likely to require some ongoing withdrawal of monetary stimulus and there is still the commitment that any future increases in Bank Rate would be at a gradual pace and to a limited extent. The Committee will monitor closely the incoming evidence on the evolving economic outlook, and stands ready to respond to developments as they unfold to ensure a sustainable return of inflation to the 2% target.
Spend it before it’s too late
The paper £10 note featuring Charles Darwin will be withdrawn at 23:59 on Thursday 1 March. The Bank of England are encouraging anyone who still has any to use them in the next week. Over 73% of £10 notes in circulation are polymer, but there are still around 211 million paper £10 notes left in circulation. Put end to end, that’s enough notes to retrace almost half of Darwin’s journey on HMS Beagle. Or, these would weigh the same as nearly two thousand giant Galápagos tortoises that Darwin saw on his travels.
After 1 March 2018, the new polymer note featuring Jane Austen will be the only £10 note with legal tender status. Some banks and building societies may accept paper £10 notes after 1 March but this is at their own discretion. Most retailers will no longer accept the paper £10 note as payment. The Bank of England will continue to exchange Darwin £10 notes for all time, as it would for any other Bank of England note which no longer has legal tender status.
Making the Move
According to new research from Aldermore, almost three in 10 (29%) British workers, the equivalent of nine million people, plan to make the ambitious move to become self- 2 employed in the future. Compared to research conducted last year, this is an increase of five million British workers, as only four million (15%) planned to make the move 12 months ago. Of those who aspire to become self-employed, over one in six (18%) intend to make the move in the next year, while for a further 28% it will take three years.
When exploring what type of business aspiring entrepreneurs want to start, one in seven (15%) would launch in the retail sector. This is closely followed by the catering and accommodation industry for just over one in 10 (11%). Making the transition to self-employed can be a risky life decision, but the research shows that the ambition is paying off for those that have already made the move. Over half (51%) of those self-employed have been able to earn more money than in their previous job, and almost three in 10 (29%) expect their revenues to increase in the next 12 months. Across the UK, the self-employed based in London are some of the most confident about revenue growth with over a third (35%) expecting to see an increase, followed by almost a third (32%) in the North West. The political and economic uncertainties don’t seem to be a concern, with over half (53%) saying Brexit negotiations will have little impact on their business.
Although the research has revealed that seven in 10 (70%) self-employed believe they made the move at the right time, they also highlight there were a lot of factors to consider when deciding to make the transition, with financial fears causing the most concern. Over four in 10 (44%) were worried about not having a regular source of income, and almost two fifths (38%) were worried about an irregular volume of work. These concerns are proven; half (50%) of those already self-employed have experienced irregular income and two fifths (40%) have had to deal with inconsistent cash flow. Other difficulties encountered by the self-employed are late payments from clients (37%), as well as a lack of free time (21%). Despite these challenges, almost all (93%) have said they enjoy being their own boss. Aside from the challenges of running their own business, the self-employed have cited difficulties trying to secure a mortgage. When asked about the mortgage process, seven in 10 (70%) believe it is harder for those who are self-employed to secure a mortgage. A major challenge the self-employed face is having enough evidence to verify their income; seven in 10 (70%) believe this is a problem, and over half (56%) feel lenders are less understanding of the circumstances of the self-employed.
Lifestyle leading to a reduction by 4
Research from VitalityHealth has identified a significant longevity challenge facing the UK, with life expectancy being reduced by more than four years, predominantly due to individuals’ poor lifestyle choices.
This research is based on analysis of people’s long term health using VitalityHealth’s Vitality Age algorithm. Vitality Age measures the impact of lifestyle, clinical and mental health factors on a person’s life expectancy. The disparity between Vitality Age and chronological age – termed the Vitality Age Gap – describes the number of years that an individual could expect to lose, or gain, in life expectancy as a result of their lifestyle choices and other risk factors. Importantly, the issue of longevity and reduced life expectancy is not confined to old ages. In order to assess the impact of poor lifestyle choices and other risk factors on mortality risk amongst the working age population, VitalityHealth has analysed the Vitality Ages of UK employees undertaking its Britain’s Healthiest Workplace study.
In the 2017 study, 88% of employees had a Vitality Age greater than their chronological age, with 10% having a Vitality Age Gap of 10 or more years older than their chronological age, meaning their life expectancy is drastically reduced. This drastic reduction in life expectancy means that many people can be expected to die before reaching retirement, and the increased risk of premature death has ramifications for employers and the general economy. Based on these findings, VitalityHealth estimates that the UK will see approximately 30,000 deaths each year among the working age population driven primarily by lifestyle health factors. When projected over a 10-year period, this equates to over 4 million working years lost, translating into a £125bn cost to the UK economy. Additionally, these figures do not reflect the full cost and impact for employers, who are faced with the need to recruit and train a replacement to overcome the loss of an experienced employee.
Gigging in the UK
Over a third (36%) of gig workers aged 55 and over take on ‘gig’ jobs to help them ease their way into retirement, according to new research from Zurich UK. Published within Zurich UK’s ‘Restless Worklife’ report – based on UK-wide analysis from YouGov of over 4,200 adults, of which 603 were gig workers – the research found that the same amount (36%) said flexibility and being able to choose the work they take on was the main attraction. In fact, over one in ten of all gig workers questioned only expect to stop gig work when they are over the age of 75, almost ten years after passing State Pension age.
The number of workers over the age of 50 has grown significantly over the past few decades, with government figures showing the employment rate for people aged 50 to 64 has grown from 55.4 to 69.6 per cent over the past 30 years.
However, the gig economy itself has attracted its fair share of criticism, with little job security or access to workplace benefits given most are not defined as full-time employees. Lack of workplace benefits such as income protection, holiday and sick pay was put forward by 44% of gig workers over the age of 55 as the main drawback, while over a third (34%) said it was not knowing where their next paycheck would come from and 27% said it was not having access to a workplace pension.
Weekly Round-Up: 16th February 2018
Love is all at home
The majority of Brits will have opted to have had a cosy night in at home with their loved one on Valentine’s Day, spending an average £45 to rustle up a meal for two, according to research by MBNA. A further 23% will have stayed in and didn’t cook anything special, whilst many couples may switch between going out and staying in from year to year, as a quarter didn’t have a preference.
The research and credit card transaction data from MBNA shows that supermarkets fuel the food of love, with sales for certain stores on Valentine’s day last year soaring by over half (54%), compared with sales on a standard Tuesday. More than one in three of those eating at home will have opted for a juicy steak for their romantic evening in, with 39% saying a prime cut of beef would be their meal of choice.
Of the 10% who do dine out on Valentine’s night, it’s young people aged 18-24 who are most likely to have pushed the boat out, spending an average £65 on a romantic dinner for two. More than a fifth will have chosen to dine in Italian restaurants on Valentine’s Day, with steakhouses finishing second at 12%. For those who chose to dine in, 44% say it’s because they’re just too busy to celebrate and more than a quarter (27%) see Valentines as ‘just another day’. Saving money is the most popular reason for not going out on Valentine’s Day, with 58% of women and 41% of men saying it’s why they stay in.
FTB the highest in a decade
UK Finance’s latest Mortgage Trend Update released this week revealed that 2017 saw the highest number of first -time buyers (365,000) in a decade. The data also showed mortgage lending for first-time buyers, home movers and buy-to-let purchases all fell in December 2017 compared to the previous year.
There were 30,800 new first-time buyer mortgages completed in December, 5.2 per cent fewer than in the same month a year earlier. The £5.1bn of new lending in the month was 1.9 per cent down year-on-year. The average first-time buyer is 30 and has an income of £41,000.
Data suggested that 30,700 new home mover mortgages completed in December, which was 4.7 per cent fewer than in the same month a year earlier. The £6.5bn of new lending in the month was 3 per cent down year-on-year with the average home mover now 39 and has an income of £55,000. 30,500 new homeowner remortgages completed in December, some 7.4 per cent more than in the same month a year earlier. The £5.2bn of remortgaging in the month was 8.3 per cent more year-on-year.
17.2 per cent fewer Buy to Let Mortgages were completed in December than in the same month a year earlier. By value this was £0.8bn of lending in the month, 11.1 per cent down year-on-year. There were 9,900 new BTL remortgages completed in December, some 11.6 per cent fewer than in the same month a year earlier.
The big 5
Average house prices in the UK have increased by 5.2% in the year to December 2017 (up from 5.0% in November 2017) according to the latest analysis by the Office for National Statistics. The annual growth rate has slowed since mid-2016 but has remained broadly around 5% during 2017 with the average UK house price now £227,000 in December 2017. This is £12,000 higher than in December 2016 and £1,000 higher than last month.
The main contribution to the increase in UK house prices came from England, where house prices increased by 5.0% over the year to December 2017, with the average price in England now £244,000. Wales saw house prices increase by 5.4% over the last 12 months to stand at £154,000. In Scotland, the average price increased by 7.7% over the year to stand at £149,000. The average price in Northern Ireland currently stands at £130,000, an increase of 4.3% over the year to Quarter 4 (Oct to Dec) 2017.
The local authority showing the largest annual growth in the year to December 2017 was Orkney Islands, where prices increased by 18.2% to stand at £147,000. The lowest annual growth was recorded in Kensington and Chelsea, where prices fell by 10.7% to stand at £1,212,000 but despite this it is still the most expensive place to live where the cost of an average house was £1.2 million. In contrast, the cheapest area to purchase a property was Burnley, where an average house cost £78,000.
More than two thirds of wealthy people do not know their estate may be liable for an inheritance tax bill, according to Canada Life’s Annual IHT Monitor research. Among adults over the age of 45 with assets in excess of £325,000, 70% of people do not know the threshold for the standard nil rate band (£325,000), up from 61% in 2016. In addition 55% of people do not know the rate at which assets above their available nil rate band are taxed, up from 52% in 2016. As a result of this confusion, families up and down the country could potentially be faced with unexpectedly high tax bills.
The results underline the increasing revenue the Government is receiving from inheritance tax. Latest figures from Canada Life’s analysis show receipts from IHT have hit a record high, with families paying £4.84 billion of IHT in the 2016/17 tax year, double what it was just seven years earlier (£2.4 billion in the 2009/10 tax year).
Nearly two in five respondents (38%) do not think their main home is liable for inheritance tax – a large increase from under a quarter (24%) who said the same in 2016. This will come as a shock to a significant proportion of homeowners who are planning to pass their wealth on to family members. Meanwhile, under a third (32%) know the annual exemption amount they are entitled to (up to £3,000) – but an additional third (35%) currently believe they can give away more than £3,000 without being charged, bringing with it the possibility of unexpected bills.
Worryingly just four in ten are aware that the following are liable for inheritance tax as part of an estate on death: pension savings, vehicles, life insurance policies not held under trust, agricultural land, business assets and non-exempt gifts in the last seven years.
Weekly Round-up: 9th February 2018
Early Warning System
The Bank of England’s Monetary Policy Committee (MPC) met this week and voted unanimously to maintain Bank Rate at 0.5%. The Committee highlighted that the global economy is growing at its fastest pace in seven years and becoming increasingly broad-based and investment driven. However household consumption growth is expected to remain relatively subdued, reflecting weak real income growth but GDP growth is expected to average around 1¾% over the original forecast in November.
With much of their assumptions based on a range outcomes for Brexit, the MPC expect Consumer Price Inflation to remain around 3% in the short term, reflecting recent higher oil prices and import prices following sterling’s past depreciation. These external forces suggest pay growth will rise further in response to the tightening labour market, give increasing confidence that growth in wages and unit labour costs will pick up to target-consistent rates. On balance, CPI inflation is projected to fall back gradually over the forecast but remain above the 2% target in the second and third years of the MPC’s central projection.
Looking to the future, the Committee judged that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainably to the target. This could mean another interest rate rise in 2018 which could be sooner than first expected and higher than that implemented in November last year.
Up 6 on First Time Buyer
The number of first-time buyers is estimated to have reached 359,000 in 2017, while those taking their first step on to the property ladder are putting down almost double the deposit than a decade ago, according to the latest Halifax First-Time Buyer Review.
The number of first-time buyers has gone up 6% in the last 12 months, continuing an upward trend of six years, despite the average deposit jumping from £17,740 in 2007 to £33,339 a decade later – an increase of 91%. Halifax data revealed that although the average price of a typical first home has grown by 21% (or £37,377) from £174,703 to £212,079, first-time buyer levels have almost returned to those last seen in 2007, when 359,900 took their first step on to the property ladder. This is an increase of 87% compared to an all-time low of 192,300 in 2008 and is now just 11% below the most recent peak of 402,800 in 2006. First-time buyers now account for half of all house purchases, with a mortgage, an increase from 36% a decade ago.
The average age of a first-time buyer in 2017 was 31– two years older than a decade ago. In London it has grown from 31 to 33 –the eldest in the UK. The biggest increase in age was in Northern Ireland, up by three years from 28 to 31. At a Local Authority District level, the youngest buyers are in Staffordshire Moorlands with an average age of 28 whilst the oldest are in Richmond upon Thames at 35 years old.
Net investment in buy-to-let property has fallen by 80% from £25 billion in 2015 to just £5 billion in 2017 due to excessive regulatory intervention on the sector, according to a new report from the Intermediary Mortgage Lenders Association (IMLA). The 80% slump is a steeper fall than after the financial crisis as recent tax and regulatory changes have caused a downturn in landlords’ activity, according to the report: ‘Buy-to-let: under pressure’. In response, IMLA is calling for a brake to be placed on further policy interventions on the UK’s Private Rented Sector (PRS).
The report notes the positive effect that buy-to-let has had on the PRS. It estimates that between 2000 and 2017, UK buy-to-let landlords invested £289 billion into the sector, meeting rising tenant demand by bringing 1.8 million properties into the rental market. At the same time, real rents have fallen 4.4% across the UK.
However, IMLA reports that new tax and regulatory measures introduced in the last two years, such as a 3% stamp duty surcharge and the removal of mortgage interest tax relief, have deterred some landlords from expanding their portfolios and prompted others to exit the market, with this cumulative effect referred to as ‘policy layering’. As a result of tax changes, more than a fifth (21%) of landlords have indicated that they plan to reduce the size of their portfolios.
There are currently 4.5 million people relying on the PRS in England alone. Should demand for rental property continue to increase at current rates, driven by a lack of social housing supply and inaccessibility to owner-occupation, IMLA’s report suggests that this will lead to upward pressure on rents, disadvantaging tenants in the sector.
Tax bonus for the Government
For many, making sure loved ones are provided for should they die unexpectedly is considered an important responsibility. However, according to research from Legal & General 82% of consumers have assets they wish to pass on to loved ones however in the event of a claim, two-fifths (40%) have never heard of placing their life insurance policy under trust. Worryingly, more than four in ten (43%) consumers questioned said they didn’t have a will in place.
A trust is a simple legal arrangement that allows an individual to place their policy in trust, the policyholder can indicate who they want the proceeds to be paid to and controls when the money from the life policy will be paid out. This can ensure that children or any other chosen beneficiary receive financial support from the money, but will not have full access to the lump sum. It also should help to ensure that any money paid out from the life policy will not be part of the estate of the person covered, helping to minimise Inheritance Tax. For example this means that their spouse, co-habiting partner or family members will be protected from the heavy financial burden of inheritance tax. It will help to ensure that the money paid from the life policy can be paid to the right people quickly, without the need for lengthy legal processes.
Those who do not place their single life policies in trust risk leaving their spouse, co-habiting partner or close family members in a vulnerable situation. If a single life insurance policy is not placed in trust, the proceeds may not go to the chosen beneficiaries as planned. For example, if the policy holder is not married and has not made a will, there is a risk that their co-habiting partner will not be legally entitled to any of the lump sum which could possibly leave them in financial difficulty.
Weekly Round-Up: 2nd February 2018
People with interest-only mortgages are being urged to take action after the Financial Conduct Authority (FCA) found that many have still not talked to their lender about their repayment options. Nearly one in five mortgage customers have an interest-only mortgage and the FCA is concerned that shortfalls in repayment plans could lead to people losing their homes.
The FCA review covered 10 lenders who represent around 60% of the interest-only residential mortgage market and looked at how lenders are treating these customers to help ensure their mortgages are repaid at maturity. There are currently 1.67m full interest-only and part capital repayment mortgage accounts outstanding in the UK. They represent 17.6% of all outstanding mortgage accounts and over the next few years increasing numbers will require repayment.
In their review, the FCA found that whilst lenders are actively trying to communicate with their customers to understand repayment strategies this was at specific times before maturity rather than targeting those who were considered higher risk. They also found that the processes which customers had to follow to discuss their repayment strategies were, on many occasions, challenging, including delays in getting to speak to advisers, making multiple phone calls and repeating information previously provided.
In 2013 the FCA identified three residential interest-only mortgage maturity peaks. The first peak, happening now, is likely to have more modest shortfalls due to the profile of customers typically being those who are approaching retirement with higher incomes, assets and levels of forecast equity in their property at the end of term. The next two peaks in 2027/2028 and 2032 include less affluent individuals who had higher income multiples at the point of application, greater rates of mortgages converted from repayment to interest-only and lower forecast equity levels; the FCA is concerned that they are more at risk of shortfalls. To help customers the FCA has produced a leaflet encouraging them to take action.
According to the Nationwide Building Society, the annual rate of house price growth picked up to 3.2% at the start of 2018, compared with 2.6% at the end of 2017. House prices increased by 0.6% over the month, after taking account of seasonal factors, the same increase as December.
Analysing the statistics, Nationwide suggest that the acceleration in annual house price growth is a little surprising, given signs of softening in the household sector in recent months. They highlight the fact that retail sales were relatively soft over the Christmas period, as were key measures of consumer confidence, as the squeeze on household incomes continued to take its toll. Similarly, mortgage approvals declined to their weakest level for three years in December, at just 61,000 and although activity around the year end can often be volatile, the weak reading comes off the back of subdued activity in October and November (monthly approvals were around 65,000 per month compared to an average of 67,000 over the previous twelve months). There are few signs of an imminent pickup, as surveyors report that new buyer enquiries have remained soft in recent months. The lack of supply of housing continues to be the most likely key factor in providing support to house prices.
The Nationwide expects performance in the housing market to be determined in large part by developments in the wider economy. Brexit developments will remain important, though these remain hard to foresee with the suggestion that the UK economy will continue to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth. The subdued pace of building activity evident in recent years and the shortage of properties on the market are likely to provide ongoing support for house prices.
Home affordability across UK cities is at its worst level since 2007, according to Lloyds Bank’s Affordable Cities Review, with house prices rising as a multiple of average annual earnings from 5.6 in 2012 to 7.0 in 2017. Over the past five years, the average house price within UK cities has risen by 36% from £171,745 in 2012 to its highest ever level of £232,945 in 2017. In comparison, average city annual earnings over the same period have risen by just nine percent to £33,420. As a result, affordability in UK cities is, on average, at its worst level since 2007, when the ratio of average house price to earnings stood at 7.5.
The least affordable city is Oxford, where average house prices of £429,775 are over 11 times (11.5) annual average earnings. Truro and Exeter are new entrants into the 10 least affordable cities list, both with an affordability ratio of 9.3 with house prices of £259,705 and £274,093 respectively. Leicester (8.1) and York (8.0) are the only cities outside southern England appearing in the top 20 least affordable UK cities. There are six cities with average house prices that cost at least ten times average annual earnings. In addition to Oxford (11.5), these are Cambridge (10.5), Greater London, Brighton and Hove (both 10.2), Bath (10.1) and Winchester (10.0). The London average figure disguises considerable variations across the capital with central boroughs significantly less affordable than the Greater London average.
Stirling is the UK’s most affordable city for the fifth consecutive year. At £186,084, the average property price in the Scottish city is 4.0 times average gross annual earnings, although this figure has increased by 5% (0.2) in the last twelve months. Londonderry (4.1) in Northern Ireland remains the UK’s second most affordable city. Bradford (4.5) is named as the most affordable city in England and Swansea is the most affordable city in Wales (5.4). Lancaster and Dundee are the only two new entrants to the top 10 most affordable cities, sitting in fourth and ninth place, respectively and all of the top 10 are located outside of the south of England.
Wealthy getting wealthier
The Office for National Statistics has been looking at the wealth of the UK population in their Wealth and Assets Survey this time for the period between July 2014 and June 2016. Aggregate total net wealth of all households in Great Britain was £12.8 trillion up 15% from the July 2012 to June 2014 figure of £11.1 trillion.
The typical household total net wealth was £259,400 in July 2014 to June 2016, up from £225,100 in the previous period (an increase of 15%), and the wealth held by the top 10% of households was around five times greater than the wealth of the bottom half of all households combined. Aggregate total private pension wealth of all households in Great Britain was £5.3 trillion; this has increased from £4.4 trillion in July 2012 to June 2014.
In July 2014 to June 2016, households in the highest income band had a typical household total wealth of £1,039,400. This increased by 17.3% from £886,400 in July 2012 to June 2014. Households in the lowest band of income had a typical total wealth of £32,100 in July 2014 to June 2016. This decreased by 9% from £35,100 in July 2012 to June 2014.
There was a striking increase in the value of net property wealth for households in London compared with all other regions; At £351,000, this is a 33% increase from the £263,000 previously in the July 2012 to June 2014 survey. Total aggregate debt of all households in Great Britain was £1.23 trillion in July 2014 to June 2016 (a 7% increase from July 2012 to June 2014), of which £1.12 trillion was mortgage debt (6% higher) and £117.0 billion was financial debt (15% higher).