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Bank of England set to hold rates on Super Thursday

The Bank of England is set to hold interest rates at 0.5 per cent on Thursday, but rate rises are forecast for later in the year.

The bank’s Monetary Policy Committee (MPC) will vote on the rate on so-called Super Thursday, when the bank will also release its quarterly inflation report and release the minutes from the MPC’s last meeting.

“With the pound at its highest levels since the Brexit vote against the US dollar MPC officials will be hoping that the 18 per cent gain from a year ago will start to have a downward effect on the headline inflation rate,” said Michael Hewson, chief market analyst at CMC Markets UK.

Tomorrow, markets will have an indication of how the economy fared in January with the release of the latest services purchasing managers’ index.

The EY ITEM Club expects the Bank of England to raise interest rates twice this year. EY forecasts the rate to rise from 0.5 per cent to 0.75 per cent in May, and then again to one per cent in November. It has tipped the bank’s rate to hit 1.25 per cent in 2019.

But the Bank of England’s governor, Mark Carney, has said the pace of rate rises will depend on the government’s Brexit negotiations. Speaking at the World Economic Forum in Davos last month, Carney said growth will be affected by the kind of deal the UK secures with the EU.

Source: City A.M.

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How buy-to-let can still yield 8.9%

New data suggests changing your buy-to-let strategy could help you bank yields of up to 8.9%.

The average yield for a home rented out as a house of multiple occupancy (HMO) – where each room is let individually – is 8.9%, according to the research.

In contrast, Mortgages for Business found that the average yield for a ‘vanilla’ buy-to-let where the whole property is let on one tenancy agreement was far lower at 5.6%.

The research also found that multi-unit rentals, such as a block of flats, offer an average annual yield of 8.1%.

However, the yield for HMO has dropped from 9% the previous year, something that shows its growing popularity, according to Jeni Browns, sales director at Mortgages for Business:

“The attractiveness of HMOs as a buy-to-let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios.

“With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop, although, I suspect that the granting of fewer new HMO licences is also having an impact.”

Landlords buying cheaper properties

The average value of a standard buy-to-let property – one where all the rooms are let under one tenancy agreement – has fallen almost 20% over the past 12 months from £375,409 to £305,283.

One reason for this could be that the additional stamp duty rules mean landlords are looking for cheaper properties to invest in so that they pay less initial tax and potentially higher yields.

Surging popularity of tax-efficient companies

The research also found that more and more landlords are buying properties through a limited company.

Investing via a company lets you benefit from significant tax breaks, including paying corporation tax rather than income tax, and still being able to deduct mortgage interest as an expense.

In the final quarter of 2016, only 31% of buy-to-let properties were bought through a company, but that had risen to 49% by the end of last year.

Source: BT.com

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BoE official identified a big problem for London’s inflated commercial property market

BoE official identified a big problem for London's inflated commercial property market Commercial Finance Network

LONDON — One of the Bank of England’s most senior officials identified a problem at the heart of London’s inflated commercial property market in a speech on Thursday evening.

Speaking at Imperial College London, Alex Brazier, the bank’s executive director for financial stability strategy and risk said that the way in which investors are attempting to make returns in the commercial property market UK-wide, but particularly in London, is unsustainable in the long run.

That’s because, Brazier says, the market is relying on interest rates remaining very low in the future, while also expecting growth conditions to be favourable. Ultimately, Brazier says, that’s not going to be the case.

“At the UK-wide level, commercial property prices rest on persistently low interest rates but at the same time, they’re factoring in typical rental growth prospects and degree of uncertainty around them,” he told the audience at Imperial’s Brevan Howard Centre for Financial Analysis.

“It seems unlikely that rates can be so persistently low without either weaker growth prospects or more uncertainty.”

London’s West End, Brazier said, is a point of special interest. He described the interest rate/growth prospect dichotomy as being “particularly stark,” in the area.

“In London’s West End Office markets, the picture is particularly stark. Even if the magic combination of persistently low rates and historically typical rental prospects comes true, valuation methodologies similar to those being developed by the industry point to prices 10% below today’s level.”

Here are Brazier’s charts, from a presentation delivered alongside the speech:

No single factor can be blamed for this issue, Brazier said, arguing that a “range of underlying forces have driven down natural rates of interest, including demographics, perceived downside risks, expected productivity growth.”

“Precisely why these markets have become stretched is impossible to know for sure, but I’d caution against placing too much weight on monetary policy as the primary or underlying explanation,” he added.

The story of London’s commercial property market, was for many years, one of rampant expansion and surging prices. There is now evidence, however, that the market has moved into a downturn.

73% of surveyors responding to RICS’ quarterly UK Commercial Market Survey in October last year  said the central London market was at some stage of a downturn, while 67% of respondents said the market is overpriced.

“The feedback to the … survey reflects some of the broader macro issues, with the underlying momentum in the occupier market a little firmer further away from the capital,” Simon Rubinsohn, RICS chief economist said at the time.

Source: Uk Businessinsider

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What are the dynamics of the UK housing market slow down?

How are London housing prices affecting the market?

Evidence has shown that the housing market is beginning to slow down, and London is the geographical drag. And while London prices have begun to soften, the rest of the country hasn’t caught up yet.

When housing prices go up by so much so quickly, affordability usually has to kick in – but when might that arise?

How has the 2018 UK housing market started?

Estate agents are beginning to see a higher number of house viewings in 2018, but will they translate into sales?

With the lack of affordable housing, plus rising inflation without rising wages (which stretches budgets to the limit), potential first-time buyers may be becoming more cautious about the housing market. And with caution, comes reluctance to make an offer, until the future direction of the market becomes clear.

So is the government doing enough to help people gain access to housing? The real measure of the health of the housing market is how easily people are moving house, which makes the current trend of lengthening transaction times a potential worry.

How has government regulation impacted the buy-to-let market?

We’ve certainly seen a decline in the number of buy-to-lets over recent months. But could the government’s anti-landlord strategy be backfiring? Reducing the number of properties available to rent is pushing rents higher, and house prices higher still, so would-be homeowners are finding it harder to raise deposits.

The exodus of landlords from the buy-to-let market could have a major impact on the rest of the market. A reduction in the number of properties available to rent might push house prices higher still, making it more difficult for would-be homeowners to raise deposits.

How has Brexit impacted migrants in the housing market?

Though the numbers remain unclear, estate agents have begun to see many migrants returning to their country of origin – especially Eastern Europeans – and they aren’t being replaced by younger buyers.

Brexit may not be the direct cause of the mass departure, as other factors such as life expectancy and familial ties likely had an influence, but it seems that may have been the final straw.

Find out more about why Brexit is important to traders

What problems does the new-build market face?

The government has announced its intention to introduce 300,000 new homes a year by the 2020s. Watch the video above to find out how likely they are to hit that target – as well as the problems that the new build market faces, and more information on how London house prices will impact the market in 2018.

Source: IG

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High yields still await savvy landlords

Landlords who let out property on a room-by-room basis last year enjoyed yields of 8.9 per cent on average, research from specialist buy-to-let mortgage broker Mortgages for Business shows .

This compares to a much lower, though still healthy, 5.6 per cent yield on ‘vanilla’ buy-to-lets where the whole property is let on one tenancy agreement.

Profit margins in the buy-to-let sector remain significant, and the firm attributes this  to landlords buying lower cost properties and renting them out for more.

The research found that the average value of a buy-to-let property in 2017 was £305,283 – a 19 per cent decrease on the average in 2016 when it was £375,409.

Jeni Browne, of Mortgages for Business, said: “These results suggest that landlords are seeking lower value properties and, anecdotally, we hear that they have been looking further north for their acquisitions where prices are cheaper.

“The benefits of this strategy include less stamp duty, future capital growth, and scope for rental increases which thus allow for slightly higher yields.”

The findings tally with separate research out last week revealing Nottingham and Liverpool as the best cities in the UK in which to be a landlord.

The Mortgages for Business research also showed the rising popularity of purchasing buy-to-lets through a limited company.

According to the firm, limited companies accounted for 49 per cent of all buy-to-let mortgage completions in the final three months of last year, compared to 31 per cent in Q4 2016.

Houses in multiple occupation – or HMOs – have become an increasingly popular option for landlords on the hunt for better returns after tax changes began to push up their costs.

Ms Browne said: “The attractiveness of HMOs as a buy-to-let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios.

“With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop.

“Although, I suspect that the granting of fewer new HMO licences is also having an impact.

“Savvy landlords like to have a good mix of properties. They like the consistency of vanilla buy-to-lets and the higher returns of more complex property types.

“Although lower than previously, 8.9 per cent is still an excellent return for HMOs, not only when compared to vanilla buy-to-lets but also other, non-property assets.”

Source: Simple Landlords Insurance

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A Bank of England official identified a big problem at the heart of London’s inflated commercial property market

  • The Bank of England’s Alex Brazier warns on an the UK’s commercial property market.
  • The market is relying on interest rates remaining very low in the future, while also expecting growth conditions to be favourable.
  • The story of London’s commercial property market, was for many years, one of rampant expansion and surging prices. There is now evidence that the market has moved into a downturn.

LONDON — One of the Bank of England’s most senior officials identified a problem at the heart of London’s inflated commercial property market in a speech on Thursday evening.

Speaking at Imperial College London, Alex Brazier, the bank’s executive director for financial stability strategy and risk said that the way in which investors are attempting to make returns in the commercial property market UK-wide, but particularly in London, is unsustainable in the long run.

That’s because, Brazier says, the market is relying on interest rates remaining very low in the future, while also expecting growth conditions to be favourable. Ultimately, Brazier says, that’s not going to be the case.

“At the UK-wide level, commercial property prices rest on persistently low interest rates but at the same time, they’re factoring in typical rental growth prospects and degree of uncertainty around them,” he told the audience at Imperial’s Brevan Howard Centre for Financial Analysis.

“It seems unlikely that rates can be so persistently low without either weaker growth prospects or more uncertainty.”

London’s West End, Brazier said, is a point of special interest. He described the interest rate/growth prospect dichotomy as being “particularly stark,” in the area.

“In London’s West End Office markets, the picture is particularly stark. Even if the magic combination of persistently low rates and historically typical rental prospects comes true, valuation methodologies similar to those being developed by the industry point to prices 10% below today’s level.”

Here are Brazier’s charts, from a presentation delivered alongside the speech:

A Bank of England official identified a big problem at the heart of London's inflated commercial property market Commercial Finance NetworkBank of England

A Bank of England official identified a big problem at the heart of London's inflated commercial property market Commercial Finance NetworkBank of England

No single factor can be blamed for this issue, Brazier said, arguing that a “range of underlying forces have driven down natural rates of interest, including demographics, perceived downside risks, expected productivity growth.”

“Precisely why these markets have become stretched is impossible to know for sure, but I’d caution against placing too much weight on monetary policy as the primary or underlying explanation,” he added.

The story of London’s commercial property market, was for many years, one of rampant expansion and surging prices. There is now evidence, however, that the market has moved into a downturn.

73% of surveyors responding to RICS’ quarterly UK Commercial Market Survey in October last year  said the central London market was at some stage of a downturn, while 67% of respondents said the market is overpriced.

“The feedback to the … survey reflects some of the broader macro issues, with the underlying momentum in the occupier market a little firmer further away from the capital,” Simon Rubinsohn, RICS chief economist said at the time.

Source: Business Insider

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​Are landlords getting younger?

Younger people are opting to invest in property over pensions, new data from buy-to-let mortgage broker Commercial Trust shows.

Only two age demographics – those aged 20 to 29 years old and those aged 30 to 39 – have recorded continued year-on-year market share growth for buy-to-let purchase applications since 2015.

Over the last three years, there has been a decline in the proportion of applications from people aged 60 or over.

Andrew Turner, chief executive at Commercial Trust Limited, said: “The figures suggest that younger people can see the value in investing in bricks and mortar – and perhaps this is an indicator that they perceive property investment as a sounder investment than pensions in the longer term.

“What is also interesting from these statistics is that rather than seeing an increase in buy-to-let applications from people reaching retirement age, we have seen a fall in market share from 2015 to 2017.”

The introduction of Pension Freedoms in 2015 – which allowed anyone aged 55 and over to take the whole amount as a lump sum, paying no tax on the first 25 per cent and the rest taxed as if it were a salary at their income tax rate – was expected to result in a surge in the number of buy-to-let investments from retirees, looking to receive rental income and potentially capital growth, to fund their retirement.

“Whilst Commercial Trust saw an initial burst of application activity from the over 60s in 2015, this has not been sustained through the two subsequent calendar years,” said Mr Turner.

“Since 2015, the market share for this demographic has fallen from 25 per cent to 18.8 per cent for 2017.

“The biggest market share continues to come from those aged 40 to 49 years old, with three years of consistent application activity, which consistently accounts for just under a third of all purchase applications and has seen just a 0.8 per cent fluctuation over the past three full years.”

Source: Simple Landlords Insurance

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Bank of England at forefront of global rates dilemma

The Bank of England will find itself facing a question next week that is set to trouble many other central banks this year – does an unexpectedly strong global economy mean it should press ahead with raising interest rates?

For the BoE – and its Indian, Australian and New Zealand counterparts – the answer over the next few days is likely to be no, as domestic uncertainties for now outweigh the inflationary pressure of a powerful global upswing.

But the odds of moves further away from the emergency level stimulus of the financial crisis are shortening. In government bond markets, yields on 10-year U.S., German and British debt have leapt by more than 30 basis points since the start of the year and two-year U.S. yields are their highest since 2008.BoE Governor Mark Carney takes centre stage on Thursday, when he will set out the central bank’s thinking on Britain’s prospects, barely a year before the country is due to leave the European Union.

No economist thinks a BoE rate hike is coming next week, according to Reuters polls. But markets see a 50 percent chance that there will be another move in May, a relatively quick follow-up to the BoE rate hike in November, the first for a decade.UBS’s chief economist, Arend Kapteyn, recently changed his mind to predict a May rate rise due to recent strength in the global economy – assuming that Prime Minister Theresa May can get a temporary Brexit deal before then.

“We think the data lines up for a brief window where they can hike,” he said.

Much later and there is a risk that the domestic economy may sour, as businesses hold off on investment and hiring in the months running up to Britain’s departure from the EU.

Politics is also likely to exert its sway over the Reserve Bank of India’s thinking next week, after an expansionary budget on Thursday which boosted rural spending and predicted that India would become the world’s fastest-growing major economy.

A decision to jack up farmers’ production subsidies was especially likely to intensify the RBI’s worries about above-target inflation, economists said.

Going the other way is Brazil, which is likely to cut rates on Wednesday as the country slowly pulls out of more than two years of economic malaise.

SERVICES SMILE

UBS has just upgraded its global growth forecasts to pencil in expansion of 4.1 percent for this year – which would be the fastest since 2011 – after 3.9 percent growth in 2017.

More evidence of the strength of the global recovery is likely to come on Monday, with a raft of services PMIs for advanced economies.

Manufacturing data previously showed factory activity hitting multi-year highs, and an early version of the services PMI for the euro zone rose to its highest since 2006.

U.S. data on Friday showed the biggest annual rise in hourly wages since 2009.

“The activity data at the beginning of next week should go some way to confirming that the world economy started 2018 on the right foot,” HSBC economist James Pomeroy said.

Further confirmation was likely to come from Chinese trade data and German industrial orders, he added.

Overall, open economies such as Australia and New Zealand should not focus too much on current below-target inflation and prepare to raise rates in the second half of the year, he said.

“I think this is a global theme, but will be much more acute in those countries where you have financial stability concerns,” he said, highlighting a rise in household debt.

For Kapteyn of UBS, the slide in the U.S. dollar – which has fallen 4 percent so far this year on a trade-weighted basis .DXY – made the case much less obvious for rate rises outside the United States because it will ease inflation pressures.

More than usual, survey data in advanced economies looked too good to be true.

“You are seeing very strong growth data, but very little price or wage pressure. The volatility in currencies is dwarfing the reduction in slack,” he said.

By contrast, new Federal Reserve Chairman Jerome Powell, whose four-year term starts on Saturday, may have to raise rates more often than the three times planned for this year – especially if the U.S. Congress loosens the fiscal purse-strings.

“Dollar weakness is reducing the freedom of the Fed. They’re going to become very, very sensitive to any upward surprise in growth or wage forecasts. For the rest of the world, it’s largely the opposite,” Kapteyn said.

Source: Zawya

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How P2P could be a financial lifeline for UK landowners

Landowners and farmers are set to be among the hardest hit workers as Britain negotiates its way out of the EU. However, access to funding through a peer-to-peer (P2P) platform could provide a valuable form of finance so that farmers can grow, diversify or refinance amid the uncertainty of Brexit.

A recent study of 172 farms by the Prince’s Farm Resilience Programme found that just 16% made a profit from their farming activities over the period assessed. The analysis found that instead many farms are now reliant on alternative income streams to turn a profit, such as tourism, renewable energy and selling their products directly to consumers.

But moving into alternative areas of business requires capital. And – with the average farm in the study making a loss of more than £20,000 from its farming activities – it may be capital that landowners require to invest in their business to prevent a loss.

P2P lending could be a lifeline to the UK farming industry. It allows landowners to raise much-needed funds to help diversify their business. Meanwhile, local lenders can enjoy the produce and services their money has contributed towards creating.

The farming industry has already had to tackle a number of significant challenges in recent years. Supermarket giants have squeezed profit margins and demanded ever-increasing output levels.

It’s estimated that the number of dairy farmers has more than halved over the past decade, unable to keep up with cost cuts. A survey by the National Farmers’ Union last year found confidence among farmers on the outlook over the next three years had plunged. A recent report by the Agriculture and Horticulture Development Board (AHDB) estimated that the average farm could see its income more than halved after Brexit.

EU subsidies have provided a much-needed boon to many farms. Leaving the EU will likely leave a major gap in many farms’ balance sheets and local lending could provide the plug many farmers may require.

Many small businesses are turning away from the high street lenders when they are looking for funding or finding banks unwilling to lend to them. At the same time, many investors are looking for a more social and sustainable way to earn interest on their cash. It is estimated that in 2015 some 12% of lending to small- and medium-sized businesses came through P2P platforms and the proportion is only growing.

The appeal is easy to see: investing money in local businesses means not only do lenders have the chance to earn an inflation-beating rate of interest, but they can also see exactly how their cash is being used within their local communities.

Folk2Folk champions local lending because we believe in creating financially and socially sustainable communities by matching local businesses with local lenders. With headquarters in Cornwall and hubs across the UK in rural communities, we’re well aware of the importance and impact landowners and farmers have on their local communities, and all the challenges and opportunities they face during the Brexit transition.

Source: Bridging and Commercial

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Complaints drop ‘significantly’ following ban on ‘To Let’ signs in the Dales

Complaints from residents living the Dales area of Liverpool have “reduced significantly” following the introduction of a ban on ‘To Let’ signs according to a new report.

Liverpool City Council first introduced a ban on visible advertising for rental properties in 2015 amid worries the boards were having a negative impact on the sustainability of the area’s housing market.

A report to be presented to the council’s Regeneration, Housing & Sustainability Select Committee tonight (1 February), says neighbourhood walkabouts have demonstrated a significant drop in the number and frequency of boards – despite the voluntary nature of the scheme.

In 2015, the council estimated there were around 500 boards in the area bounded by Wellington Road/Gainsborough Road, Smithdown Road, and the West Coast Main Line railway.

According to the new report, a small number of landlords were initially resistant to the ban and chose not to cooperate, but the majority of landlords in the area have since complied with, and in some cases, supported the initiative.

The report also notes that any further rollout of the programme to other areas of the city would be reliant on additional resources.

Last December, Your Move reported on council plans to crack down on the number of HMOs (House in Multiple Occupation) in the Dales neighbourhood.

No planning application for a change of use from a house to HMO for up to six people is currently required as planning permission for such a change is automatically granted.

Council evidence shows that the Dales has a higher than average concentration of HMOs (39%) and that has been adversely impacting on local residents’ quality of life.

Source: Your Move