Tag Archives: financial
UK govt launches consultation on Bank of England powers in the housing market
The UK government is inviting responses to a consultation on which powers the independent Bank of England should have over the country’s housing market. The Chancellor George Osborne has already announced that he was determined to work with the Bank to ensure that they had appropriate powers over the UK housing market to maintain its stability. Earlier this month, the Bank requested a range of powers including the ability to set a debt to income ratio for mortgages and control loan to value ratios. Currently, the Bank can only recommend that such a limit is put in place. The power to put in place these limits lies with the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). So the government is launching a consultation today on whether the Financial Policy Committee (FPC) should have the power to directly control these limits for macro-prudential purposes. The consultation will run from 30 October to 28 November 2014 and the powers that the Bank is requesting are commonly held by its counterparts in other countries. For example, loan to value controls are used extensively in countries including Canada, New Zealand and Norway, while both the Hong Kong and South Korea have used debt to income ratios too, which has proved particularly successful. The consultation document states that the government is proposing that the Bank is granted powers of direction for loan to value limits and debt to income limits for owner-occupied mortgages. The government is particularly interested to hear what consumers and the industry feels is an appropriate definition of debt for these purposes. The government intends to consult separately in 2015 on the Bank’s recommendations for it to have new powers over the buy to let market, with a view to building an in-depth evidence base on how the operation of the UK buy to let housing market may carry risks to financial stability. ‘Ensuring the stability of the UK housing market is a crucial part of this government’s long term economic plan, and I have been clear that the independent Bank of England should have the tools it needs to do this,’ said Osborne. ‘That’s why the government is consulting on this issue, to ensure that we can bring forward appropriate legislation to give the Bank the powers it needs. The government already works closely with the Bank to ensure the ongoing stability of the UK housing market,’ he pointed out. He added that in June, the Bank issued a recommendation over mortgage lending limits, with new regulations introduced earlier this month capping the number of loans above 4.5 times income which banks can offer. Continue reading
Latest index provides further evidence of UK house price growth slowing
UK house prices increased by 0.5% in October but annual residential property price growth slowed to 9%, according to the latest index from the Nationwide building society. It is the second month in a row when annual property price growth has fallen and Nationwide chief economist Robert Gardner said that a variety of indicators suggest that the market has lost momentum. ‘The number of mortgages approved for house purchase in September was almost 20% below the level prevailing at the start of the year. Some forward looking indicators, such as new buyer enquiries, suggest that activity may soften further in the near term, especially in London,’ he pointed out. ‘However, broader economic indicators remain positive. The labour market has continued to improve, with the unemployment rate falling to 6% in the three months to August and mortgage rates have fallen back towards all-time lows. Indicators of consumer confidence have also remained close to recent highs,’ he explained. ‘If the economy and the labour market remain in good shape, activity is likely to pick up in the quarters ahead providing mortgage rates do not rise sharply,’ he added. The Nationwide report also points out that an increasing number of borrowers have been opting for fixed rate mortgage deals in recent times. Data from the Council of Mortgage Lenders suggests that around 90% of new mortgages were contracted on fixed rates in recent months, up from 67% two years ago. ‘Fixed rate deals are most popular amongst first time buyers for whom certainty over monthly payments is likely to be particularly important. Some 95% of new mortgage lending to first time buyers is currently on fixed rates,’ said Gardner. ‘Borrowers taking out fixed rate mortgages have benefited from historically low interest rates. For example, the average two year fix for those with a 25% deposit is currently 2.46%. While this is a little higher than earlier this year, it is still more than one percentage point below the level prevailing in 2012. Moreover, for borrowers with a 10% deposit, the rates available for two year fixes are the lowest on record,’ he explained. ‘This has helped, in part, to offset the negative impact of rising house prices on affordability. Indeed, even though house prices are at an all-time high, the cost of servicing a typical mortgage is still close to the long term average as a share of take home pay,’ he added. However, despite the high proportion of new mortgage lending on fixed rates, the majority of the stock of outstanding mortgages, around 60%, is on variable interest rates. Gardner said this is a marked shift from the pre-crisis period where the proportion of mortgages on variable rates was 38%. Moreover, the majority of recent fixes are for relatively short time periods with 62% for two years and around 30% for five years. Gardner believes that the housing market should be able to cope with higher interest rates, provided the increase is gradual and the economy and the labour… Continue reading
Office demand surges in the City of London
Occupier demand for office space in the City of London has reached its highest level since 2000 as firms from outside the financial services sector compete for space in the Square Mile. Office take-up in the City increased from 2.2 million square feet in the second quarter of the year to three million in the third quarter, a rise of 39%, according to the latest report from Knight Frank. Demand for office space has not been above this level since the third quarter of 2000 and is nearly double the long term average of 1.7 million square feet. This has included large deals for firms such as Amazon, and London Business School. ‘I see this as evidence of the Manhattan-isation of the City office market, where finance is now one of several sources of office demand now the square mile’s economy has drawn in a variety of new industries, as is the case in New York’s key office markets,’ said Dan Gaunt, head of City Agency at Knight Frank. Based on nine months data in the year so far, the City has seen 6.9 million square feet of office space acquired, compared to 5.8 million square feet for the whole of 2012. Occupier demand has come from a variety of industries, including those that in the past were not associated with the City, as shown by large pre-lets by Amazon at Principal Place of 431,000 square feet and M & G Investments with 330,000 square feet at 10 Fenchurch Avenue. Amazon also took 86,000 square feet at Leadenhall Court, while the London Business School acquired 88,000 square feet at 40 Tower Hill. According to Bradley Baker, head of central London tenant representation at Knight Frank, occupier confidence has strengthened recently which has translated into increased market activity. ‘We expect this to continue into 2015 as well advised businesses look to secure high quality space ahead of anticipated rental growth,’ he said. Supply of offices in the City fell during the third quarter and now totals 8.7 million square feet which is well below its financial crisis peak of 13.4 million square feet in the second quarter of 2009. This represents a current vacancy rate of 7.3%, the lowest level since the third quarter of 2007 around the time queues were found outside branches of Northern Rock bank at the start of the last downturn and below the long term average of 9.2%. ‘City landlords face the challenge of delivering an environment where both a corporate law firm and a technology company may be sharing the same office building, with issues of ensuring branding and the décor of common areas are acceptable to two very different tenants,’ explained Gaunt. | ‘Equally, the two tenants may in the future converge in their attitudes to offices and indeed corporate appearances,’ he added. Continue reading
