Brexit impact on house prices is uncertain, Nationwide says

The Brexit effect on the housing market may take months to become clear, the Nationwide said as it reported a slight rise in UK house prices in July.

The UK’s biggest building society said that uncertainty after the UK’s vote to leave the EU could reduce demand among buyers.

Even so, the resulting impact on house prices was “not certain”.

Property prices rose by 0.5% in July compared with June, and were up 5.2% on a year earlier.

That meant the average UK home was valued at £205,715, the Nationwide said.


The data from the Nationwide is its first since the EU referendum. Generally, investors have expected the UK housing market to be hit by any slow down or uncertainty following the UK’s vote to leave.

However, the data is based on mortgage offers made by Nationwide, suggesting that it is too early to record sentiment among buyers.

“Any impact from the vote may not be fully evident in July’s figures, as there is a short lag between a buyer making the decision to purchase a property and applying for a mortgage,” said Robert Gardner, Nationwide’s chief economist.

“In the near term, increased economic uncertainty may lead to weaker demand for homes. Leading indicators are consistent with softening ahead. Household confidence fell sharply in the wake of the referendum result, especially attitudes towards making major purchases, which in the past has correlated with mortgage activity, though less closely in recent years.

“How the labour market evolves will be crucial in determining the demand for homes in the quarters ahead.”

After changes to stamp duty in April, untangling any change in demand owing to this tax change and as the result of the referendum would be difficult, he added.

“Even if there is a fall back in demand as a result of economic uncertainty, the impact on house prices is not certain, as potential sellers may also hold off from placing their properties on the market,” he said.

“The stock of homes on estate agents’ books is already close to its lowest levels for 30 years.”

Jonathan Hopper, managing director of buying agents Garrington Property Finders, said: “While you can’t read too much into the July house price rise, what is certain is that there has not been a crash in property prices since Brexit, more of a soft landing.

“The sheer lack of supply is helping to prop prices up. The pendulum has swung largely in favour of the buyer since Brexit, but it is by no means a black and white market.”




The Bank Of England Can’t Stop Britain Falling Into A Post-Brexit Recession

Martin Weale, an independent member of the Bank of England’s Monetary Policy Committee, and one of Britain’s most senior economic policy advisors has warned that the central bank cannot stop Britain slipping into a recession this year if the economy is already starting to struggle in the aftermath of the UK’s vote to leave the European Union.

In an interview with the Financial Times, Weale — who has served on the MPC since 2010 and will step down in August — said that any monetary policy measures introduced by the BoE will inevitably take time to have a positive effect on the British economy, and as a result, will not be able to prevent a short-term recession. “If we’re talking about having an effect by the end of the year, there is very little that the bank can do,” he told the FT’s Chris Giles.

Weale did, however, urge further monetary stimulus at the Bank’s August meeting to protect the economy in the longer term. He said he was convinced by recent terrible PMI numbers, which showed a dramatic drop in business activity post-Brexit:

“They are the best short-term indicator we have at the moment. I certainly feel they are very material for the decision we’ll be taking next week,” he told the FT, adding that they were “a lot worse than I had thought” and showed “expectations have worsened sharply”.

Since the vote to leave the EU, predictions of a coming recession have been widespread. Last week’s disastrous PMI data from Markit pointed to the economy shrinking, while numerous economic research houses and banks say they see recession on the horizon. Among those to forecast recession is Credit Suisse which argued last week that the coming slowdown will cost Britain 500,000 jobs. Barclays has also said Britain is “on the cusp of recession.” Morgan Stanley also expects a shallow recession for the UK.

Prior to his interview with the Financial Times, Weale had publicly backed a “wait and see” approach in terms of beginning a new programme of monetary easing, but his comments in the paper mark something of a u-turn, with the PMI data a key driver of his change of heart.

REUTERS/Brandon WadeWeale said that the PMI numbers — which showed their sharpest contraction since the financial crisis — will have a “material” effect on the Bank’s decision next week, and that they have provided him with a “signal” about the direction monetary policy should be heading

“I see things rather differently from what I would have done had we not had those numbers and the material point is that they were collected after July 12, so after the initial shock of the referendum,” he said.

“What I said last week is that I would like more information as well as more reflection and I have had more information. Although you can’t say there’s a clear signal, if you spend all the time waiting for a clear signal, it never comes.”

Weale’s comments to FT suggest that it is now pretty much inevitable the Bank of England will announce new stimulus measures in the form of a rate cut or a new programme of quantitative easing. He is now the fourth member of the MPC to publicly back more stimulus.

The MPC’s most hawkish member Gertjan Vlieghe voted to cut rates at the July meeting, while governor Mark Carney and BoE chief economist Andy Haldane have indicated that further stimulus will be forthcoming in August. Only one member, Kristin Forbes, has backed no stimulus, saying in a Telegraph article that the BoE should take a “keep calm and carry on approach.”

At its July meeting the Old Lady of Threadneedle Street was widely expected to cut interest rates from 0.5% — where they have stood for 88 consecutive months — to 0.25%, but shocked the markets by leaving policy unchanged.


UK Economy Grew By 0.6% Before Brexit Vote


The UK economy grew by 0.6% in the second quarter of the year – more than expected in the run-up to the EU referendum.

 Preliminary analysis of the country’s gross domestic product (GDP) by the Office for National Statistics (ONS) between April and June showed a surprise acceleration in output at a time when there were jitters about Brexit.
 Economists had expected a similar performance to the first quarter when growth was measured at 0.4%, though it was clear growth was at its strongest in April.
 The ONS charted the biggest jump in quarterly industrial production since 1999 over the three months with growth of 2.1%. The sector had been in decline over the previous quarter.
Construction output fell by 0.4% – down from a 0.3% decline in the first quarter.

The service sector, which is responsible for more than three-quarters of total UK output, slowed slightly with growth of 0.5%.

 The ONS stressed that the GDP figure was an initial estimate and subject to revision but it was seized on by former Chancellor George Osborne – ousted by new PM Theresa May – that he had fixed the roof while the sun was shining.”

His replacement at Number 11, Philip Hammond, said: “Today’s GDP figures show that the fundamentals of the British economy are strong… so it is clear we enter our negotiations to leave the EU from a position of economic strength.”

 But he warned tougher times lay ahead, adding: “Those negotiations will signal the beginning of a period of adjustment, but I am confident we have the tools to manage the challenges ahead, and, along with the Bank of England, this Government will take whatever action is necessary to support our economy and maintain business and consumer confidence.”
 A flash survey of purchasing managers released last week suggested economic growth had slumped at its fastest rate since the financial crisis.
 A survey released later on Wednesday by the CBI suggested retail sales had fallen at their fastest pace in over four years in July.
 Scott Bowman, UK economist at Capital Economics, said: “The (April-June) quarterly expansion was completely driven by activity in April, with the output indices implying a 0.9% monthly expansion.
 “In contrast, these indices suggest GDP fell in May and ONS initial estimates for June imply that activity was flat in June.
 “This sets a poor base for growth in Q3 (the third quarter).”
The new Government has signalled it is ready to inject more money into the economy to help boost activity while the Bank of England has hinted at a possible cut to interest rates at its meeting next week.
 One policymaker, Martin Weale, said earlier this week he was now in favour of further support for the economy – given the readings in the flash PMI survey.





London house prices slashed after Brexit vote

Thousands of London homes have had their prices slashed since the Brexit vote a week ago amid warnings of a slump in the stunned housing market, the Standard reveals today.

An Evening Standard analysis has found a huge spike in nervous home owners cutting their asking prices after the surprise result of the referendum last Friday morning unleashed what was described as “a perfect storm” by one leading investor.

The impact is expected to be most severe in the new luxury development along the river from Vauxhall to Docklands where falls of as much as 40 per cent are feared.

One central London branch manager at one of the capital’s biggest firms said: ”The whole thing is a disaster. The uncertainty will cause the markets to crumble and who knows when that is going to get better.

“There’s no end to how far prices could fall. If you are a vendor and you want to sell a property then the writing’s on the wall – you are going to have to sell at a much lower level.”

How prices have plunged

Buckland Crescent,  Belsize Park, NW3

The three-bedroom first floor apartment in a “beautiful period property” is a short walk from Swiss Cottage Tube station. Went on the market last May at £1.5 million. Price cut to £1.05 million last Friday.

Commercial Street, Whitechapel, E1 

Two-bedroom flat is in a  new development at  1 Commercial Street. It has fitted wardrobes and under-floor heating. First listed at £1.1 million in January. Price cut to £720,000 last Friday.

Aldridge Road Villas, Notting Hill W11

Two-bedroom upper maisonette in period building. The top floor is an open plan kitchen/reception room. Went on the market at £1.59 million in February. Reduced to £1.35 million on Tuesday.

Rosedene Avenue, Streatham, SW16 

Five-bedroom house has off-street parking, large kitchen/dining room, four reception rooms and a large back garden. First  for sale at £1.3 million  last June. Price cut to £850,000 on Wednesday.

The analysis of the 13,000 homes listed on the Zoopla website currently listed as “reduced” suggest that around one in six have had their price cut since the dramatic Leave campaign victory last Friday.

Big reductions in asking prices seen this week include a two bedroom flat on one of Notting Hill’s most exclusive streets, which was cut by 15 per cent from £1.595 million to £1.35 million.

Another owner slashed the price for a flat in Chelsea from £3.35 million to £2.95 million yesterday.

Buying agent Henry Pryor said: ”This is a very, very different market to a week ago. I’m now trying to do deals 10 per cent below where they were a week ago and central London is already down 10 to 15 per cent from its peak.

“I do not believe that a whole load of foreigners are going to come to the rescue of trhe market having seen the currency change.

“I have three buyers, two from Italy and one from Brazil, who are really worried about the welcome they are going to get when they touch down at Heathrow.

They have seen some of the images of racism since the vote and they are saying ‘is this the Britain we want to buy into?”

Agents said the political and economic uncertainty that has engulfed Britain since the vote has also triggered a surge in offers being withdrawn, leading to a possible return of “gazundering” for the first time since the 2008 financial crisis.

Hundreds of agreed deals are thought to have fallen through in the aftermath of the  Brexit vote.

The Russian buyer of a six bedroom flat in Kensington withdrew a £6.95 million agreed offer last Friday.

The apartment is now back on the market at £6.75 million, having been originally marketed at £8 million last October.

Developers are also reassessing their exposure to the London market. One said: “People are deciding whether to proceed with schemes, they are putting sub-contractors on hold. If delivery slows you have to wonder how that will affect Sadiq Khan’s promises on housing during the election.”

One senior property figure said big price cuts on schemes that are going ahead were inevitable: ”The developers will come back at the end of the summer and look at their prices and they will say ‘if we were asking £450k for a studio pre-Brexit, let’s trim it down to £380.’”

Edward Heaton, founder & managing director of property buying and search agent Heaton & Partners, said: “The biggest effect is to likely be on new developments in London, in particular areas like Nine Elms, where there is a massive oversupply of high value flats, which there simply aren’t the end-users for at the moment.

“There is likely to be some drop in prices, although how much remains to be seen. One banker I have spoken to suggests the fall could be as much as 40 per cent.”


House prices were falling in Scotland before Brexit vote


House prices in Scotland were falling in the three months leading up to the Brexit vote in June, newly-published official figures reveal.

Registers of Scotland says the average residential property sold for £164,326 in the period, a drop of 2.3 per cent on 2015.

Experts have predicted house price growth will slow in the wake of the EU referendum result, which could hit the wider economy.

Various indices have indicated that average valuations across the whole of the UK were accelerating before the vote, primarily because of a chronic shortage of supply.

However, there is a different dynamic at work in Scotland and the falls in the past quarter are not seemingly related to the EU referendum.

The new figures show that unlike the wider UK, transaction volume surged by 4.9 per cent to 25,760 over the three months in question, the highest activity for this period since 2008 – immediately before the financial crash.

Registers of Scotland said the surge, which has boosted the total value of housing market transactions by 2.5 per cent to £4.2bn, marks the continuation of a trend that set in last year, ahead of a hike to stamp duty for second homes.

Director of commercial services Kenny Crawford said the statistics “reflect a robust and active property market” that “continues to make an important contribution to the Scottish economy”.

Faisal Choudhry, the director of Scottish research at Savills Scottish Research, toldThe Times a lack of new-build supply meant more transactions related to old local authority houses, which in Scotland typically fetch lower prices.

He said: “Around three or four years ago, there was building occurring in areas such as West Dunbartonshire. But those sites have since sold out. They have not been replaced.”

West Dunbartonshire was the worst performing area in the past year with a fall of 12.7 per cent, the BBC notes. Aberdeenshire and the city of Aberdeen also fell by ten per cent and six per cent due to a slump in the oil and gas sector.

East Renfrewshire, to the south-west of Glasgow, was the best performing region, up almost 12 per cent to £241,364.




House prices in London surge by 14 per cent.

HOUSE prices have surged as second home and landlord buyers rush to complete before a new tax takes effect, show official figures today.

Values in London jumped by a huge 13.9 per cent in the year to January to an average £530,409, according to the Land Registry.

Experts said buyers in the capital are piling in ahead with of an end of March deadline when the three per cent stamp duty surcharge is introduced

Jonathan Hopper of buying agents Garrington Property Finders, said: “The stamp duty stampede is on. With barely two months to go until the tax levied on purchases of second homes and investment properties is hiked by 3 per cent, an increase in demand was inevitable – but both the scale and pace of buyer activity has been prodigious. “Coupled with the traditional January uptick in activity, the scramble by second home and buy-to-let buyers to complete before April has boosted prices in several of the most in-demand regions.”

But regional disparity is still a large feature of Britain, with prices rising by just 0.2 per cent in the North East over the year to an average.

Between December and January values in the region actually fell by 1.6 per cent to an average £97,117.

The number of completed house sales in England and Wales fell by two per cent in the year in November 2015 compared to the same month a year before.

Critics said the fall is worrying and indicative of the lack of supply hindering the market.

Jeremy Leaf, a former RICS chairman and north London estate agent, said: “If people aren’t able to move in and out of the market when they want to, there will be an inevitable knock-on effect for the rest of the economy.

“With the high cost of moving, continued shortage of supply and affordability issues with tougher mortgage criteria, this situation looks unlikely to change any time soon.”

Overall values in England and Wales jumped by 7.1 over the 12 months to January.

Housing charity Shelter said the figures highlight how a lack of affordable housing is freezing more out of home ownership.



British houses ‘earn’ more than their owners: average home rose by almost £20k across the country and £46k in London


The average house earned more last year than nearly half of all workers, figures revealed today.

House prices across Britain rose by £18,000, more than the salary of nearly 40 per cent of the workforce, according to Post Office Money.

Its Cost Of Buying And Moving report revealed the average price rise almost matched the starting salaries of professions including nurses, teachers, junior hospital doctors and police officers, who all start on around £22,000.

London and South East

In London, the average home made £46,000 for its owner, compared with the average salary in the capital of £36,000.

A recent report by the Halifax revealed that the biggest gap between wages and property prices was in Three Rivers, Hertfordshire, where house prices have risen by £148,000 in the last two years, exceeding average earnings by £98,000.

Three Rivers is increasingly popular among London commuters thanks to the Metropolitan line and includes Rickmansworth and Abbots Langley.

The second biggest gap was in Harrow, north-west London, a borough that regularly features in top 10 lists of fastest rising prices.

Greenwich was third thanks to it becoming a regeneration hotspot offering river views from almost every direction. It is minutes from Canary Wharf on the Docklands Light Railway and Jubilee line and will have a new Crossrail station in 2018, making it even faster to get to the City.

Slowing rises

The average house price rise in the UK was £5,800 lower between December 2014 and December 2015 compared with the previous year, while workers’ wages rose by an average of £400 to £26,400.

In London, the average rise fell by £11,300 from £57,600, but this still means the average home in the capital costs £536,000, while average prices elsewhere were £365,000 in the South East and £315,000 in the East.

Rising demand

John Willcock, head of mortgages at Post Office Money, said: “Although the rate at which property prices have increased has slowed compared with the dramatic rises seen in 2014 and early 2015, we have still seen a big increase in prices over the last year.

“This has been driven by demand for housing outstripping supply, with the number of properties coming to market failing to match the needs of people looking to buy. “

“While this is good news for those who already own their home and will see their property wealth increase, our study highlights the uphill struggle that buyers and movers looking to climb the property ladder continue to face, especially when attempting to get on that all-important first rung.”

Predicting the future

Mr Willcock added: “Forecasts seem to indicate a year of two halves in 2016, with prices pushed up before April as buyers races to beat the new stamp duty surcharge on second homes, but then weakening following its introduction and uncertainty around the UK’s position in Europe.



Market Update

Stamp Duty Changes

For sales completing on or after 1st April 2016 a large proportion of buyers purchasing buy-to-let investments or second homes will become liable to pay the additional 3% stamp duty land tax (SDLT) for purchases over £40,000. This is over and above the normal SDLT levy.

For example, a buyer who falls into this category attending our auction who purchases a qualifying residential property for £200,000 and completes before 1st April will pay £1,500 in stamp duty.
The same purchase that completes after 1st April will result in a SDLT cost of £7,500.
Or, to put it another way, for a buyer to have the same cost for the property and stamp duty (i.e. £201,500) a purchase with completion after 1st April 2016 would have to be at £194,285, a reduction in purchase price under the gavel of £5,715 (nearly 3%).


Of course at the higher price range the price differential is even greater. Under the same circumstances, a £500,000 purchase would today create a SDLT of £15,000 however, if completed after 1st April the (SDLT) would double to £30,000.


Purchase Price

SDLT completion pre

1st April 2016

SDLT completion

1st April 2016 onwards



















Band Existing residential SDLT rates New additional property SDLT rates
£0* – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%
Please contact the agency for more questions 

Where in London can you afford to rent? There’s only a few places left.

London has the highest rents of any city on Earth: according to property firm CBRE, they are an average of £2,083 per month. And having risen by 4pc last year, living in the capital may seem impossible for some.

But huge variation in rents across the capital means that there is still hope for many, according to research from property investment firm CBRE, which examined 32 cities around the world.

Bexley has been named as the most affordable London borough in which to rent, with the average house now costing around £1,007 per calendar month.

Where are the most affordable London boroughs for renters?

*Bexley £1,007

*Havering, £1,083

*Barking and Dagenham, £1,162

*Sutton, £1,166

*Bromley, £1,271

*Enfield, £1,285

*Redbridge, £1,293

*Croydon, £1,309

*Waltham Forest, £1,309

*Hillingdon, £1,311

The three priciest boroughs for rents are Kensington and Chelsea, Westminster and the City of London, with the average rent in these boroughs all around £3,000.

While rents in Bexley are the cheapest in London, the borough has also seen faster price growth in the past year than any other area – rent there has gone up 10pc in the past 12 months, according to new research from CBRE.

[READ: Buying a house is now cheaper than renting across Britain]

Because of its good transport links, parks and low prices, there is huge demand for rental property in Bexley. Online property company Rentify revealed last year that it was the second most-searched-for borough for property.

Jennet Siebrits, head of residential research at CBRE, said Bexley, which was also the cheapest borough last year, has remained affordable because of its location.

“It is a great place to live, but in outer London and therefore priced accordingly, it’s typically a family location, so hasn’t been a huge rental market. But its cheaper rents have attracted renters, hence the growth,” she said.

Excluding the capital, rents across the UK average £749 a month, having risen 3.5pc year-on-year, according to the latest quarterly rental index from Homelet.

The gap between London and the rest of the UK is now the highest on record , they said.

Ms Siebrits said the strength of the market reflected a huge surge in the number of renters in the capital over the past decade.

“Renting is becoming ever more popular, with a significant increase in renters. This partly reflects affordability constraints – even before the financial crisis we were seeing an up tick but it has magnified since the crisis – and subsequent credit constraints,” she said.

Ms Siebrits also explained that the rise in immigration had created more demand for rented properties.

She said: “London is arguably the global financial centre and attracts the top international conglomerate companies, which have workers who need temporary rental accommodation.

“At the other end we attract Europeans who come here for employment opportunities, who also need accommodation and are not able to access the owner occupation market.”



UK stocks plunge as oil price explores new depths


UK stocks tumbled almost 3 percent on Wednesday, buffeted by a further slide in oil prices that weighed on big producers such as BP and Shell, and amid continued fears about the strength of the Chinese economy.

In early trade, Britain’s benchmark FTSE 100 index was down around 166 points, or 2.8 percent, at 5,710.49, having fallen as low as 5,699 shortly after the market opened. The index is now down 8.4 percent already in January in a horror start to the year.

The stocks rout, which also occured on Asian other European exchanges, came after the International Energy Agency warned that the oil market could “drown in oversupply”. Production is spiking as new oilfields come on line in Iran – and as the Organization of Petroleum Exporting Countries keeps flooding the world with oil despite a boom in domestic U.S. production.

China’s dramatic slowdown is also weighing heavily on prices, given the world’s second-largest economy is also its largest energy consumer. West Texas Intermediate, the US benchmark, fell to levels last seen in September 2003, touching $27.49 per barrel.

Lower oil prices have forced big producers such as Shell to stop investing in monster energy projects and lay off thousands of workers as they try to shield profits and keep their dividends in tact. On Wednesday, Shell forecast a steep fall in annual net profit for 2015 to between $1.6 billion and $2.0 billion, down from $15.0 billion in 2014.


If this is going to effect the house market ???

Oil slides to lowest since 2003 as Iran sanctions lifted


Oil prices hit their lowest since 2003 on Monday, as the market braced for a jump in Iranian exports after the lifting of sanctions against the country over the weekend.

The United States on Saturday revoked sanctions that had slashed Iran’s oil exports by around 2 million barrels per day (bpd) since its pre-sanctions 2011 peak to little more than 1 million bpd.

On Sunday, Iran – a member of the Organization of the Petroleum Exporting Countries (OPEC) – said it was ready to increase its exports by 500,000 bpd.

“Iranian exports come at a very bad time,” said Barclays analysts.

Worries about Iran’s return to an already glutted oil market drove down Brent to $27.67 a barrel early on Monday, its lowest since 2003. The benchmark was at $28.17 by 0733 GMT, down 2.7 percent from its settlement on Friday.

U.S. crude was down 64 cents at $28.78 a barrel, not far from a 2003-low of $28.36 hit earlier in the session.

The additional Iranian supply would arrive at a time when oil markets are already trying to absorb excess production from the U.S., Russia, and the Middle East.

“Major producers are currently delivering 2-2.5 million barrels per day more than demand, so the question is how long they can continue to overproduce for at that level,” said Stuart Gulliver, CEO of HSBC on Monday.

Traders and analysts, however, have described the plunge in prices as a knee-jerk reaction, saying Iran’s ambitions to export 500,000 bpd were not very realistic.

“If you track Iran’s rhetoric over the past 12-18 months, officials were projecting a 1 million bpd rise in exports as soon as sanctions were lifted,” said analyst Virendra Chauhan at Energy Aspects, adding that the most recent downgrade in the number is indicative of the challenges that face Iranian upstream and the markets capacity to absorb its supply.

Analysts expect Iran to take time to fully revive its export infrastructure that has suffered from years of underinvestment.

But the OPEC member does have at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell into the market, and traders are betting that oil prices will drop some more.

Data shows that short positions in U.S. crude markets, which would profit from further price falls, have hit a fresh record high.

“Since the market is strongly one dimensional with net shorts at an all-time high”, it could face further downside potential in the short term, Energy Aspect’s Chauhan said.


(Additional reporting by Henning Gloystein in Singapore and Osamu Tsukimori in Tokyo; Editing by Christian Schmollinger and Himani Sarkar)


Who’s afraid of the big bad rate rise


Interest rate rise on the cards! Terrible news for homeowners!

A whole generation of mortgage borrowers who have never seen a rate rise are in for a shock. When they can’t afford it, spending will be slashed.

The slowdown will get worse. The economy will tank!

That, at least, is the scary story. And here’s why it seems like it may be true.

The US central bank, the Federal Reserve, raised official interest rates from their post-crisis low last month, the first rise in nearly a decade. Historically, the UK tends to follow close behind.

And British households, with their record unsecured borrowing and sizeable mortgages, are more vulnerable to rate rises than they are over there.

Creeping up

Scare yourself even more with a superficial look at the data. Households have debt worth 135% of their income according to the Bank of England.

That may be less than the peak in 2008 but it’s still well above the pre-crisis norm of around 105%. And it’s creeping up again.

Unsecured borrowing from credit cards to personal loans is above its pre-crisis level, at £11,800 per household, up £600, according to TUC analysis.

Those who took out a mortgage since 2007 have never seen a rise in the Bank of England’s base rate. And with the average mortgage charging interest of just 3.07%, even a rise of 0.25 percentage points would hurt. It would mean the amount needed to pay interest on the typical mortgage would rise by 8%.

But delve a little deeper. Who exactly is going to be hit by the rate rise?

“My killer fact,” says interest rate rise drum-beater, and former rate-setter at the Bank of England, Andrew Sentence, “is the percentage of people who have a mortgage at all.

“It’s now at its lowest for years – only about 30%. And the percentage of households who own outright is much higher.”

Let’s look at the picture in England where there’s recent data from the English Housing Survey.

It shows there are 14.3 million owner-occupied households. Among them are 7.4 million people, mostly in the older generations, who have no mortgage at all, so a rate rise won’t harm them. In fact it is more likely to help because they tend to be net savers.

They outnumber the 6.9 million (mostly younger) owners who are still paying mortgages. But it would be bad for that group, right? (Let’s try and keep the scare story going).

Certainly, for those who have stretched every financial sinew to buy recently in hotspots like London, the east of England or Kent. If they’re paying 40% or more of their gross income on the mortgage, it might well hurt.

But they are a small minority. Only just over 1% of households are in that danger area, according to Bank of England data. And 90% of mortgage holders spend less than a fifth of their gross income on the mortgage. Not so unmanageable.

“The 70% who do not have a mortgage are in the majority,” Mr Sentence says. “Their interests are actually in having slower house price growth if they’re renters, so they can all get on the housing ladder – or in having a better savings rate. It is odd that we have a policy that caters for a minority and not the majority.”

Last month, the Bank of England published an authoritative survey of more than 6,000 households carried out by NMG Consulting. It asked a scary question. How would you cope if interest rates rose by two percentage points immediately?

The answer was that 31% of households would have to take action – like cutting spending, working longer or renegotiating the mortgage.

But turn that on its head. 69% of households said they could cope with an immediate interest rate rise of two whole percentage points – without having to cut their spending at all.


Not very scary. And it gets even less so. More than half of mortgage holders have fixed rate mortgages. So only 2.9 million holders on variable rates might be affected. If 31% of them might have to cut spending, that’s just 900,000 people. Less than one in 20 households.

That 31% who might have to cut their spending wouldn’t have to cut at all, says the NMG, if their wages grow, as projected, by 10% in the next four years.

And this scenario of two percentage point rise looks in any case highly unlikely.

The thousands of traders in the City who bet on interest rate rises via derivatives currently give the equivalent of 2-1 odds against a quarter-point rate rise any time in 2016, with most betting it won’t happen until 2017. If their projections are right it will take three years to raise rates by one percentage point.

So, for our personal finances, it’s a case of nice scare: shame about the facts.

Real interest rates

Far scarier, perhaps, is the bigger picture. A powerful argument against raising interest rates is a startling but vital fact. They have already risen.

No, you didn’t miss it. As inflation has fallen to the floor (and sometimes below it), the real cost of money – real interest rates, shot up. From 2011 to 2014, because inflation was higher than interest rates, official interest rates were negative in real terms – a big incentive to encourage people and companies to borrow and banks to lend to stimulate the economy. Now they are positive.

And the economy has been slowing down – growing by 2.1% in the year to September 2015 compared with 2.9% in the same period a year before. Unemployment may have dropped to 5.2%. But far from showing signs of taking off, inflation, currently 0.1%, has been bumping along the floor.

Fragile China

The EY Item Club’s senior economic adviser Peter Spencer points to economic headwinds like the slowdown in China and the oil price drop.

He says: “There’s still a lot of downward pressure on prices.

“One of the reasons the Bank’s so keen to get interest rates up is so they have some ammunition if the economy runs into trouble again.”

While interest rate hawks like Mr Sentence point out that a rate rise now won’t have an effect for 18 months, doves like the Bank of England’s Andy Haldane fear it may choke off a fragile recovery, while signs of inflationary pressure are noticeable by their absence.

“The economic aircraft appears to be losing speed on the runway,” he says. “That is an awkward, indeed risky, time to be contemplating take-off.”

Scary for the economy, perhaps. But not for the vast majority of households.


Fuel could become cheaper than ‘bottled water’


Oil prices have gone down by 30% since early December

Fuel may end up being cheaper than bottled water if the oil price continues to plummet, motoring experts say.

Oil prices have gone down by 30% since early December, with Brent crude briefly falling to below $30 a barrel on Wednesday  to a new near 12-year low.

Some analysts are predicting it could tumble even further, with Standard Chartered bank warning a figure of $10 a barrel is possible.

This could lead to UK motorists paying just 86p per litre for fuel, as long as the pound does not continue to weaken against the dollar, according to the RAC.

The glut of oil being pumped out by the US and other producers, combined with slowing world demand from the likes of China, has weighed heavily on the price of oil and other commodities.

The worldwide slump puts more money in consumers’ pockets.

But it has badly damaged oil companies such as BP – which is a mainstay of many UK pension funds – as well as a wider spectrum of firms that supply parts and services to the industry.

Some supermarkets cut petrol last month to under £1 per litre for the first time since 2009 – excluding promotions – while there were similar moves for diesel last week.

Average prices across the country are 102.5p per litre for petrol and 103.2p per litre for diesel.

RAC fuel spokesman Simon Williams said: “Breaking through the pound a litre price point for both petrol and diesel was clearly a welcome landmark, but it looks as though there is more to come.

“In fact we may get to a bizarre time when a litre of fuel is cheaper than a litre of some bottled waters.”

The motoring organisation claimed that diesel should have already been cut even more given current oil prices.

“Retailers still need to pass on more wholesale price savings on diesel to motorists at the pump, as the wholesale price is still 3p a litre cheaper than that of petrol,” Mr Williams said.


UK house prices ‘to crash’ as global asset prices unravel

House prices have broken free from reality and defied gravity for far too long, but they are an asset like anything else, and there are six clear reasons a nasty correction looms in the coming year .

The next asset to fall was share prices. There was a delay of about 12 months because even though shares are also traded daily, their value depends on the profits of the company, and the impact of the commodity collapse took about a year to feed through.

Ticking time-bomb

There is a delayed effect on property prices because the market is so inefficient.

Transactions can take up to three months to complete and the property itself may have to languish on the market for even longer. The prices are also dictated by estate agents, who have an interest in inflating them to raise fees. The number of transactions is also still about 40pc below that of 2006 and 2007, which allows prices to stray from the fundamentals for a longer period.

It is true that Britain is suffering from a housing shortage, which drove UK house prices to a record high of an average of £208,286 in December, but like all asset prices they are on borrowed time. The fundamentals of demand and supply in UK housing will undergo a huge shift in the year ahead.

Death of buy-to-let

A large portion of the demand for UK housing will fall away as the benefits of buy-to-let have effectively been killed off in recent budgets.

George Osborne slapped a huge tax increase on buy-to-let in the summer Budget, which will take effect from 2017 onwards. The removal of mortgage interest relief was the first stage and was followed by hiking stamp duty four months later in the November review.

This could prove a double whammy on the housing market, turning potential buyers into sellers, and flooding the market with additional supply. A survey of landlords suggested 200,000 plan to exit the sector. The rapid growth of buy-to-let during the past decade looks set to be slammed into reverse.

Overseas buyers strike

The UK property market has been a highly attractive place for wealthy individuals across the world to protect their savings. However, many of the biggest buyers have been forced out of the market.

Chinese buyers have been locked out by state controls which mean each person is restricted from taking more than $50,000 (£34,000) a year out of the country. The stock market collapse will also destroy wealth.

The Russians have also had their wings clipped as the country’s economy goes into freefall. The Russian ruble has collapsed in value by 50pc against the pound during the 18 months.

The oligarchs have also seen their wealth evaporate as their holdings in mining and oil companies slump in value.

The petrodollars from Saudi Arabia have steadily flowed into UK property for more than a decade, but the Gulf nation’s investors are now pulling those funds out at a rapid rate to support the economy at home.

A fire-sale of assets is taking place to plug the largest recorded budget deficit in history. The shares will go first followed by the homes.

Interest rate shock

Interest rates have been held at emergency lows in the UK and US for around six years. The US has moved first, with rates rising to around 0.5pc last month. UK rate rises are expected to follow shortly after.

The impact on the cost of mortgages will be dramatic. An entire generation of homebuyers don’t know what an interest rate is. In the US following the December rate rise the cost of mortgages has soared by 50pc. The current market expectation is for the interest rate to rise four more time to about 1.5pc by the end of the year, or some 300pc higher than its current level.

Drowning in debt

UK households are simply drowning in about £40bn of debt according to the latest figures from the Office of Budget Responsibiliity. When budgeting is this finely balanced , it doesn’t take much to tip it over the edge.

The UK economy is weighted towards financial services and a collapse in markets could cause a painful correction.

Britain’s housing market has defied gravity and logic for far too long. Government intervention by way of cheap help-to-buy loans allowed it one last hurrah, but the limits of state intervention are being brutally exposed in China, the UK is no different.

Global asset price crash

Asset prices around the world soared as central bankers embarked on the greatest money printing experiment in history. While much of that money flowed into the stock market, a great deal also found its way into house prices. What we are now witnessing on trading screens around the world is the unwinding of the era of monetary excess, and house prices will not escape the fallout.

The end of easy money began when the US stopped its third quantitative easing programme in October 2014. That date marks the point the US balance sheet, or amount of money in the system, stopped rising, having soared from $800bn in 2008 to more than $4 trillion.

Without an ever-increasing supply of money the world economy is now slowing sharply.

The first assets to be impacted by the downturn were commodities. The price of things such as oil are set daily in one of the largest and most highly traded markets across the world and as a result it is highly sensitive to any changes in demand and supply. Admittedly there are also supply-side factors impacting the oil price, but the weak demand from a slump is still a major factor.


RBS cries ‘sell everything’ as deflationary crisis nears

Clients told to seek safety of Bunds and Treasuries. ‘This is about return of capital, not return on capital. In a crowded hall, exit doors are small’

RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.

The bank’s credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman crisis in 2008. “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note.

Andrew Roberts, the bank’s research chief for European economics and rates, said that global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings. This is particularly ominous given that global debt ratios have reached record highs.

China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldlocks love-in’ of the last two years,” he said.

Mr Roberts expects Wall Street and European stocks to fall by 10pc to 20pc, with even an deeper slide for the FTSE 100 given its high weighting of energy and commodities companies. “London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” he said.

Brent oil prices will continue to slide after breaking through a key technical level at $34.40, RBS claimed, with a “bear flag” and “Fibonacci” signals pointing to a floor of $16, a level last seen after the East Asia crisis in 1999. The bank said a paralysed OPEC seems incapable of responding to a deepening slowdown in Asia, now the swing region for global oil demand.

Morgan Stanley has also slashed its oil forecast, warning that Brent could fall to $20 if the US dollar keeps rising. It argued that oil is intensely leveraged to any move in the dollar and is now playing second fiddle to currency effects

RBS forecast that yields on 10-year German Bunds would fall time to an all-time low of 0.16pc in a flight to safety, and may break zero as deflationary forces tighten their grip. The European Central Bank’s policy rate will fall to -0.7pc.

US Treasuries will fall to rock-bottom levels in sympathy, hammering hedge funds that have shorted US bonds in a very crowded “reflation trade”.

RBS first issued its grim warnings for the global economy in November but events have moved even faster than feared. It estimates that the US economy slowed to a growth rate of 0.5pc in the fourth quarter, and accuses the US Federal Reserve of “playing with fire” by raising rates into the teeth of the storm. “There has already been severe monetary tightening in the US from the rising dollar,” it said.

It is unusual for the Fed to tighten when the ISM manufacturing index is below the boom-bust line of 50. It is even more surprising to do so after nominal GDP growth has fallen to 3pc and has been trending down since early 2014.

RBS said the epicentre of global stress is China, where debt-driven expansion has reached saturation. The country now faces a surge in capital flight and needs a “dramatically lower” currency. In their view, this next leg of the rolling global drama is likely to play out fast and furiously.

“We are deeply sceptical of the consensus that the authorities can ‘buy time’ by their heavy intervention in cutting reserve ratio requirements (RRR), rate cuts and easing in fiscal policy,” it said.

Mr Roberts said the tightening cycle by the Anglo-Saxon central banks is already over. There will be no rate rises by the Bank of England before the downturn hits, and the next action by the Fed may be a humiliating volte-face and a rate cut.

RBS is not alone in fearing trouble. UBS issued what it called a “significant change” to its house view late last week, saying policy chaos in China had unsettled markets. It cut exposure to equities from overweight to neutral on a “six-month tactical horizon”. It went underweight emerging markets.

UBS said it is a precautionary move, insisting that the current global credit cycle has not yet peaked. Low oil prices should ultimately feed through to higher consumer spending and boost growth.

Larry Summers, the former US Treasury Secretary, said it would be a mistake to dismiss the current financial squall as froth. Markets often sense a gathering storm when policy-makers are still asleep at the wheel. He has long argued that the world economy is so far out of kilter that it takes permanent financial bubbles to keep growth going, an inherently unstable structure.

Yet there is something strange about the latest events. Austerity is finally over in Europe and fiscal policy in the US this year will be expansionary.

China’s slowdown hit its bottom in June and a fitful recovery has been building, driven by extra budget spending and credit growth. While the composite PMI indicator for manufacturing and services slipped back last month, it is still higher in the summer.

David Owen, from Jefferies, said there is a “weird disconnect” between the economic fundamentals and the market malaise.

“There is no evidence of anything rolling over in the US. Europe is clearly recovering and the M3 money supply in Germany is growing at almost 10pc, which normally means stronger activity,” he said.

Bank of America said panic selling had triggered its “contrarian buy signal”, since 88pc of global equity indexes are now trading below their 200-day and 50-day moving averages. The “Bull & Bear” index is at an ultra-negative level of 1.3.

It said a “big tradable multi-week rally awaits” but requires catalysts, above all a stabilisation of the Chinese yuan and oil, better PMI data and a halt to the rising dollar.

The risk is that this market storm drags on long enough to hit investment, regardless of what the economic data should imply. At the end of the day, market psychology can itself become an economic “fundamental”.

Pessimists warn that unless there is a batch of irrefutably good data from China over the next two or three months, the sell-off could become self-fulfilling and quickly metamorphose into the next global crisis.




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