Oct
31
Figures released today by the Nationwide Building Society show house prices rose by 2% in October, taking the average house price to £131,947, an increase of 16.1% year on year and is said to have been fuelled by a resurgence London house price growth.
The increase is the largest for 14 months and has led to Nationwide increasing their estimate for the year from 13% to 15%.
Earlier this week, Hometrack, the property website, announced that house prices rose 0.4% in October pushing the average price up to £145,900. More importantly, the sale price as a percentage of the asking price rose for the fourth month in a row to 95.1%, suggesting that buyers are finding it harder to negotiate deals.
According to Hometrack’s economist John Wrigglesworth, “The housing market is heading for new heights. There is no doubt that the year is finishing with new house price highs”.
But an increase in house price inflation is a double edged sword for homeowners with mortgages. Whilst it certainly increases the equity they have in their homes, it also makes an increase in the base rate by the Bank of England Monetary Policy Committee (MPC) next week even more likely.
At the October meeting earlier this month, rates were only kept at 3.5% due to the casting vote of the Governor, Mervyn King. But recently he has been making hawkish statements signalling that he sees rates increasing. The result being that a quarter percentage point (25 basis point) increase is expected at the conclusion of the monthly two day meeting next Thursday.
The money markets are currently pricing in a 50 basis point increase in the base rate by April next year, taking the base rate to 4%. After that they expect the rate to hit 5% by 2005.
Whether this will dampen enthusiasm in the housing market is a subject hotly debated with economists split into two camps. Whilst some are forecasting a housing market slump more devastating than that witnessed in the late 80s and early 90s, others feel that even a 5% base rate will only marginally impact on the ever skyward trend of house prices.
Whichever camp you fall into, there is one constant. Higher interest rates mean it is going to be more expensive to service your debt.
Oct
30
More Choice for Energy Debtors
Filed Under Debt Advice, Living Expenses | Leave a Comment
Energy suppliers have voted in favour of regulatory changes which could benefit up to one million customers in debt to their energy supplier.
Energy Regulator Ofgem asked suppliers to vote to accept the regulatory changes after a three month trial involving the major suppliers, including British Gas, Powergen, London Electricity, SWEB and Scottish and Southern, and will build on a protocol already agreed with suppliers.
The protocol, which will come into force next February, will bring an end to the problems faced by those customers on prepayment meters who have debts of up to £100 and want to transfer to another supplier.
In the past they have been prevented from moving to a new supplier because of the debt, which has meant that they’ve been unable to benefit from the competitive energy market. Now that barrier has been removed and these customers will be able to save money on their bills.
“Ofgem has been pressing energy suppliers for some time to widen the opportunity to switch and to make this change permanent”, said Ofgem’s Managing Director of Customers and Supply, John Neilson. These changes demonstrate that Ofgem is committed to working with industry to remove barriers to consumers enjoying the benefits of the competitive market. I very much hope consumer groups will now work with Ofgem to publicise this new opportunity, so that many customers take advantage of this new chance to switch to a better deal”.
Oct
29
Figures released from the British Bankers’ Association showed that gross mortgage lending hit a new high of £16,917 million in September.
The combination of continued buy-to-let investment and equity withdrawal has helped keep both house prices and consumer spending at record levels.
With consumers unwilling to reign in their credit-financed shopping frenzy, it could be only days before the Bank of England increases interest rates for the first time in nearly 4 years and signals that it is time to pay for the credit party.
The Bank of England’s Monetary Policy Committee (MPC) meet next Wednesday and Thursday to decide whether they should increase the base rate or keep it on hold. Minutes from October’s meeting showed that 4 of the 9 members voted for a rate increase, revealing that rates were held at 3.5% only by the slimmest possible margin.
Now one month later, with strong sales data and growth predictions looking like they may be met, the possibility of a rate hike looks even more certain. Though whether the MPC want to be seen as the guys who cancelled Christmas is another matter.
The money markets, however, have been pricing in a higher base rate for weeks, so much so that many mortgage lenders have been pulling their existing fixed rate mortgage products.
On Monday Nationwide joined a growing list of lenders as it too increased the rates on a range of its fixed mortgages. Tuesday saw Bank of Ireland Mortgages withdraw its fixed rate mortgage products.
Whilst commentators debate whether the base rate will hit 5% or 5.5% by 2005, homeowners are stampeding to refinance with a fixed rate mortgage. A practice that is now a more expensive proposition.
But fixed rate mortgages typically come with higher application fees and initial interest rates, which can still make them more expensive than a variable or discount mortgage exposed to a gradually increasing base rate. So any decision of which mortgage to choose should be based on how pessimistic you are about interest rates over the next 24 months and not to grab the first fixed rate deal you find.