Property News

Tories will put pledge to scrap HIPs in manifesto

Friday 10th July 2009

The Conservatives' promise to scrap HIPs immediately they get into power is to be in the party's general election manifesto.

The news was revealed by shadow housing minister Grant Shapps in a meeting with the chief executive of the NAEA, Peter Bolton King, and president Gary Smith.

Smith said of Shapps that he was extremely well briefed and that his approach "was in accord with ours on virtually every point" raised in the meeting.

Shapps also confirmed that the Tories will retain Energy Performance Certificates, whilst making them less bureaucratic.

He did not, however, offer any support for compulsory licensing of estate agents, letting agents and landlords. Smith said it was made clear that the Tories favour self-regulation. Only if circumstances necessitated regulation in the future would licensing be considered, but even then it would be a 'light touch' approach.

Other subjects discussed at the meeting included the difficulties of home buyers in obtaining mortgages, rates on empty commercial properties, and the problems for private developers in raising finance for housing projects which could lead to a shortage of supply of new properties when the market picks up again.

Smith said: "We came away with the feeling that the points we raised had been listened to and understood, and where we believed action was required it would be carefully considered."

UK interest rates lowered to 0.5%

Source: BBC News 5th March 2009

The Bank of England has cut interest rates to 0.5% - a fresh all-time low - and says it will now boost the money supply to help revive the economy.

Interest rates have now been reduced six times since October, and the latest half a percentage point cut from January's 1% had been expected.

The Bank said it would expand the amount of money in the system by £75bn in an attempt to boost bank lending.

This policy, so far untried in the UK, is called quantitative easing.

Buying assets
Quantitative easing is the process of increasing the amount of money in circulation in an attempt to revive the economy.

While the Bank will initially add £75bn, Chancellor Alistair Darling has given it permission to extend this to up to £150bn.

The idea is that if the amount of money in the system is boosted, commercial banks will find it easier to lend.

Quantitative easing is sometimes incorrectly referred to as printing money, but the Bank will not expand the supply of money by making new banknotes.

Instead, it will buy assets - such as government securities (gilts) and corporate bonds.

Similar measures were implemented in Japan at the beginning of the decade and are considered to have had limited success.

'Pleasantly surprised'
BBC economics editor Stephanie Flanders said that while the initial size of the quantitative easing scheme was smaller than some analysts had expected, "it's a lot more than dipping their toes in the water".

"Those who feared that the Bank would defeat the purpose of the policy by doing it only half-heartedly may be pleasantly surprised," she said.

Philip Shaw, chief economist at Investec, said that quantitative easing "should in principle encourage the banks to lend to private sector agents such as households and businesses, stocking monetary growth and stimulating activity".

Mervyn King, the Bank's Governor, sought permission from the Chancellor to start quantitative easing in a letter on 17 February.

In his reply, Mr Darling said that in the "current circumstances" the measures were now "appropriate".

Both letters were released on Thursday.

Rate cuts attacked
Business groups have attacked the recent cuts, saying they have done little to encourage banks to lend more.

Others argue that they are unfairly hurting the returns of savers.

"Today's decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further," said Adrian Coles, director general of the Building Societies Association.

The Council of Mortgage Lenders (CML) said the latest cut would be a "double whammy for prospective mortgage borrowers".

"This latest cut presents immense challenges for lenders whose margins are already squeezed as a result of previous reductions, leaving little scope to lower discretionary mortgage rates further," said CML director general Michael Coogan.

"Savings are the lifeblood of mortgage lending, and unless lenders can offer competitive rates to savers their ability to offer new mortgages is restricted."

Ian McCafferty, CBI chief economist, said the continuing rate cuts were "becoming less and less effective as a means of stimulating the economy".

"Though this latest cut will help support business and consumer confidence, it is unlikely to have a dramatic impact on the cost or availability of credit," he said.

The Bank has had the room to cut interest rates because inflation has fallen on the back of reduced energy costs.

The most recent official figures showed that consumer prices index (CPI) inflation fell for the fourth month in succession in January to 3%, from December's 3.1%.

However, CPI inflation still remains above the government's 2% target.

Interest rates hit all-time low

Source: BBC News 8 January 2009

The Bank of England has cut interest rates to 1.5%, the lowest level in its 315-year history, as it continues efforts to aid an economic recovery.

The half percentage point reduction brings interest rates below 2% for the first time since the Bank of England was founded in 1694.

Manufacturers' association EEF said the move was "too timid", and that the Bank should have cut rates further.

The Bank has now reduced rates four times from October's 5% level.

Explaining its decision, the Bank said the level of contraction in business activity had "increased during the fourth quarter of 2008, and that output is likely to continue to fall sharply during the first part of this year".

It added: "Surveys of retailers and reports from the Bank's regional agents imply that consumer spending has weakened."

Sit tight?
BBC economics editor Hugh Pym said the Bank was now being more cautious after the sharp cuts in interest rates in November and December.

"There is a hint in its statement that it may sit tight for a while to assess the impact of the big reductions over the last couple of months," he said.

Hetal Mehta, senior economist from the Ernst & Young Item Club, said the cut to 1.5% was "appropriate", but that the Bank should not stop there.

"With survey data continuing to languish at record lows - manufacturing and services surveys in the past few days have confirmed that activity is falling sharply - we see no reason for the Bank to hold back in cutting interest rates to 1% or below in the coming months," she said.

Mortgage impact
Most mortgage customers with tracker deals will automatically have the cut in interest rates passed on to them by their bank or building society.

Customers with an average £150,000 repayment mortgage will see their monthly bill drop by £46.

Those tracker deal customers with a £250,000 mortgage will see their monthly payments drop by £76.

But those on standard variable rate deals must wait for a decision from their lender.

While Lloyds TSB, HSBC, HBOS, Nationwide, and Skipton Building Society have already said they will pass on some or all of the reduction, most of the other lenders are currently saying their rates are under review.

The pound, which has fallen in recent months, rose to a three-week high of 1.1198 euros following the rate cut, before slipping back slightly to close at 1.1077 euros. It ended slightly higher against the US dollar at $1.5176.

Societe Generale economist Brian Hilliard said the pound's recent sharp fall was likely to have played a part in the Bank's decision to cut rates by no more than 0.5 percentage points.

London shares closed almost unchanged following the Bank decision, with the FTSE 100 index ending down just 0.05% or 2 points at 4,505.

Redundancy woes
The latest cut in interest rates comes amid further signs that some firms are continuing to struggle.

Nissan said on Thursday that it is cutting 1,200 jobs, or a quarter of the workforce, at its Sunderland factory due to falling sales.

And the administrators of music, games and DVD chain Zavvi have closed 22 of the firm's stores with immediate effect, at a cost of 178 jobs.

It comes two days after the last remaining Woolworths shops closed their doors for the final time.

However, not all companies are struggling. Sainsbury's has reported its "best ever Christmas performance", saying sales rose 4.5% in the 13 weeks to 3 January compared with a year earlier.

Injecting money?
The Bank's latest rate reduction comes as the Treasury has denied reports it is planning to inject more money, a policy known as quantitative easing.

A number of newspapers said the step was being considered once interest rates fell close to zero as a tactic to help both stimulate the economy and avoid deflation.

Treasury sources said that while the move had not been ruled out, it was not currently on the agenda.

Institute of Directors chief economist Graeme Leach said the MPC's apparent caution in not cutting rates further this month "highlights the uncertainty over what effect the existing monetary and fiscal stimulus will have on the economy".

He added that there also seemed to be uncertainty over "whether or not the Bank of England should go nuclear with limited printing of money or thermonuclear with extensive printing of money".

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