• From Cambridge to Cardiff the sabers are rattling in anticipation of an increase in council tax for 2012/2013.
• Eric Pickles has been banging a big drum to get councils to continue the freeze on the rate of council tax at last years level.
• Council tax bills at 150 local councils may remain frozen as they have indicated they intend to comply with Erics request for restraint.
• Council tax bills more than doubled since 1997 but there were large payroll costs to fund.
• Is Pickles a big bully or just one of those adjectives? The answer may depend on your political persuasion.

For more information on UK Council Tax read;

What is UK Council Tax

Saving Money on Council Tax

Ways to Save Money on Council Tax

• Live in an area where council tax rates are low, council services are run on the basis of good value or where the government subsidy is high.
• ‘If you’re on a low income, whether you’re working or not, and need financial help to pay your Council Tax bill, you may be able to get Council Tax Benefit. Find out more, including who is eligible and information about the Second Adult Rebate’ from Directgov
• Most students do not need to pay council tax
• If you live alone you are entitled to get a 25% discount.
• If the house is empty for renovation you can claim an exemption for up to 12 months.

Read What is Council Tax and for more Saving on Council Tax

Macro Optimistic View

• We are generally fit and raring to go! We have survived all the economic gloom, bank lending and house pricing issues and bungee rope action over the last decade.
• 2012 is an Olympic year, a leap year and a presidential election year in the United States of America. Some good will come out of all three activities but mostly from the later whoever wins.
• The big society is, and for a long time, has been fit and well! With notable exceptions people are not generally self-serving only acting out of their own interests.˜

Micro Optimistic Views

• October and November 2011 were good months for a rise in new home loan approvals and fewer remortgages. This is despite a deterioration in the wholesale funding market. The message may be getting through
• The housebuilders have set ambitious business plans.
• Tax receipts were up 7% in 2011 a bit below target but well ahead of previous years. We need more economic effort from HM Government but there is light at the end of the tunnel.
• The UK has ridden the storm better than most countries in Europe and we have an opportunity to forge ahead whilst the rest of Europe worry about the politics of the Euro.
• North American employment, housing and economic data has started to show slight improvement and is at the worst bottoming out. Where USA lead hopefully the UK can follow.
• Many believe the UK stock market is very good value at the moment.

How to Deliver This Optimistic View

• The government must retain and if necessary strengthen its resolve.
• Energy should be focused on empowerment and protection of the people not on the administration or knee jerk policies.
• Set backs should be treated as just that -’a set back’. The sky is not going to fall in, mixing metaphors the dark clouds will disperse.
• In the words of Lord Monty Python – ‘Always look on the bright side of life’.

˜ ’23 Things they don’t tell you about Capitalism Ha-Joon Chang’ (Thing 5) Assume the worst about people and you get the worst.Amazon

International Optimism

• In the last quarter 2011 the USA has produced better statistics for construction, employment and the housing market, than for sometime.
• BIRC countries have resources they are still to tap. Venezuela now has more oil reserves than any other country and the middle east may need to increase foreign earnings keeping oil prices down.
• Resolving the Euro crisis, in whatever manner, will lead to a new found stability. It may take sometime but by the end of 2012 the way forward will be crystal clear.
• Foreign investment into the UK will continue to bolster London housing market prices (and football clubs).

UK Housing Market Optimism

• Demand continues and the damn caused by financial blockages will break during 2012
• Slow and weak though they may have been a range of government initiatives will start to have a positive effect during the coming year
• Price expectations for 2012 are lower than this time last year and a further drop will make more property more affordable and fundable.
• Savings are set to increase during 2012 yet the stock market is not ready to provide an adequate return. Property investments may be one of the big winners and are worth a concerted look.
• Expect new property investment products to become available.
• The Olympics and the Queens Jubilee will enhance the feel good factor.

Political Optimism

• UK politicians may not be the best in the world but they are our politicians.
• Grant Shapps is trying (some think very trying) but at least there is energy in the ministry.
• Social housing will not be left behind whilst the Libdems and Ian Duncan Smith have any say in social policy.

Housing Market Predicts an Optimistic Mood

• Optimism can be a self-fulfilling philosophy – many people will be ready to switch to a positive view mid-way through 2012.
• The UK has a property owning culture and renting is pricing itself out of some of the market.
• The finance industry needs to reestablish sound and growing streams of income from asset based lending. As the year settles down mortgages should be progressively easier to find.
• Savers are due some reward for the pain they have recently suffered. Tax breaks may soon follow.
• The sky is not going to fall in! Unemployment, inflation and interest rates may continue to rise but life and housing will survive.

Overview

• Housing is the biggest component of most household’s wealth.
• Therefore it has a big impact on the economy.
• The UK has one of the highest rates of property ownership. (in the UK. was a mistake ed.)
• Property has for half a century been a store of wealth and an investment proposition.
• Construction, refurbishment and related services depend on the demand and trading of properties.

Feel Good Factors

• The demand for all individual goods and services is also combined and referred to as aggregate demand.(AD)
• If there is  an increase in the activity around the housing market then there will be a positive wealth effect as people enjoy capital gains. This will lead to an increase in AD, because people are more confident about the economy.
• Some people will re-mortgage their house or take equity withdrawal to spend more money.
• An increase in AD is likely to cause an increase in Real GDP. The multiplier effect, government policy and the current international economic situation are crucial.

When House Prices Fall.

• The first effect of falling house prices is to directly reduce the wealth of homeowners (wealth is different to income). A fall in house prices reduces consumer confidence which leads to lower levels of spending, investments and borrowing.
• Equity withdrawal has played a significant role in boosting consumer spending in the UK. Falling house prices  brings to a halt to this ‘easy cash’ , thus consumer spending will decrease.
• Any fall in house prices is likely to receive significant press coverage.  The media magnifies the effect on consumer confidence. If people believe house prices will “collapse” it will deter many from buying, and therefore, the fall in house prices will be greater.
• A fall in house prices will reduce consumer spending and AD in the economy. Therefore, this could lead to lower growth or even contribute to a full blown recession (negative economic growth for 2 consecutive quarters)
• Due to the importance of housing to the UK economy it is quite possible falling house prices could cause a negative multiplier effect and lead the economy into recession.
• A positive impact of falling house prices is that it should help to make buying a house more realistic for first time buyers. The last decade has seen the ratio of house prices increase much faster than incomes. The effect of this is that many first time buyers struggle to buy.

When Prices Rise Again

• A virtuous circle of demand led investment and building will boost the economy.
• Even a small increase will remove the fear and consequences of further reductions.
• An increase in house prices will cause an increase in the cost of mortgages and therefore will lead to an increase in the RPI.
• The increase in AD could cause demand pull inflation, However  it will depend upon the slope of the Aggregate Supply curve and other factors in the economy.
• The Bank of England Monetary Policy Committee is responsible for setting interest rates. It is committed to keeping inflation within  target but is currently struggling.

Sources

House Prices UK

Mortgage Guide UK

‘DVS is the commercial arm of the Valuation Office Agency (VOA) and provides professional property advice across the public sector. They offer a broad range of property-related services, including Strategic Asset Management and Energy and Sustainability services.’ A quango for sale???

In the last report January 2011, they highlighted little national movement in residential land values except in London as the table below shows.

Prediction of Future Land Values

• Excluding London, land values are 5 times those average values of 1993. Further more they are down a third since the peak values of 2007. (Page 13 Property Market Report 1 january 2011)
• Freeing councils to give easier planning permission will hold or depress residential land values. We think this could be true for  5 more years.
• The M4 corridor, Edinburgh, Aberdeen and London already experience a significant premium. In our opinion this premium will remain but with a lower differential.
• Stoke, Wrexham and other areas with low economic activity will take some time to recover to the 2007 levels.
• Stock held by builders and developers has been squeezed by the lack of investment cash but easing of this constraint and an increase in new build will see a return to bigger development land banks.

Investment Opportunities

• Price corrections can provide an investment opportunity.
• Housing demand is not going to be satisfied in the short term but builders are looking to keep improving their margins considerably. Their shares may now be good value (12 Aug 2011).
• There are uncertainties about the impact of government policy on housing and planning.
• It may be too early in the economic cycle to halt the decline in land values and direct investment may be considered a risk.
• Location remains the key and good parcels of land particularly near growth industries like tourism may be good value.

Taking Equity Out of Property

• Downsizing reduces maintenance costs and the work of keeping up to a large property. It also provided cash to spend.
• Equity release schemes for the over 60′s have been widely available and aggressively marketed.
• Home reversion plans involve selling a percentage of your home for a lump sum and a lifetime lease.
• As house prices increased owners took advantage by re-mortgaging their house to generate extra disposable income.

Equity Withdrawal Now

• The property price slump has taken the froth from the equity withdrawal market.
• Inheritance is a key form of equity withdrawal as the ‘inheritance generation’  are in a position to reinvest funds for children or on second properties.
• Second or top up  mortgages have become harder to find but low interest rates still make equity release schemes seem attractive.
• Negative equity makes equity withdrawal impossible.
• Lower notional equity, less funding and a more cautious approach to the economy have slowed the Equity Withdrawal market to a crawl.
• Repaying mortgages rather than extending them had reversed the withdrawal and equity is growing by debt repayment to offset falls in valuation.
• Economics takes a stance on Equity withdrawal as discussed by the Bank of England below.

Economic Equity Withdrawal

According to the latest figures by the Bank of England ‘the fall in housing equity withdrawal (HEW) – and move to injections of housing equity – since the financial crisis is likely to reflect a fall in the number of housing transactions’.

‘The stock of housing equity is the proportion of housing wealth which does not have lending secured on it. In other words, the stock of housing equity equals the stock of housing wealth minus the stock of lending secured on housing.  The stock of housing equity can change in three main ways:
1. Changes in the stock of secured lending when households take out or repay debt;
2. Changes in the stock of housing wealth, e.g. when new properties are built or improvements are made to existing properties,
3. Revaluations of the stock of housing wealth due to changes in house prices.

The balance of the first two ways of changing equity, i.e. excluding revaluations, in each period is classed as housing equity withdrawal (HEW).

When households, in aggregate, are withdrawing more equity than they are injecting, HEW is positive. When they are injecting more than they are withdrawing, HEW is negative.

For background read;   Equity Release Mortgages and  Equity Withdrawal

Owners These are pure investors, whose chosen investment is property from which they wish to make an income from rentals or a gain on capital sale. Typically they rent out or lease the property to someone else. They do not consume in an economic sense.
Owner/Residents These people are both owners as well as residents or ‘tenants’. They buy to live in or utilise the property as a business.
Renters These people are pure consumers. They may have short or long term horizons which impact on their emotional investment in the property.
Developers Speculate on land for building which results in new products for the market. They may stimulate demand or exploit existing demand. Builders and constructors are a tool of the developers.
Renovators Are suppliers of refurbished buildings to the market. They repurpose or revitalise properties that can no longer satisfy the market.
Facilitators or Intermediaries Include  lawyers, agents and others that facilitate the purchase and sale of property.
Financiers Banks, building societies and other lenders are key players in the property markets

Economics of Property in a Recession

• The demand side of the market, owners and renters, are frustrated by the lack of supply of fundable property.
• Demand is pent-up and will need to be satisfied by new product in terms of finance and property offerings.
• Unusually despite significant demand the price of property continues to stagnate. This will only be reversed when there are financial resources available to consumers.
• Supply has been modified to meet current resources. There is more property sharing, less mobility and economic prudence is prevailing.
• New supply of property can be inspired by government intervention. Various routes and options are available.
• Developers and constructors need finance as property lead times consume cash prior to sale.

For more reading see Intermediaries, Principals and Government in the Housing Market

If you would like to advertise on housingmarket.org.uk/ we sell advert space at £25 a month for a banner 235*105 (or similar size) with link to site in sidebar.

You may also be interested in www.economicshelp.org or www.mortgageguideuk.co.uk/

Note we do not sell text links.

If interested please contact

Improve Housing Supply

• Sell parcels of public land with planning permission attached.
• Incentivise house builders to build ‘first time homes’. They have fixated on more upmarket properties with higher prices and higher margins to help their stock market price.
• Cut planning lead times. It takes a builder on average 15 months to get planning permission and the Government’s promised 12 months is still far too long.
• Incentivise the ‘Granny Flat’ to encourage splitting homes into more properties.
• Penalise empty property and bring it back into use.
• Promote, support and encourage multiple occupation.
• Reward innovation especially on larger schemes
• Fund more shared equity schemes on MOD land and other publicly owned property.

Assist the Demand for Housing

• Fix the broken mortgage market;
  • Ease the capital requirements placed on lenders after the last financial shambles.
  • Consider a mortgage guarantee scheme that removes marginal risk from lenders. It is only what the bank bail out did big style!
  • Maintain the low interest rate economy until the economic confidence is fully recovered and the market is in full swing. Do not dowse early recovery with fiscal shocks.
  • Set up ‘Building societies’ they used to work when the function was to protect savings and lend on sound mortgages. Then they became complex, financial, mis-managed monsters.
• Provide confidence that the market has bottomed out and further falls will not financially damage new buyers.
  • A construction boost on new build will improve the economy and become a self fulfilling act.
  • Promote a healthy well established housing market and stop doom-saying and running down the future.
  • Encourage new buyers with tax incentives on interest payments.
• Educate and teach a new generation about renting and ownership.
• Incentivise landlords to invest in quality improvements to housing stock.

Look After The Young

• In the last year Citizens Advice Bureaux across England and Wales dealt with over 700,000 problems from people under the age of 25. There has been a significant increase in housing issues during the year.
• As suggested above the education system is failing the current and next generation. Financial products have been allowed to become very complex and there is no base line even from parents and teachers to guide the younger generation. Government should put this right.
• Make benefits and housing incentives simple and focused on the under 30′s.
• Demand for rented property is going to push up rents in the short term. Increasing housing stock and access to funding is crucial.

Comment From Housing Market.Org

• The demand is there but it needs servicing. In the past this servicing has become far too profit centric and owes nothing to social needs. Time to put that right.
• The public are still angry about our investment in the failing banks and the banks must honour the commitments to put lending back on a firm and fair footing. There is no sign of this at the moment.
• Construction needs a boost that will filter down into the whole economy. Too many gate keepers, bureaucrats, petty restrictions and jobs worths in the planning process are holding the sector to ransom.
• More freedom and support for builders, lenders and landlords should also be coupled with appropriate taxation and controls.
]]> http://www.housingmarket.org.uk/forecasts/quick-fixes-to-improve-housing-market/06/feed/ 0 http://www.housingmarket.org.uk/mortgages/interest-rates/is-it-time-to-fix-your-interest-rate/05/ http://www.housingmarket.org.uk/mortgages/interest-rates/is-it-time-to-fix-your-interest-rate/05/#comments Thu, 26 May 2011 09:15:46 +0000 hortoris http://www.housingmarket.org.uk/?p=936 A question that needs to be kept under review but is difficult to answer categorically.

Traditional Mortgage Interest

• My main mortgage was repaid during an era when there was little or no choice in the way repayments were calculated. Most mortgages had variable rates and there was no confusing choice and no extra charges every few years.
• Endowment mortgages had to pay the interest at the rate ruling and keep building a fund to repay all the capital at the end of the mortgage period but that was the main alternative option.
• Interest rates did vary and increases were painful but if I could afford to maintain payments when rates fell it quickly reduced the amount outstanding and cut the mortgage term (in my case from 25 years to 19).

Current Options

• The last few decades of dramatic increased ‘flexible’ lending packages and deals were not created for the borrower. The products with short term fixed rates or variable rates with revue options were designed to boost (post privatisation) profits.
• Your options are also in the thrall of the profit orientated financial institutions who still have a risk averse culture following the last few years trauma.
• The economy is the other driving factor on the cost of your loan. Inflation has risen but wage inflation has generally lagged behind. Increased interest rates may help moderate inflation but will slow the already sluggish economic recovery. Current views are that rates and increases will not leap ahead due to the fragile economy.
• Will rates increase? The answer is yes at some point and to some level but how far and how soon is speculative.
• Fixed rate deals seem cheaper now than a few months ago but that may be down to supply and demand and the need to ‘churn’ deals to get the arrangement charges.

Comment

• Make haste slowly. You are in it for the long term and want to get a mortgage free property as soon and as economically as possible without taking risks.
• Look at your options quarterly but if you decide or are forced to make a choice consider opting for the longest deal you can get.
• Look a financial gift horse in the mouth. By that I mean consider all the costs, charges, options and other factors as well as the headline interest rate.
• Where you can, pay down your mortgage for long and short term peace of mind.
• Beware of macro economic events that can disturb the markets. Down grading UK credit rating, USA protectionism, Euro zone problems, Middle & Far East crises even the  volcanic ash clouds can cause turmoil.

To avoid ending on a low note remember ‘Just as you were getting used to yesterday along comes today- may you live in interesting times’

It may not be the time to fix your interest rate but it could be the time to check your mortgage insurance.

]]> http://www.housingmarket.org.uk/mortgages/interest-rates/is-it-time-to-fix-your-interest-rate/05/feed/ 1