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RICS: Housing Market Boost Running Out of Steam

Tuesday, May 8th, 2012 10:18

The latest UK Housing Market survey by RICS has indicated that the UK residential property market is running out of steam with property prices in April dropping slightly.

The nationwide survey revealed an increase of 19% in the amount of chartered surveyors who were reporting falls in property value. The same survey also shows that the expectations for future house prices have hit their lowest level so far this year with a net balance of 17 percent more respondents predicting further drops (from -3 percent).

April was a quiet month with the demand from potential property buyers dropping (5% increase on the amount of surveyors reporting new buy enquiries, down 5% from March.) New instructions, considered a good indicator as to the supply coming onto the housing market, was stable once again with an increase of 1% in the amount of respondents who indicated falls in the amount of new homes appearing for sale. Although considered flat the level of supply has not seen any significant drops since July of 2011.

Following the upturn in activity seen towards the expiry of March’s stamp duty holiday, in April transaction levels entered negative territory for the first time since September, as six percent more respondents across the UK reported decreases rather than increases in transaction levels.

Across the UK, London was again the only part of the country to see prices rise, albeit at the slowest rate since the middle of 2011, while the West Midlands and Wales saw the most significant declines with net balance readings of -43 and -39 percent respectively. Looking ahead, while surveyors’ predictions for future prices saw a notable dip, expectations for transaction levels once again remained positive with a net balance of +15 percent more respondents expecting sales to rise over the coming three months.

RICS housing market survey is the longest running monthly survey of house prices in the UK, collecting data since January 1978.  The survey is cited by the Bank of England’s monetary policy committee at its monthly interest rate setting meetings.

Peter Bolton King, RICS housing spokesperson said:

“With the recent surge in activity brought on by March’s stamp duty holiday coming to an end, it is unsurprising to see that prices across much of the country are continuing to fall.”

“Renewed concerns over the economy and talk of a double dip recession dominating the headlines in recent weeks may well have served to undermine consumer confidence. What’s more, the continuing lack of affordable mortgage finance is still hindering many first time buyers who cannot afford to get a foot on the property ladder.”

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2013 to See Better Economic Growth

Wednesday, April 25th, 2012 13:33

Mark Berrisford-Smith, Head of Economics for HSBC’s UK Commercial Bank, addressed 50 delegates from the Bristol and Bath business and professional services community at the Bath Priory Hotel.

He has heralded 2013 as the year the UK returns to stronger growth, at an Economic Update breakfast event hosted by HSBC’s South West and Wales Commercial division and said that whilst consumer and business confidence is improving, 2012 is still set to be a slow year, with growth pinned at around 0.5%.

Next year is forecast to see a return to stronger, “better balanced”, growth, although he warned it was likely to be 2017 – 10 years on from the start of the credit crunch – before the UK will be fully recovered.

He said:

“In the past few months there has been a tangible improvement in the mood of both consumers and businesses in the UK.”

“Irrespective of what the official growth estimates may say, business surveys suggest strongly that a modest revival is underway in the private sector. But 2012 will be a tough year, with the economy only likely to grow by about 0.5%, and with the trend being somewhat lumpy and bumpy on account of the disruption to North Sea gas supplies, the extra Jubilee holiday, and the Olympic Games.”

“All being well, 2013 should see a return to stronger growth, of around 2%. Moreover, it is likely to be better balanced growth than the UK has been accustomed to during the past 15 years.”

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London Leading Private Rented Sector Investment

Thursday, April 19th, 2012 11:04

London continues to lead the way for Private Rented Sector investment appetite, capital value outlook and future income expectation reveals the latest Young Group Index.

Approaching half (46%) of Private Rented Sector (PRS) investors are considering purchasing additional PRS assets in London over the coming 12 months. Investment appetite throughout the UK strengthened during Q1 2012, but London assets clearly remain more appealing to investors than those outside the capital.

Among those not actively considering investing in the London market, the reasons given were overwhelmingly finance-related, rather than reflecting a lack of confidence in the market. This was not the case when investors were asked about investing in additional property assets outside of the capital, when concerns over future tenant demand and capital value prospects topped investors’ concerns.
Perhaps unsurprisingly, respondents believe that prospects for capital growth and rental income in London outshine those across the rest of the UK.

Capital Values
Over the past 18 months, respondents’ expectations of capital value movements have fluctuated somewhat. The massive polarisation between London and the rest of the UK shown in Young Index Q4 2011 has tempered this quarter. But positivity for London’s residential property values abounds; 85.4% of investors predict gains in the capital, compared to 41.2% for property outside London.
Property values in London are expected to increase by an average of 2.2% between now and Q1 2013, whereas investors predict that values across the rest of the UK will fall by 0.4% over the same period.

Rental Outlook
Following a dip last quarter, the number of investors predicting rent rises in London has increased once more. 92% of investors expect London rents to rise over the coming 12 months. Sentiment for the strength of the rental market in the rest of the UK is not as buoyant with 70% of investors expecting rental income to increase; 9% fewer landlords currently predict rising rents than in Q4 2011. Average rents across London are predicted to rise by 3.25% over the coming 12 months (up from the 2.39% forecast in Q4 2011), whereas investors expect rental income for the rest of the UK to remain largely unchanged (+0.7%).

Commitment to the PRS

Investors appear more committed to the Private Rented Sector than ever; a full 100% of respondents indicated that they have no intention of liquidating PRS assets over the coming 12 months. 30% of investors are intending to hold their properties for at least the next 20 years and 62.5% for at least the next 10 years. The average anticipated future hold period increased in Q1 2012 to 15.7 years, an increase from 13.2 years at this point in 2011.

Economic Outlook
At Q4 2011, 58.3% of respondents expected that the Bank of England Base Rate would remain static at the prevailing low of 0.5% (on a 12 month outlook). This figure has since fallen to 43.9% as confidence that a raise will not take place within the next 12 months has waned. However, it should be noted that of those who predict a rate increase, on average they expect it to increase fairly modestly – to stand at 1.25% by the end of Q1 2013.

Sentiment Snapshot
Long term focus…

  • 100% of landlords intend to hold their property for the next 12 months.
  • 62.5% intend to hold their property assets for the next 10 years or more.30% intend to hold their property assets for the next 20 years or more.
  • 15.5 years is the average future hold period that residential landlords expect to retain their property assets for.

Appetite for investment…

  • 45.8% of investors are considering purchasing additional residential property assets within London over the next 12 months.
  • 23.6% of investors are looking at opportunities in the UK outside of the capital.

Capital growth and income…

• 85.4% of respondents believe that London property values will be at current levels or higher by Q1 2013.

  • For UK property outside of the capital, 41.2% expect values to be at current levels or higher by this time next year.
  • 92.7% of respondents expect rental income in London to rise over the coming year.
  • 70.5% of landlords expect UK rents outside London to rise over the coming year.
  • Landlords expect capital values in London to see an average increase of 2.2% over the coming year with rental income increasing by an average of 3.2%.
  • The predicted 12 month outlook for PRS capital values outside of London UK is a drop of 0.4% and average rental income is expected to remain broadly static, increasing by an average of just  0.7%.

Future base rate expectation…

  • On average, landlord investors expect the base rate to be 0.85% at Q1 2013.
  • 43.9% of investors in the PRS expect the Bank of England base rate to remain static for the coming 12 months.

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Finance Bill Published By Government

Friday, March 30th, 2012 08:58

The Government has published a Finance Bill which will enact the tax measures announced in last weeks Budget and in the March 2011 Budget.

The Bill included the new measures which will help to maintain the Governments strategy to reduce the deficit. It will also promote the far-reaching tax reform, support growth and reward work:

  • increasing the tax-free personal allowance to £8,105 from April 2012;
  • reducing the additional rate of income tax to 45%; from April 2013;
  • broadening the tax base while simplifying the tax system;
  • tackling over £1bn of tax avoidance and evasion;
  • and cutting the corporation tax rate to 24% this year and 23% in 2013.

The Government has set about improving the way that tax policy is developed. As set out in our 2010 document Tax policy making, a new approach, we have committed to unprecedented levels of consultation and scrutiny. This Bill demonstrates this commitment. The measures in this Bill have, in the vast majority of cases, been through the proper tax policy making process:

  • over 75% of the clauses in this year’s Bill announced at Budget 2011;
  • over 400 pages of legislation for technical consultation were published in December 2011;
  • and the Government has received over 450 comments.

Since then the Government has met again with interested parties, considered their views and reacted to them. For example, the changes that wthe Government has made to the new Controlled Foreign Companies regime are the result of a year-long consultation to ensure they achieve the best policy outcome.

The Exchequer Secretary to the Treasury, David Gauke MP, said:

“This year’s finance bill shows just how committed the coalition Government is to rewarding work, simplifying the tax system and tacking the nation’s debts. The measures in this Bill will create a tax system which supports a strong economy and promotes a fair society. In other words, a tax system that works for Britain.”

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London and New York Remain Top Cities For the Rich

Thursday, March 29th, 2012 09:47

The latest Wealth report has revealed that London and New York will continue to remain the most important cities in the world for wealthy individuals for at least the next decade.

The report, which was compiled by Knight Frank and Citi Private Bank, also revealed that Beijing and Shanghai are seen by individuals with a high net worth as the most important up and coming cities in the world.

The research noted a clear shift in wealth towards Asia Pacific.

The newly wealthy from the world’s fastest-growing emerging economies rate stability, business transparency and education systems as the most important factors in a global city; prices of luxury housing in locations with this magic formula have been underpinned by their interest. 

In Europe, despite the past year’s continental recession, the main luxury market hotspots have remained relatively hot – eight out of 10 top locations in the Knight Frank Prime International Residential Index price rankings are in the UK, France or Switzerland.

Andrew Shirley, editor of The Wealth Report comments:

“This year’s Wealth Report contains even more evidence that the world’s wealthy are weathering the economic slowdown better than the wider population, and nowhere is this better reflected than in prime property markets.”

“Those markets considered “safe-haven” locations continue to attract private investors looking for both prime residential and commercial property. Political and economic uncertainty across the world is only helping to exacerbate the trend.”

“But it is not just property where HNWIs from fast-growing economies are making their mark. The Wealth Report’s Attitudes Survey reveals that they are playing an increasingly important role in the worlds of sport, fine art, wine, and philanthropy.”

Luigi Pigorini, CEO Citi Private Bank Europe, Middle East & Africa comments:

“Wealthy individuals and families, especially those originating from Europe, the Middle East, Africa and Asia, have become extraordinarily global in nature. Many seek the rule of law and stability that make the UK a top choice for investment. With English a popular second language and a relatively weak pound, the global wealthy have confidently focused their interest on London and the wealth preservation it can afford.”

“Investors seeking a more conservative strategy have gravitated toward high-quality properties in central business districts in cities such as Beijing, London, Munich, New York, Paris and Sydney.”

“Conversely, for those willing to accept more risk, high growth markets, such as Asia and Latin America, may be able to generate more attractive returns relative to the US and Europe. Investors must remain cautious as global economic growth will continue to influence all property markets, and investors should measure their yield and return expectations taking growth into account.”

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Two Glasgow Credit Unions Censured by the FSA

Tuesday, March 27th, 2012 10:08

Two credit unions in Glasgow have been censured by the Financial Services Authority for breaking lending rules.

Shettleston and Tollcross Credit Union were both found by the FSA to have made loans to its directors at better terms than what was available to customers.

Furthermore a third company, Pollock Credit Union, also based in Glasgow, provided large loans to a non-member which broke the “you must be a member to to obtain a loan” rule.

Tom Spender, head of retail enforcement at the FSA said:

“In these two cases a public censure was imposed however in different and more serious circumstances the FSA may have considered imposing a financial penalty as credit unions do not have immunity from our rules.”

“‘Credit unions are there to protect their members and we will not hesitate to take action where their interests are put at risk.”

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Buy to Let Landlords See Strong Yields From Rising Rent Prices

Monday, March 26th, 2012 09:37

New figures from BM solutions have revealed that a 4.8% growth  in the average monthly rent led buy to let helped investors across the UK to achieve a rental yield of 6.1% in 2011.

Average monthly rental prices rose from £682 to £716 due to strong demand from rental accommodation as people found obtaining a mortgage difficult.

While 2011 rental yields were marginally lower than the previous year (6.2%), they remained buoyed by continued rental increases across the UK.  Regionally, the highest rental yields in 2011 were in the North (7.0%), North West, Yorkshire and the Humber (both 6.3%), Wales (6.0%), West Midlands and the East Midlands (both 5.9%). Greater London (4.8%), South West (5.0%), South East (5.2%) and East Anglia (5.3%) all registered yields below the UK average.

Phil Rickards, BM Solutions, comments: 

“There is a very healthy demand for rental properties across the UK right now, which in part may be driven by the costs associated with buying a home: costs which, for some, will only increase as the stamp duty holiday comes to an end.  Average gross yields on a buy to let property have been just over six per cent for the past two years, driven by growth in rental values.”

“However, with house prices likely to remain broadly flat again this year, buy to let landlords can again expect little capital gain on their investment in 2012.”

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New Debt Management Guidance for Debt Management Firms

Thursday, March 22nd, 2012 10:57

Businesses who offer debt management advice or credit repair services to consumers have received revised guidelines from the OFT on the standards they are expected to provide.

The new guideance expands on previous verison and provides examples of what would be considered ‘unfair or improper practices’ which if a business were to engage in could end up with being considered unfit to hold a consumer credit licence and/or operate in the market.

Examples of unfair practices include:

  • Sending unsolicited marketing text messages, email or voicemails.
  • Providing inappropriate financial incentives to staff giving debt advice, which may encourage them to promote unsuitable debt management products for personal gain.
  • Making false or misleading claims regarding the status of the business, for example operating websites which look like the website of a charity or a government body.

Businesses will be expected to refer consumers to not-for-profit advice organisations for additional help, in certain circumstances, and are also expected to implement measures and systems to fully recognise and deal with more vulnerable clients, such as those with mental capacity issues.

The guidance itself has an overall theme of transparency, with businesses now expected to provide consumers with all the necessary information to enable them to make an informed decision in relation to finding the right debt management solution for their individual circumstances.

The guidance builds on enforcement action taken following a compliance review of the sector in 2010, which identified widespread concerns, including problems with advertising and marketing practices and the quality of advice given.

Following the compliance review, the OFT issued 129 warnings to debt management businesses. Since then, 87 businesses have exited the market, either voluntarily or as a result of enforcement action, and a further 67 warning letters have been issued.

David Fisher, Director of the OFT’s Consumer Credit Group, said:

“This new guidance clearly sets out the standards we expect from debt management businesses. All too often it may be particularly vulnerable consumers who fall victim to poor quality debt advice and we will continue to take action against businesses that fail to follow our guidance.”

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FSA Wins £32 Million High Court Judgement

Wednesday, March 21st, 2012 12:34

The FSA has secured a £32 million High Court judgment against three land banks but victims are unlikely to get their money back.

The Financial Services Authority (FSA) has won an important victory in the battle against unauthorised businesses after the High Court declared that James Kenneth Maynard, Countrywide Land Holdings Limited (Countrywide) and Plateau Development & Land Limited (Plateau) operated a collective investment scheme without authorisation and sold plots of land unlawfully to UK consumers. Regional Land and Countrywide were trading names used by Maynard.

His Honour Judge Pelling QC banned Maynard for life from selling land for business purposes in the UK and ordered him and Countrywide to pay £31,896,194 to the FSA, while Plateau, now in liquidation, was instructed to pay £918,975. 

A bankruptcy order was issued against Maynard, who is now believed to be living in Northern Cyprus and also another individual, Wasim Minhas, the director of Plateau, has been ordered to pay £75,000 to the regulator.

The FSA is yet to identy any assets that would enable more than a small proportion of these payments to be made, and therefore it is unclear how much will ultimately be returned to investors.  The FSA is continuing to make enquiries to trace the funds paid by investors.

Maynard, Countrywide and Plateau sold plots of land across the UK with the promise that investors would make a significant profit when the land obtained planning permission and was sold. Investors were also told by sales staff that Maynard, Countrywide and Plateau would apply for planning permission for the land or that they had corporate buyers lined up to purchase the sites.

In reality there was no intention to seek planning permission or help purchasers sell their land and the plots were in locations unlikely to ever gain planning permission, such as areas of outstanding natural beauty.

The FSA previously obtained injunctions against Maynard and Countrywide in August 2010 that froze assets and prevented them from selling more land to investors. The FSA subsequently discovered that Plateau had been set up to continue the business and, in December 2010, secured a similar injunction.

The FSA does not regulate the sale of land, but land banking may amount to a collective investment – something that does require FSA authorisation.  Maynard, Countrywide and Plateau have never been authorised by the FSA so their land sales were unlawful. Furthermore, as their business activities were unauthorised, victims of the scam are not covered by the Financial Services Compensation Scheme.

Tracy McDermott, acting director of enforcement and financial crime at the FSA, said:

“We have to be realistic about the low probability of securing meaningful compensation for victims of these scams, but this is still an important victory. Proving that a land bank is operating a collective investment scheme – and should therefore be FSA authorised – is very complicated, so every success puts us in a stronger position to tackle other schemes.”

“This decision sends a message to other land banks that we will not sit by and let them con investors out of their money. Indeed we have also started court actions against others that we believe have been involved in Maynard’s scheme.”

“Anybody investing in land should always have it independently valued to check its worth. Furthermore, if you are ever sold land as an investment with the promise of fabulous returns, and on the basis that someone else will manage it for you as part of a wider site, you should check the firm is authorised by us.”

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Asset Financing Continuing to Grow

Monday, March 19th, 2012 11:07

Asset finance is continuing to show growth according to the latest statistics from the Finance and Leasing Association.

For Small and Medium Enterprises (SME’s) asset finance is the largest alternative lending option to the standard bank loans and overdrafts. Earlier this month Lord Sassoon, Commercial Secretary to the Treasury, launched a new on-line directory of around 1,000 sources of asset finance and other alternatives to conventional ban loans. The directory is aimed to assist 60,000 small businesses in accesing alternative finance in it’s first year.

January saw an overall growth in new asset finance business in January 2012, an increase of 14% compared to January 2011, to stand at almost £1.5 billion. There was also a 20% increase in the value of new business contracts of up to £20 million for the same period.

The FLA figures show that in January, the sales finance channel reported the strongest rate of growth, with new business 36% higher in January than in the same month in the previous year, at £408m. 

Broker-sourced asset finance grew by 30% over the same period to £282 million. The direct finance channel reported double-digit growth for the third consecutive month, with new business up by 16% to £778 million.

Commercial vehicle finance grew by 23% in January which has now seen year on year growth for the past 18 months. Growth in plant and machinery finance was at its strongest in more than three and half years, with new business up by 40% compared with January 2011.

Geraldine Kilkelly, Chief Economist and Head of Research at the Finance & Leasing Association, commented:

“Our latest figures follow the trend of growth in asset finance that we have seen over the past twelve months. While cash flow is important for small businesses, the evidence is that many are using asset finance to invest in new equipment and to expand their businesses.

“Initiatives, such as the Small Business Finance Directory, present options for alternative finance. We hope that the taskforce’s report will raise awareness of the funding sources that are available to small and medium-sized businesses.”

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