Early Warning System
The Bank of England’s Monetary Policy Committee (MPC) met this week and voted unanimously to maintain Bank Rate at 0.5%. The Committee highlighted that the global economy is growing at its fastest pace in seven years and becoming increasingly broad-based and investment driven. However household consumption growth is expected to remain relatively subdued, reflecting weak real income growth but GDP growth is expected to average around 1¾% over the original forecast in November.
With much of their assumptions based on a range outcomes for Brexit, the MPC expect Consumer Price Inflation to remain around 3% in the short term, reflecting recent higher oil prices and import prices following sterling’s past depreciation. These external forces suggest pay growth will rise further in response to the tightening labour market, give increasing confidence that growth in wages and unit labour costs will pick up to target-consistent rates. On balance, CPI inflation is projected to fall back gradually over the forecast but remain above the 2% target in the second and third years of the MPC’s central projection.
Looking to the future, the Committee judged that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainably to the target. This could mean another interest rate rise in 2018 which could be sooner than first expected and higher than that implemented in November last year.
Up 6 on First Time Buyer
The number of first-time buyers is estimated to have reached 359,000 in 2017, while those taking their first step on to the property ladder are putting down almost double the deposit than a decade ago, according to the latest Halifax First-Time Buyer Review.
The number of first-time buyers has gone up 6% in the last 12 months, continuing an upward trend of six years, despite the average deposit jumping from £17,740 in 2007 to £33,339 a decade later – an increase of 91%. Halifax data revealed that although the average price of a typical first home has grown by 21% (or £3 7,377) from £174,703 to £212,079, first-time buyer levels have almost returned to those last seen in 2007, when 359,900 took their first step on to the property ladder. This is an increase of 87% compared to an all-time low of 192,300 in 2008 and is now just 11% below the most recent peak of 402,800 in 2006. First-time buyers now account for half of all house purchases, with a mortgage, an increase from 36% a decade ago.
The average age of a first-time buyer in 2017 was 31– two years older than a decade ago. In London it has grown from 31 to 33 –the eldest in the UK. The biggest increase in age was in Northern Ireland, up by three years from 28 to 31. At a Local Authority District level, the youngest buyers are in Staffordshire Moorlands with an average age of 28 whilst the oldest are in Richmond upon Thames at 35 years old.
Net investment in buy-to-let property has fallen by 80% from £25 billion in 2015 to just £5 billion in 2017 due to excessive regulatory intervention on the sector, according to a new report from the Intermediary Mortgage Lenders Association (IMLA). The 80% slump is a steeper fall than after the financial crisis as recent tax and regulatory changes have caused a downturn in landlords’ activity, according to the report: ‘Buy-to-let: under pressure’. In response, IMLA is calling for a brake to be placed on further policy interventions on the UK’s Private Rented Sector (PRS).
The report notes the positive effect that buy-to-let has had on the PRS. It estimates that between 2000 and 2017, UK buy-to-let landlords invested £289 billion into the sector, meeting rising tenant demand by bringing 1.8 million properties into the rental market. At the same time, real rents have fallen 4.4% across the UK.
However, IMLA reports that new tax and regulatory measures introduced in the last two years, such as a 3% stamp duty surcharge and the removal of mortgage interest tax relief, have deterred some landlords from expanding their portfolios and prompted others to exit the market, with this cumulative effect referred to as ‘policy layering’. As a result of tax changes, more than a fifth (21%) of landlords have indicated that they plan to reduce the size of their portfolios.
There are currently 4.5 million people relying on the PRS in England alone. Should demand for rental property continue to increase at current rates, driven by a lack of social housing supply and inaccessibility to owner-occupation, IMLA’s report suggests that this will lead to upward pressure on rents, disadvantaging tenants in the sector.
Tax bonus for the Government
For many, making sure loved ones are provided for should they die unexpectedly is considered an important responsibility. However, according to research from Legal & General 82% of consumers have assets they wish to pass on to loved ones however in the event of a claim, two-fifths (40%) have never heard of placing their life insurance policy under trust. Worryingly, more than four in ten (43%) consumers questioned said they didn’t have a will in place.
A trust is a simple legal arrangement that allows an individual to place their policy in trust, the policyholder can indicate who they want the proceeds to be paid to and controls when the money from the life policy will be paid out. This can ensure that children or any other chosen beneficiary receive financial support from the money, but will not have full access to the lump sum. It also should help to ensure that any money paid out from the life policy will not be part of the estate of the person covered, helping to minimise Inheritance Tax. For example this means that their spouse, co-habiting partner or family members will be protected from the heavy financial burden of inheritance tax. It will help to ensure that the money paid from the life policy can be paid to the right people quickly, without the need for lengthy legal processes.
Those who do not place their single life policies in trust risk leaving their spouse, co-habiting partner or close family members in a vulnerable situation. If a single life insurance policy is not placed in trust, the proceeds may not go to the chosen beneficiaries as planned. For example, if the policy holder is not married and has not made a will, there is a risk that their co-habiting partner will not be legally entitled to any of the lump sum which could possibly leave them in financial difficulty.