Fight inflation with rate rise says MPC member

Interest rates need to rise quickly to combat inflation, which is expected to rise to 5% in the next few months, according to the newest member of the Bank of England's rate setting committee.

Martin Weale, who has written in the Guardian his first analysis of the economy since joining the monetary policy committee, said the recent slump in the UK's growth could be a one-off and should not deflect the committee from tackling inflation with higher rates.

Weale shocked the City and many of his fellow economists when he voted with fellow committee member Andrew Sentence for a rate rise. They argued for a 0.5% increase to 1% to prevent inflation getting above its current 3.7% level. Five members, including Bank of England governor Mervyn King voted for no change and one, Adam Posen, voted to keep interest rates low for several years.

Weale and Sentence fear that persistently high inflation will encourage demands for higher wages. They said businesses were also exploiting the perception that costs were due to rise by jacking up prices by more than inflation.

Weale's hawkish intervention poses a dilemma for the chancellor George Osborne, who has relied on the Bank of England maintaining low rates while he imposes steep public sector spending cuts.

A majority of Britain's 12 million mortgage holders have tracker or discount rate loans that will increase with rises in bank base rates. They are already under pressure from falling real incomes, and while they have enjoyed historically low rates for the last two years, face a fall in living standards this year that higher mortgage charges will make worse.

Key data this week will give policy makers a first taste of the economy's strength since the end of last year when official figures showed it had contracted 0.5%. Figures on the strength of the services sector, which accounts for some 70% of the economy, are published on Thursday.

King said last week that the falls in real earnings over the last five years had not been seen since the 1920s.

He said families will see their disposable income eaten up as they "pay the inevitable price" for the financial crisis. But he argued inflation was a short-term problem and would fade in importance next year once recent oil price and tax rises, and the VAT rise to 20% in particular, work their way through the figures.

King has become a key ally of Osborne's in convincing the electorate that it must accept high inflation, falling real incomes, higher taxes and cuts in public spending as the price of recovery. King said it was inevitable Britain would struggle to emerge from recession after the worst banking crisis for 70 years.

Weale said: "Much of the increase in inflation has been a consequence of sterling's depreciation, sharply rising commodity prices, and increased VAT. Unlike the experience of earlier decades, it has not been generated by rises in domestic costs. Given the potential consequences for the real economy of attempting to return inflation to the target rapidly, there is therefore a powerful argument that such 'one-off' influences on the inflation rate should simply be accommodated and inflation allowed to rise temporarily above the target – just as it might fall below target if the exchange rate rose sharply as in the late 1990s. This is consistent with the MPC's mandate."

But he added: "A major risk is that the longer inflation remains above target and the more it exceeds its target, the greater the adverse effects on output of bringing it down. Each month's MPC decision needs to be made on its own merits, but this risk is a substantial one that I will continue to balance against others over the coming months."

Shapps calls first time buyer crisis meeting

Mortgage lenders, house builders and industry leaders are being summoned to an emergency meeting to discuss the plight of first-time buyers.

The meeting is being called by the Government which says that first-time buyers have been frozen out, with an impact on the whole of the rest of the housing market.

Deputy prime minister Nick Clegg said that the crisis is ‘hampering social mobility’. 

The summit will be held in London on February 15 and chaired by housing minister Grant Shapps.

Problems faced by first-time buyers include the large debts with which they leave university, the high deposits routinely required by lenders, and the increasing likelihood of interest rates rising.

According to the Council of Mortgage Lenders, the proportion of first-time buyers under the age of 30 who are able to buy without parental help has fallen from 63% five years ago to 17%.

In the last three quarters of 2010, the proportion of mortgages granted to first-time buyers with deposits of less than 10% fell to two in 100, down from almost six out of ten in 2005.

The average age of an unassisted first-time buyer is now 37.

Treasury spokesman Lord Oakeshott accused mortgage lenders of being virtually ‘on strike’ when it came to lending to first-time buyers.

He said: “The bankers’ doors are shut to first-time buyers without a big helping hand from the Bank of Mum and Dad.” 

What would you like, children or a mortgage?

Mortgage lenders are penalising home owners with children by reducing the amount they can borrow. The crackdown could potentially prevent them from switching to cheaper deals when interest rates rise.

Many banks and building societies have tightened their affordability criteria in light of the Financial Services Authority's post-credit-crunch review of the mortgage market. But it has emerged that families with children are being hit hard.

Parents will now usually qualify for a smaller mortgage than similar couples without children. Depending on the lender, the reduction might be about 10pc, but could be as high as nearly 20pc. This has triggered fears that parents may not be able to switch to fixed-rate and other competitive deals to protect the family home when interest rates finally begin to rise.

When brokers , like myself, begin the mortgage application process for a client, they tap in income, any other credit liabilities and basic lifestyle information, such as whether they have children.

At Santander, for example, a couple with no children both earning £25,000 might be offered £201,687, while an identically credit-scored couple with two children would get only £179,852. The amount drops again for four children to £174,420.Customers with very high credit score see a slightly smaller reduction with Santander. A childless pair with a gold-plated credit score might be offered £237,625, which drops to £219,485 for two children and £214,973 for four.

This pattern is followed to a greater or lesser extent at most big banks and building societies. Halifax will lend the same couple £225,000 via a broker, unless they have children. Then the amount falls to £213,000 for two children, but bizarrely goes up slightly for four to £214,185.

Applications to Nationwide Building Society via the broker channel take the biggest hit. A childless couple might be able to borrow £207,700. The amount falls to £174,200 for two children but by 18pc to £170,400 for three or more. Even so, a childless couple may qualify for £225,000, falling to £222,000 with two children and £217,000 with three children.

A spokesman for the Council of Mortgage Lenders acknowledged that lenders were increasingly taking this approach. "I'm afraid this is the way the world now is. Lending has become more sophisticated, which was inevitable given the change in the regulatory requirements," she said.

Some brokers describe the new approach as "nonsense". For example, only children up to the age of 18 will see your loan cut, whereas many parents spend far more on their offspring above this age as they support them through university.

Lenders often use data from the Office for National Statistics to decide what it costs to bring up a child, whereas what families actually spend can differ widely.On top of this, parents will now also be routinely asked about childcare costs and whether a couple are paying school fees. If you fill in this data as well, the loan is likely to be cut further.

Finally, brokers question the logic of offering a childless young couple a larger loan today, when in two or three years they may have a family, and not be able to remortgage for the same amount.

Another industry insider commented: "Lenders have to build these affordability models so they can demonstrate to the regulator, if challenged, that they have been lending responsibly. But these things are computers. There is no leeway for human intervention or discretion.It is all a bit of a nonsense. People live their lives quite differently. Couples with children stay at home every evening because they can't go out. Does this really mean they spend more than childless couples who are out every night, and take several foreign holidays a year?"

The concern is that if they cannot borrow today as much as the mortgage advanced a few years ago, parents may be prevented from switching to cheaper or safer loans as interest rates rise.

But lenders all have different attitudes to children. The amount they slice off varies hugely from institution to institution and even between different loans at the same bank. Shopping around is vital and a good broker can help with this process.

The CML defended the lenders' actions. A spokesman said: "If you have to have proxies for family expenses, the cost of children is a reasonable one."

Brokers trusted over banks

Research by the Financial Services Research Forum has found that brokers are by far the most trusted financial service. 


A survey of consumers found that brokers comfortably saw off banks, building societies, insurance companies and investment firms. 


Banks were the least trusted financial service. 


Despite being the most trusted, the level of trust placed in brokers has fallen over the last 12 months. Building societies were the second most trusted financial service. 


Forum director Professor Nigel Waite said that while brokers had once again stood out as the most trusted, they had earned lower scores than has previously been the case. "This shows there is work to be done in every category," he added.

MPC majority feel Base Rate should stay at 0.5%

Bank of England minutes released today, for the MPC meeting on the 12th and 13th January 2011, continue to reveal that the majority of members on the Committee believe that the base rate should remain on hold at 0.5%.

Six members of the Committee voted in favour of keeping interest rates on hold. Martin Weale joined Andrew Sentence in favour of increasing the Bank Rate by 25 basis points, while Adam Posen continued to vote in favour of increasing the size of the Bank of England's asset purchase programme ("quantitative easing") by £50 billion.

The release of the minutes comes a day after preliminary estimates of growth in the fourth quarter of 2010 showed a 0.5% quarter-on-quarter contraction in the UK economy. Even if the effects of the snow on growth are excluded, the data point to zero growth, suggesting the recovery lost all momentum at the end of 2010.

The release also comes a day after Bank of England Governor Mervyn King delivered a sombre speech in Newcastle, which explained how UK households are currently going through the longest fall in real incomes since the 1920s and that there is very little policymakers can do to rectify this in the short-term.

With respect to inflation, the minutes released today suggest the majority view within the MPC remains that price growth is being largely driven by short-term and external factors - VAT rises and short-term commodity price shocks - rather than an overheating economy. This suggests there is limited taste for a rate rise within the MPC, despite December's surprisingly high annual consumer price index (CPI) inflation rate of 3.7%.

Although the minutes show the number of MPC members voting in favour of a rate rise increasing from one to two, the vote was undertaken before members knew how bad economic growth in Q4 2010 would be.

 Renewed concerns about the state of the UK economy should now keep further rate-risers at bay. Indeed, we anticipate a renewed focus by policymakers on "going for growth", and would not rule out further quantitative easing by the Bank of England this summer. 

Tax property and ditch stamp duty

Stamp duty on house purchases should be replaced by an annual property tax to improve conditions in the housing market and the economy, the Organisation for Economic Co-operation and Development said yesterday. 


The Paris-based think-tank said that hefty stamp duty faced by homebuyers in Britain dampened housing transactions and so limited worker mobility, which it said was one of the key factors for a healthy economy. 


The ability of workers to move to expanding sectors and regions was crucial if countries were to return gradually to pre-crisis employment rates, the OECD report on housing said.

Lenders continue fixed rate withdrawals

More lenders are set to withdraw competitive fixed price deals over the coming days and weeks, and replace them with higher rates.

Hard-pressed householders are having to pay more for their mortgages, in advance of expected base rate rises, and at a time when inflation is being stoked by higher fuel and food prices. 

Lenders are raising rates against the backdrop of increased costs of wholesale borrowing, with five-year swap rates having shot up from 2.66% at the start of the year to nearly 3%. Two, three and ten-year swap rates have also soared, with ten-year swap rates now standing at 3.78%.

The rise in swap rates is taking place against the growing possibility that the Bank of England will have to put up base rates sooner rather than later to help combat higher-than-expected inflation. 

Skipton Building Society increased some of its fixed rate mortgages this week by up to 0.7%. Until last week, it offered a five-year fixed rate deal for those with a 25% deposit at 4.08%, but the rate has since been hiked to 4.78%. On a £150,000 interest-only mortgage, that would be a rise of £87.50 a month.

But a spokeswoman for Accord Mortgages, which released a new suite of products just last week, says it has no plans to re-price its products.

An industry insider, said: “Borrowers will be astounded that mortgage rates are rising when interest rates haven’t shifted in nearly two years. But the pricing of fixed rates is based on money market rates, not Bank Rate, and these have soared since the start of the year on the expectation that interest rates will rise sooner rather than later.” 

Serious concerns over the lack of protection insurance within the UK

93% of families do not feel they have adequate financial protection.

On average a staggering 61% of families confessed they don't have even basic life insurance, with 87% saying they are without critical illness cover, and 89% without income protection.

The family unit most likely not to have protection insurance are single parent families. 

Unsurprisingly, they are also the most likely family unit to feel financially vulnerable as a result of being under/unprotected. 

Seventy-six percent of single parent families and 68% of divorced parents with two or more children said they felt financially under/unprotected.

Critically affected by illness

These findings were revealed in a new quarterly report , which examines the finances and concerns of the 84% of the UK population who live as part of a modern family. It finds a disturbing 42% of families admit they have been seriously affected by illness and yet still do not have any protection insurance in place.

The seriousness of this situation is highlighted by the fact that of those families who've been affected by illness, 25% of families testify they've already experienced what it is like when one of the main breadwinners is unable to work due to illness.

A further 15% have seen a family member unable to work due to stress/depression/mental health issues, and 7% say they've witnessed a family member give up work to look after another family member.

With the report also finding UK families rely on salaries for 75% of their income, it serves to highlight how vulnerable many families are to external financial shocks such as redundancy, illness or in the worst case, death; especially as 33% of families say they have no savings and 40% of families saying they save nothing each month. 

Income protected

As to why families do not have protection insurance, 19% say they have not bought life insurance because they thought it was too expensive and they cannot afford it, while 5% believe it never pays out and therefore isn't worth buying. 

Debts put first

The report also found families will prioritise paying off unsecured debts and setting up savings accounts ahead of financially protecting their loved ones and homes. 

When asked which priorities they would address if they received a £10,000 windfall, respondents said they would first pay off unsecured debts (44%) then start/put money into an emergency savings account (30%) and finally start/put money into a long-term savings account (30%). 

Only, 5% said the money would incentivise them to take out life insurance, critical illness cover or income protection.

Fixed rate mortgage demand set to soar

Lenders are expecting a surge in demand for fixed-rate mortgages after inflation rose by the fastest rate on record last month.

Experts warned that the cost of borrowing could soon increase as the CPI measure of inflation jumped to 3.7% in December, up from 3.3% the previous month, the Times reports.

Borrowers looking to protect themselves against future interest rate rises have been urged to act quickly with banks and building societies expected to increase their prices on new deals.

A number of lenders, including Skipton Building Society and Northern Rock, have already increased the cost of fixed rate deals within the past week and others are expected to follow in the coming days.

One industry insider says: "Market-leading fixed rates are already being snapped up by borrowers fearful of an imminent rate rise and today's higher than expected inflation is only likely to increase demand. Those who would struggle to pay their mortgage if rates were to rise should consider a fixed rate sooner rather than later for peace of mind."

Savers have also been urged to shop around for the best rates, to avoid their funds being eroded by the impact of higher prices.

Landlord yields reach 8.7% on HMO properties in 2010

Yields for landlords on houses with multiple tenants were 8.7% in 2010 - almost double those of normal buy-to-let properties, the Mortgages for Business Complex buy-to-let Index shows.

Launched today the index also shows that the average loan size for a property with multiple occupants was £287,800 with 61% LTV.

The average loan size for multi-unit freehold blocks was higher, at £470,900 with a 57% LTV with an average yield of 5.7%

The index tracks Buy to let loan size, property value, loan to value and yields and focuses on the previously unreported sub-sectors of the more complex buy to let mortgage transactions, specifically Houses in Multiple Occupation and multi-unit freehold blocks.

Bank urged to hold its nerve on interest rates

The Bank of England has been urged to hold its nerve on interest rates, despite the threat of rising inflation. 


Last week, the Bank confirmed that the base rate would remain on hold at 0.5% for the twenty-second month in succession. 


Views on when rates will start to rise again are mixed, although only one member of the Bank's Monetary Policy Committee (MPC), Andrew Sentance - the group which makes the decisions on rates - has voted to increase rates. There are fears, however, that increasing the base rate could push thousands of home owners into arrears or even see them lose their homes, as they would no longer be able to afford their mortgage repayments. 


Ernst & Young has added its voice to the debate, calling for the Bank to stand firm on rates. The firm has predicted that inflation could rise to 4% next month. "It's going to be a tense start to 2011," Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club commented. "The fiscal retrenchment will keep GDP subdued, while commodity price rises and the VAT hike will push inflation close to 4% and leave the MPC agonising over whether to increase the Bank base rate. However it's vital that the MPC stands firm. These are temporary pressures, domestic cost inflation remains low and CPI inflation will come back to heel in 2012 once the VAT increase falls out of the figures next January."

Interest rates could rise by June

The Telegraph reports today that interest rates could very well increase in June, following the surprising inflation figures. 

A rate rise would end a two-year period of stability, when interest rates lay at a record low of 0.5 per cent. A move upwards could add hundreds of pounds to many homeowner's mortgages but offer relief to Britain's 38 million savers, who have suffered from pitiful returns in since the financial crisis started.

The warning about a rise in interest rates came after figures from the Office for National Statistics indicated that so-called factory-gate inflation – the prices that manufacturers have to pay for raw materials – jumped far more than expected during December as a result of the spike in global commodity prices.

The rate of inflation jumped from 9.2 per cent in November to 12.5 per cent in December, as the cost of wheat and sugar pushed up the price of ingredients for food manufacturers and the price of metal, oil and chemicals shot up for other factories.

The gilt market, where the Government goes to raise money by selling bonds, immediately reacted with yields rising. These yields are the closest the City comes to a forecast for what interest rates will be in the future. The yield on a two-year Treasury was up almost 6 basis points at 1.37 per cent, having earlier struck a 12-month high of 1.39 per cent. The gilt market is now pricing in an interest rate rise in June, said analysts. Stephen Lewis, chief economist at Monument Securities, said: "The market movement suggests that investors are thinking that rates are going to rise before June. "David Page, at Lloyds TSB Corporate Markets, said the factory inflation figures “continue to feed the ongoing background concerns that inflation is a growing problem in the UK, and it feeds the fear that the Bank of England will react to that.”

Interest rates last rose in Britain during 2007 in an attempt to cool the over-heating housing market, before being drastically cut during the financial crisis of 2008. They hit a low of 0.5 per cent in March 2009 and stayed at that level since then, in an attempt to help the flagging economy.

Philip Shaw, economist at Investec, said: "The recovery in the global economy is welcome but it does have a side effect: pushing up the cost of raw materials, pushing up inflation, as these factory gate figures show. "We were originally forecasting that interest rates wouldn't rise until the back end of 2011 but there is a real risk the Bank of England's monetary policy committee will have to raise rates sooner rather than later to protect its credibility."

The Bank of England has a target to keep inflation at 2 per cent, with raising interest rates its main weapon to keep inflation under control. David Kern, chief economist at the British Chambers of Commerce, said: “These figures reinforce our expectations that during the next few months annual consumer price inflation will rise towards 4pc per cent and possibly higher. “This will create an uncomfortable background for the (Bank’s) Monetary Policy Committee, and will add to the pressure it is now facing for an early increase in interest rates.”

Next week the ONS will publish its Consumer Prices Index, the cost of living measure that is meant to stay at the Government target of 2 per cent. In November it was at 3.3 per cent and the December figure is expected to have climbed higher because of the rising price of petrol and utility bills. Mr Shaw said it could rise to 4 per cent with a few months, as the full force of factory inflation starts to feed through to the price of good on shop shelves.

Ruth Lea, economic adviser to the Arbuthnot Banking Group, said: "Of course most British families are already feeling the force of these global commodity price rises and the effects inflation. You only have to fill up a car with petrol, or visit a shop or open a utility bill to feel inflation." Already people have reason to feel squeezed, which will only get worse when the employee's rate of National Insurance goes up in April."

David Cameron, the Prime Minister, hinted yesterday that he would try to ease the inflationary pressures on families, especially the price of filling a family car. "We have to look at this idea that, when the oil price goes up, and the price at the pumps goes up, the Treasury gets some extra money, we should share some of that benefit with the hard-pressed motorist who is filling up his car," he said.

A quarter point rise in interest rates from 0.5 per cent to 0.75 per cent would add £375 to the annual interest on a typical £150,000 mortgage. There are fears that mortgage companies are already pulling their best deals in recent weeks in anticipation of a move by the Bank of England, and the best five-year fixed rate mortgage has risen from 3.69 per cent at the end of last year to 3.99 per cent this week. Savings rates, however, should receive a kick start if the Bank moved up rates. Though a 0.25 percentage point increase in savings rates would only add £25 to a savings account with £10,000 in it.

Many experts are hopeful, however, that the Bank will not succumb to pressure to raise interest rates, especially if job losses continue to climb to three million.

4.8m would struggle to find £200 extra for mortgage each month

If rising interest rates increased the average mortgage repayment by £200, 4.8m people, or 66% of all mortgage holders would struggle to pay.

Research released by financial markets insurance specialist MarketGuard revealed 2.7m variable or tracker rate mortgage holders would struggle to meet their mortgage repayments with an increase of just £100 a month, or an interest rate rise of just 1% for a typical interest-only mortgage.

Two-thirds of borrowers admit they are worried about the prospect of an interest rate rise in 2011/2012, according to the survey.However, although 60% of borrowers are keen to switch to a fixed rate for peace of mind, both the CML and FSA have said many customers are finding it difficult to switch because they are on a self cert, high LTV, credit impaired, or interest only mortgage.

Chris Taylor, CEO of MarketGuard, said: "This research reveals just how vulnerable the British public is right now to a rise in interest rates. It is clear that we face a major problem if rates start to move dramatically upwards in response to inflationary pressure".Fixed rate deals are popular because but there are many mortgage holders in the UK who are unable to find a suitable fixed rate deal.

Bank of England urged to keep rates low

The Bank of England has been urged to keep the base rate of interest low by the British Chambers of Commerce (BCC) after it suggested the recovery in the UK economy has slowed.

The BCC's latest Quarterly Economic Survey indicated that the economy continued to grow in the fourth quarter of 2010, but at a slower pace than in the second and third quarters. Fragility in the service sector is thought to have played a major part in the slowdown.

"Given the dangers facing the economy, we urge the Monetary Policy Committee to persevere with its current expansionary policies and maintain low interest rates until the recovery is more secure," said David Kern, chief economist at the BCC.

Rate spoilt generation

With the Bank of England base rate remaining at 0.5% for a record 21 months, tracking data from unbiased.co.uk reveals the emergence of a new ‘rate-spoilt' generation.

On average the fixed rate deal that homeowners would be prepared to fix at is now an unrealistic 3.3%.  This has dropped significantly from an average 4.0% in January 2009.

It appears the lengthy period of low interest rates has resulted in homeowners losing touch with mortgage reality, as best buys for three year fixed rate deals are currently around 5.1%3 - nearly 2% more than the average homeowner is currently willing to pay.

Fixed rate mortgage deals reached around 7.8% at the end of 2007 therefore the current average fixed rate deal of 5% appears to be a long-term ‘good' deal when considering economic predictions stating that interest rates will rise. 

An even more worrying one in six (16%) homeowners would only be happy with a fixed rate deal of 2% or less for the next three years. However, historical data since 2005 shows that fixed rate deals have never been at such low levels as this, highlighting the stark contrast between homeowner ideals and reality.

With SVR mortgages remaining lower than best buy fixed rate mortgage deals in the current market place; it appears homeowners are still refraining from remortgaging to a fixed rate deal until the base rate starts to rise.

When describing their current mortgage situation, almost a third (31%) of all homeowners state they are on their lender's SVR mortgage and have no plans to change this.  This has increased from just a quarter (26%) who stated this in January 2009.

Only one fifth (22%) of homeowners have just tied into another fixed rate deal after their previous fixed rate ended, instead of automatically moving onto their lender's SVR.

Similarly, just a quarter (25%) of those currently on a fixed rate mortgage who are coming to the end of their deal will move onto a new deal as soon as this one ends - instead of moving onto their lender's SVR.

Karen Barrett, Chief Executive of unbiased.co.uk comments:

"With the base rate now remaining at a record low of 0.5% for 21 months, possibly 22 months after next Thursday's base rate decision, our tracked research shows this has had a dramatic effect on homeowners' rate expectations.

"Their ideas of what is a reasonable fixed rate mortgage have become distorted in the low-interest rate environment, and they need to ensure that their mortgage expectations are realistic.

"While record numbers of homeowners remain on their lender's SVR instead of tying into another deal, and with many predictions for rate rises during 2011, homeowners need to be alert to ensure they don't miss out on getting the best deals before it's too late. 

"It can be very confusing for homeowners to keep track of which is the best mortgage for them and when is the best time for them to move onto a new deal.  Homeowners should seek whole of market mortgage advice to ensure they get the best deal from the whole of the market at the right time."

Tough week ahead for MPC

Commentators expect the Monetary Policy Committee (MPC) to hold rates again this week when it meets on Thursday,but the decision is becoming tougher for policymakers as the UK economy continues to offer mixed signals.

Inflation continues to run at 3.3%, well above the government's 2% inflation target but MPC members remain reluctant to dampen the burgeoning economic recovery, according to a Guardian story today.

Andrew Sentence was the only voice to vote for a rise in December, but economists continue to expect rates to stay at 0.5% for some time to come.

Howard Archer, chief economist at IHS Global Insight said the MPC was likely to be "reluctant to adjust policy until they get a clear idea of how the economy is reacting to fiscal policy being tightened from the start of 2011."

Ben Thompson, director of mortgages at Legal & General said it expects the first hike to come in January 2012, but said he checked this morning this is still its official line.

"I am increasingly feeling that interest rates could go up sooner, but that only serves to stoke the remortgage market, which is seeing more activity all the time," he said.
"The reasons are two-fold. Homeowners are remortgaging partly out of fear they will miss the boat on rates and secondly, with some great deals , some remortgage rates are starting to look like a better idea."

Pickles acts to protect the rights of homeowners

Pickles acts to protect the rights of homeowners

Prime Minister steps in over FSA Mortgage Market Review

Prime Minister David Cameron has spoken out about plans to clamp down even further on mortgages in the name of responsible lending.

Housing minister Grant Shapps, due to meet the FSA this week, has said that under the FSA’s Mortgage Market Review proposals, he himself would have failed to get a mortgage.

Now Cameron has said that lenders have already gone too far in preventing ‘good risk’ buyers from getting mortgages.

The Prime Minister warned that the housing market was ‘stuck’ and would not improve until banks and building societies got back to ‘respectable’ lending.  Cameron said the reaction to the crash had now gone too far.

He said: “The pendulum has now swung too far the other way. If you are a single person, you are earning a decent salary, you go to the bank or building society, you are actually quite a good risk, they won’t give you 80% of the value, they won’t give you four times your salary.

“So we are working with them to try and say, of course we don’t want to see the unsustainable boom of the past, but we’ve got to get proper lending, respectable lending, going again.”

Cameron made it clear that he did not want to see a return to 120% mortgages and loans based on seven or eight times earnings.

He said: “We don’t want another housing boom where prices rise out of people’s reach, but the housing market is a key part of the economy. You need a housing market where people are able to sell and people are able to buy.”

Higher interest rates will boost economy

Higher interest rates are needed to help boost the economy, a leading Bank of England economist said yesterday.

 

They will also help keep a lid on inflation, according to Andrew Sentance, a member of the Bank's monetary policy committee.

 

This week's VAT increase will push up inflation, which could force the Bank to raise rates. But this will help the economy by generating better returns for Britain's army of savers who have lost out since rates hit rock bottom in March last year, Mr Sentance said.

 

VAT has now risen to 20 per cent, which will push inflation above 4 per cent, he added.

 

This will make the Bank likely to 'gradually' raise rates from the record low of 0.5 per cent - a blow to millions of borrowers but a boost for savers.