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.