Private sector growth & public sector reform needed to restore economy 20/05/2010 by admin

The CBI today called for an immediate freeze in the public sector pay bill for two years and re-engineering of public services to help get the public finances under control.

This needs to go hand-in-hand with measures to allow businesses to foster economic growth and job creation.

After a decade in which the economy has been driven forward by Government spending and unsustainable growth in the financial sector, the CBI argues that the growth engine for the future has to be powered by private sector investment and trade.

Spelling out its priorities for the new Government in a Time for action: Reforming public services and balancing the budget, the UK's leading business group highlighted the areas where immediate cost-savings could be made, while maintaining frontline services.

For example, freezing the total public sector pay bill from 2010-11 for two years through selected pay and recruitment freezes could save £18bn.

The CBI emphasised that far bigger savings could be achieved through a fundamental re-shaping of public service provision, including using the private and third-sector to deliver better outcomes more efficiently. For example, by re-engineering health and social care to treat patients in their homes and in the community more than £8bn could be saved by 2015-16.

Public sector reform must also be accompanied by policies that allow the private sector to deliver growth, investment and jobs.

Richard Lambert, CBI Director-General, said:

"We have a new Government with a determination to get a grip on the public finances and the political will to do it. We need to see a detailed plan for achieving this in the Budget. Experience suggests that the best way of bringing down a substantial deficit without damaging growth is through spending restraint rather than raising taxes.

"With a public-sector squeeze looming, the new Government must also do everything it can to create the right conditions for the private sector to sustain and create new jobs.

"That means providing certainty around taxation and energy policy, sustaining capital investment, and strengthening our skills base. Above all, we need to send a strong message to the world that the UK is open for business."

Among the measures the CBI says are essential for delivering growth are:

- Establishing competitive business taxes

- Developing a strong banking system

- Skilling students for the future and strengthening apprenticeships

- Attracting and cultivating enterprise and industry

- Prioritising energy security

- Working towards a low-carbon economy

- Developing the infrastructure for economic growth

Looking at the proposals on public sector pay in more detail, the CBI argues that unlike the private sector, where pay freezes have been commonplace during the recession, public sector pay has continued to increase. Average pay grew by 2.8% in the public sector in 2009, while it fell by 0.9% in the private sector.

The CBI is not advocating an across-the-board freeze in the pay of every single public sector worker. Provided the overall pay bill did not increase, there would be scope to exclude frontline staff and the lowest paid from pay and recruitment freezes.

Other areas for short-term action include cutting waste and duplication by sharing support services such as payroll and human resource functions; combining purchasing power to deliver savings in procurement; and opening up public services to greater competition to allow the best provider to do the job.

Other steps also need to be taken now to re-engineer public service delivery, which could reap potentially huge savings in the medium-term. This should include making use of new and proven technologies, improving workforce management to reduce staff sickness rates, and allowing the private sector to provide non-core activities.

John Cridland, CBI Deputy-Director General, added:

"The new Government will need to show strong political will to contain public sector labour costs. It needs to slam on the emergency brake now by introducing an immediate two-year pay bill freeze across the public sector, and sweating its assets to ensure that every pound is well spent.

"While spending cuts and efficiency savings are important, there is a much bigger prize to be had through fundamental re-engineering of public service delivery. Allowing the best provider to deliver public services will increase innovation, while keeping a lid on costs.

"We believe that this is the best way of ensuring that frontline services can be maintained without resorting to crude cuts." (Source: Mortgage Introducer)

RICS: Housing market still picking up, say surveyors 11/05/2010 by admin

The April 2010 RICS Housing Market Survey showed an across the board rebound in sentiment. The net price balance increased from +9 to +17, indicating a greater number of surveyors witnessed an increase in house prices over the last three months.

On the demand side, the new buyer enquiries net balance increased from +1 to +8, the highest reading since last December. Meanwhile, the newly agreed sales net balance turned positive for the first time this year, rising from -8 to +12.

On the supply side, the new vendor instructions net balance fell from +21 to +11, indicating that instructions continued to increase but at a slower pace. Surveyors have also turned far more optimistic on the outlook for prices and sales activity. Indeed, the sales expectations net balance increased from +6 to +25, the highest reading since last October.

Price expectations moved back into positive territory, with the net balance increasing from -2 to +7. The average stock of property on surveyors' books fell by 8.9% on the month to 61.3 per surveyor.

Meanwhile, the average number of completed sales rose by 1.5% on the month to 17.4 per surveyor. This has the effect of pushing up the sales to stock ratio, a key indicator of market slack, from 25.5% to 28.4% (the highest reading since December 2009).

There was some variation in regional price trends; London and the South East remain the clear outperformers, but the South West, the East Midlands and Scotland also recorded firm increases according to surveyors. More respondents reported that prices are now falling rather than rising in Yorkshire and Humberside and Wales. The net price balance remained negative in Northern Ireland, but less than last month.

Commenting, RICS spokesperson, Jeremy Leaf said:

“For much of 2010, the housing market has been under the shadow of the general election with the gap between supply and demand growing wider as potential house buyers opted to stand on the sidelines awaiting the outcome of the poll.

"However, the start of spring has seen renewed optimism with the good weather improving sentiment and surveyors expecting an increase in both sales and house prices. The housing market often sees an increase in new instructions in the early part of the year with sales boosted in the spring and this year has been no exception.” (Source: Mortgage Introducer)

House price forecasts show continued rise 04/05/2010 by admin

Average UK House prices will grow to be 5 per cent higher at the end of 2010 than at the beginning despite the sluggish start to the year. Average mortgage rates are likely to fall from a current APR of around 4% to about 3% by Q1 2011, say cebr.

This is a key finding from the latest Consumer and Housing prospects report published by the centre for economics and business research (cebr) – one of the country's economics consultancies and respected commentators on the UK housing market.

The forecasts are based on cebr's updated UK economic forecasts released earlier this month. These forecasts show sluggish GDP growth from 2011-14 as the incoming government deals with its fiscal crisis and cuts public spending and puts up taxes.

Because of the sluggish growth, cebr forecasts that base rates will average 0.5% over the next 18 months and will only rise slowly thereafter.

cebr forecasts that average mortgage rates will fall by about 100 basis points by early 2011 as the money markets price in the effects of cuts in the government's budget deficit. cebr considers these cuts likely whoever wins the election and these will have a 'triple whammy' effect on housing mortgage rates.

When the deficit cuts are made, rates will stay lower for longer than is currently predicted, gilts yields will fall and more quantitative easing to offset the sluggish economy will also affect the cost of money. The mortgage rate spread over base rates will narrow as the markets price in interest rates staying lower for longer.

Currently the short run consensus base rate expectation is 2.25% for end 2011 whereas cebr's forecast is 0.5%.

cebr's analysis indicates that base rates could be temporarily higher if there is a hung parliament with a worst case possibility of 3.5% in mid year.

But these effects are expected to be only temporary and within 18 months rates are likely to be back to more or less where they might have been with single party government, after the bond markets force cuts to the budget deficit.

The factors driving up house prices are low mortgage rates keeping housing affordability in as favourable a position as at any time since 2004 and a very low rate of house building. On the other hand, cuts in public sector job numbers and very low wage inflation will limit the scope for house price inflation.

Benjamin Williamson, one of the report's authors and economist at cebr said:

"A lot has happened to affect the housing market in the past three months but the net effects have more or less cancelled each other out. A very cold and snowy winter limited housing activity until well into the spring, an effect exacerbated by the ending of the stamp duty holiday.

"Then, in the budget, stamp duty was reformed, with a zero rate on properties below £250,000 in value for First Time Buyers and a new 5% rate for properties with values over £1 million. Yet we have only marginally revised our forecast from a rise of 6% during 2010 to a rise of 5%."

Douglas McWilliams, chief executive at cebr added:

"Currently the spread between base rates and the APR on average new mortgage offers is to an all time high. One factor behind this is that the APR on new mortgages prices in likely future base rate increases. But we think that the next rate increase (other than a temporary one to protect the pound if there is a hung parliament) could be as much as two years away and possibly more so.

"When the market realises this, the spreads on new mortgage rates will fall." (Source: Mortgage Introducer)

Nationwide: House price inflation reaches double digits 30/04/2010 by admin

House prices increased by 1.0% month-on-month in April, annual rate of price inflation moves into double digits for first time since June 2007, house prices are 10.0% below the October 2007 peak, reveals the latest Nationwide House Price Index.

Commenting on the figures Martin Gahbauer, Nationwide's Chief Economist, said:

“The price of a typical UK property rose by a seasonally adjusted 1.0% month-on-month (m/m) in April, leaving house prices 10.5% higher than a year earlier. Over the lifetime of the last Parliament (May 2005 to April 2010), house prices have risen by 6.7%. This compares to a 13.5% increase in the consumer price index, the official target measure of inflation.

“April's figures show the first double-digit annual growth in UK house prices since June 2007. The year-on-year rate in this month's figures, however, received an additional boost from the fact that April 2009 was one of the weaker months last year.

"Given the very strong performance of house prices from May 2009 onwards, it will take monthly increases in excess of 1% for the annual rate of inflation to be maintained in double digits going forward.

"The smoother three month on three month rate of inflation edged down further from 1.5% in March to 1.1% in April, which primarily reflects the impact of February's 1.0% decline in house prices. April's figures leave UK house prices exactly 10% below the October 2007 peak.

What role are cash transactions playing?

“The strong rebound in house prices over the last year has taken place within the context of a subdued mortgage market, with the number of mortgage advances across the industry still well down on precrisis 'norms.' A natural question which therefore arises is whether cash buyers have helped to boost the market and bid up prices?

“Over the course of 2008 – when the credit crunch was at its most severe – there was indeed an increase in the estimated proportion of total housing transactions completed in cash. Cash transactions (i.e. non-mortgaged purchases) are estimated to have averaged 43% of the total in 2008 against 37% in 2007.

"This suggests that cash buyers did make some contribution to clearing the excess stock of housing on the market during the period in which mortgage finance was least available.

“However, since the beginning of 2009 the proportion of cash transactions has declined to a level only slightly higher than the average for 2007. Even in absolute terms, there was a decline in the number of cash buyers between 2008 and 2009.

"As such, the importance of cash buyers in the market started to decline at exactly the same time as house prices began the strong rebound that has lasted up until the present day. It is in fact the recovery in mortgaged transactions that has played a greater role in boosting total market activity since the early 2009 trough.

“Rather than a surge in cash buyers, the more important driver of rising house prices has been the
low level of stock for sale, as many homeowners and buy-to-let landlords continue to wait for prices to recover to peak 2007 levels before deciding to sell up or move. The very low level of interest rates has been supportive of this wait-and-see approach, particularly in the buy-to-let sector.

"Many landlords have seen their mortgages revert to base rate trackers and are now earning significantly higher net rental income than a few years ago. As a result, most can easily afford to wait for prices to recover further before  selling.

“Nonetheless, there has recently been evidence of a slight shift in the supply-demand balance. While the recovery in new buyer enquiries at estate agent offices appears to have petered out, the last few months have seen an increase in the level of new instructions from sellers.

"All else equal, this should lead to a gradual flattening out of the recent upward price momentum, and this is indeed what the 3 month trend in April's figures shows.” (Source: Mortgage Introducer)

Strict lending criteria hits 'High End' residential mortgage market 30/04/2010 by admin

Investec Specialist Private Bank says that increased lending restrictions from banks and building societies has resulted in a growing number of high net worth individuals finding it difficult to secure mortgages of £1million or more.

Many of these people are successful entrepreneurs, but they are being refused credit because their finances and wealth are not straightforward, and often other banks and building societies are bound by rigid lending criteria which do not accommodate this.

Investec, which specialises in servicing the financial needs of the 'entrepreneurial class', sees this development in the market as a huge opportunity to dramatically grow its lending business.

Investec's mortgage business is aimed at the top end of the market, with loans available exclusively to individuals with sustainable earnings in excess of £300,000 a year who are looking to borrow a minimum of £1 million. A typical client would be in the market for property starting at £1.5 million.

Investec offers highly personalised mortgages based on the income and wealth of the individual client rather than the mortgaged property alone, the approach used by the majority of lenders. It aims to 'out-think' the opposition with offerings such as currency mortgages and innovative facilities for clients with complex requirements.

As an example of banks and building societies becoming less willing to lend to mortgage customers, analysis of industry data by Investec Specialist Private Bank reveals that the average maximum loan to value for mortgages featuring in Moneyfacts' best-but tables in January 2008 was 88%. However, by March 2009 it had fallen to 77%, and by February 2010 it was 75%.

Investec is not constrained by hard and fast loan-to-value ratios. Instead, when deciding how much to lend to a potential client, it will assess their overall financial wealth as opposed to the value of the property they wish to buy. (Source: Mortgage Introducer)