FINANCE

UNDER THE HAMMER

It's now a buyer's market and nowhere more so than in the UK property auction rooms, where savvy investors are snapping up bargains at up to 30% below estate agent prices. In the past, buyers inspired by TV shows such as ‘Homes under the Hammer’, were happy to bid to levels similar to those properties being sold through estate agents. But according to auction information company, Essential Information Group, around 48% of lots are not selling, leading to a significant fall in prices.

Buying at auction is becoming increasingly popular. The Royal Institution of Chartered Surveyors says nearly 5,000 homes were sold at auction in the third quarter of 2007, a 5% increase on the same period in 2006. Many buyers are attracted to auction houses because of the transparency of sales. As soon as the hammer (gavel) goes down at auction, contracts have been exchanged and both parties are committed.

The auction house also appeals to buyers who want to remove the anxiety of a chain falling through, being gazumped buy a higher offer or left homeless if the seller changes their mind about selling. Once your bid has been accepted, you must pay a deposit of around 10% on the day and usually have 28 days to complete the transaction.

While buying at auction is a relatively straightforward business, it isn't without its pitfalls and novices would do well to do their homework first.

Alan English, City Editor, Moneyam.com

UK HOUSE PRICES RECORD BIGGEST MONTHLY FALL SINCE 1991

The Nationwide building society said house prices fell by 2.5% during May, according to its latest monthly survey.

The lender said prices were now 4.4% lower than a year ago, a drop of £8,000, which has taken the average UK house price down to £173,583.

The Nationwide, the UK's second-largest lender, said price falls were now accelerating and had continued for seven months in a row.

The accelerating pace of the decline in property prices is shown by the fact that in the past three months they were 2.9% lower than in the previous three months. At the start of the year that three month-on-three month comparison showed a drop of just 0.9%.

If the prices fall in the rest of 2008 as they have done so far this year, then prices will end the year down by 13%.

After the decade-log boom, house price inflation took a decisive turn downwards last autumn, under the impact of two main pressures.

Prices became so high that most first-time buyers were priced out of the market, and the effects of the credit crunch dried up the supply of money for new mortgages.

With take-home incomes still rising, despite the economic slowdown, house prices are slowly becoming more affordable.

However, lenders are also demanding much higher deposits than before as they seek to ration their lending.

Despite the efforts of the Bank of England to inject more money into the banking system, banks and building societies are now expecting that fresh mortgage lending will shrink by about 40% this year.

Alan English, City Editor, Moneyam.com

MORE GRIEF TO COME FOR UK EQUITIES

With the introduction in the UK of transferable Inheritance Tax allowances between married couples and civil partners, many families have assumed that they will escape this much disliked tax. But according to the Halifax there are an estimated 650,000 properties worth more than £600,000 and their owners ought to be making plans to protect this asset from the tax man’s clutches.

An estimated 12 million married couples will benefit from being able to transfer any unused portion of their IHT allowance of £312,000 (2008-09) to their partner. Even better, widows and widowers can pick up any unused allowance from their deceased spouse, no matter how long ago they died.

The new provisions will benefit an estimated 3 million surviving widows, widowers and bereaved civil partners, according to the Treasury. Those who have been widowed more than once, however, can only benefit from a maximum of two allowances – their own and one allowance from a deceased spouse or civil partner. The new rules take effect for all deaths after October 9th 2007.

The government has already announced increases in the IHT nil rate band and by 2010, the combined tax-free allowance for couples will rise to £700,000.  The amount available to the surviving partner of a marriage or civil partnership will be a proportion of the unused allowance applicable at the time of the second death.

According to Halifax, if the IHT threshold had kept pace with soaring property values over the past 10 years, it would now be £490,000 rather than the present £312,000.

Sadly, the changes will not help single people, unmarried or non-civil partnership couples, or siblings or other related members of the same family, such as mother and carer-daughter, who share homes.

Alan English, City Editor, Moneyam.com

MORE GRIEF TO COME FOR UK EQUITIES

The first three months of 2008 saw the worst quarterly return for UK equities for almost six years. Much of the quarter was spooked by credit markets, which priced in default rates double those of peaks in previous recessions.

Towards the end of the quarter, the market swung wildly on the near collapse of US bank Bear Sterns, and the ensuing rescue offer. Recent weakness in UK blue chip banking stocks has been a major hindrance to the FTSE100.

Not long ago, analysts were predicting the FTSE100 would top 7,000 this year. Most investors would now be happy just to see it regain the 6,000 mark.  The FTSE250 index has continued the out-performance seen since mid-January.

In sector terms, the biggest falls have been in consumer services (retail and leisure) and telecommunications. Mining, oil services and industrials and real estate have held up relatively well.  Earnings forecasts have been surprisingly resilient, and company management are still upbeat. Results announced in Q1 showed some deterioration, but there were still more companies beating than missing forecasts. Despite the large earnings downgrades to banks, estimates have not fallen in aggregate because of the strong demand for commodities which continues to boost mining profits.  The big question is whether the UK stockmarket is over the worst, or whether there is more grief to come.

Alan English, City Editor, Moneyam.com

UK HOUSING SLOWDOWN CONTINUES

The slowdown in the UK housing market is showing no signs of abating, with prices falling in February for the fourth consecutive month, taking annual growth to its lowest in over two years, according to a key survey of the sector.

In its monthly survey of the housing market, the Nationwide Building Society said house prices fell by 0.5% in February from January.  This takes the annual rate of house price growth right down to 2.7% from 4.2% in December, the slowest rate of growth since November 2005 and bringing the average cost of a house in the UK to £179,358.  “The trend in prices is clearly weakening”, said Fionnuala Earley, Nationwide’s chief economist.

Nationwide agrees with the suggestions in the latest Bank of England inflation report that the outlook for the UK economy is more likely to be one of slower economic growth rather than recession, a factor which should help support the housing market.

“While there are several factors which are slowing housing market demand, from poor affordability to weakening house price growth expectations to tighter credit conditions, the fact that an economic recession in the UK seems unlikely provides some support for the overall health of the housing market”, Earley said.  “There is currently an unprecedented amount of uncertainty about future economic conditions, but if the BoE’s central projection that the economy continues to grow is correct, conditions for the UK housing market are perhaps less gloomy than some would have us believe”, she said.

Alan English, City Editor, Moneyam.com

SAVING BACK IN FASHION FOR 2008

Saving is back in fashion and 2008 looks like it will be the year of the saver as the cautious seek a safe haven from fallout from the Northern Rock crisis, turbulent share prices and fears of a recession.

New research from Bradford & Bingley found that saving more and taking greater care of managing their finances are Britons’ top two financial resolutions for the New Year.  Nearly half (48%) intend to save more, two in five (40%) intend to manage their finances more carefully, just over a third (38%) intend to spend less, with more than a quarter of Britons (26%) determined to claw themselves out of the red next year.

Just before Christmas, the Building Societies Association reported record inflows for the month of November with more than £2.3bn of new savings cash - the third highest amount ever and almost three times the £848m received in the same month the previous year.

With banks and building societies finding it harder to access the funds they need to lend on to mortgage borrowers, some are raising savings rates or at least not dropping them in line with last month’s 25 basis points cut in the Bank of England base rate in order to attract depositors looking for a safe home for their money.

Alan English, City Editor, Moneyam.com

UK INTEREST RATES 2008

Cash-strapped UK homeowners can look forward to three cuts in interest rates in 2008, according to city economists who have examined the Bank of England’s quarterly inflation report.  In the report, the Bank forecasts that the economy will slow in 2008 as the impact of five rate rises in 15 months, the current strength of the pound and the recent uncertainty in financial markets all take their toll.  The Bank cut its 2008 economic growth forecasts to around 2.2%, following a similar downgrade by the Treasury.  The BoE Governer, Mervyn King, also said the economy would overcome the blow to confidence from the problems of Northern Rock, with inflation expected to return to target.

A big downturn would enable the base rate to be cut to 5%, bringing much needed relief to millions of borrowers who have seen rates soar from 4.5% to 5.75% since summer last year.  Many homeowners have faced crippling jumps in their monthly mortgage bills after cheap fixed-rate deals come to an end and they were forced to re-mortgage to a more expensive deal.

The first step in the process occurred in December when the BoE Monetary Policy Committee trimmed the UK base rate to 5.5%

Alan English, City Editor, Moneyam.com

Boom Time for UK Debt Enquiries

New figures show that debt enquiries to Citizens Advice Bureau in England and Wales have hit a record high, increasing by 20% in the last year and bringing the total to 1.7 million in 2006/07.  Citizens Advice says the figures confirm there is no let-up in the rising toll of casualties from an unprecedented consumer credit boom and recent sharp increases in the cost of living, making mortgages, council tax and utilities more expensive for many people.

Debt is now the number one issue advised on in bureau, accounting for one in three of all enquiries, and CAB advisers around the country are dealing with over 6,600 debt problems every working day.  Credit debt problems of all kinds increased by 14%, while problems with overdrafts and unsecured personal loans increased by more than 18%.  Enquiries about bankruptcy jumped by 50%.

The figures also indicate that many hundreds of thousands of people are increasingly struggling to meet their day-to-day living expenses.  Gas and electricity debt problems shot up by a third, while council tax debt enquiries went up 25% and telephone debt problems by 19%.  Problems with mortgages and secured loans were up 11%.

Alan English, City Editor, Moneyam.com

More People Left the UK Last Year than in  Any Year Since Modern Records Began

Figures from the Office for National Statistics (ONS) indicate that some 385,000 people left the UK for the long-term in the year to mid-2006.  Long-term migration into the UK, meanwhile, was 574,000.  The figures show the UK’s population grew to 60,587,000 - an increase of 349,000 (0.6%).  They also suggest there were 159,000 more births than deaths.  Of those who left the UK last year, 196,000 were British citizens, while 189,000 were “long-term migrants” who had been living in the UK for more than a year.  The latest figures available from the ONS for the most popular places among emigrating Britons show that (from January 2004 to December 2005) Australia was the most popular.  Those figures suggest that, over that 2 year period, 71,000 British citizens started new lives in Australia compared with 58,000 in Spain and 42,000 in France.  Dean Morgan, of the website workpermit.com, said the bad summer weather had led to a large number of enquiries about emigration.  “Perception of crime is another of the main reasons for people wanting to leave”, he said.  “Also, people are worried about their children and they worry about their jobs and their future here and possibly the economy as well”  Australia seemed to be the most popular destination for emigration, Mr Morgan continued.  “New Zealand, Canada and South Africa are also popular”, he added.  The statistics also suggested that the number of people aged 85 or over grew by 6% to 1,243,000 while the number of people of retirement age increased by 1% to 11,344,000..

Alan English, City Editor, Moneyam.com

UK House Price Growth Edges Up

House price growth in the UK edged up slightly in July, but remained sluggish enough to confirm expectations that the property market is beginning to cool, the country’s biggest mortgage lender said.  Halifax, which is part of the HBOS banking group, found that UK house prices, on a seasonally adjusted basis, rose by 0.7% in July, slightly up on June’s 0.4%.  As a result, prices were up 11.2% in the three months to July compared to the same period a year earlier, a touch higher than June’s annual rate of 10.8%.  Figures published by the Nationwide showed that the average home rose in value by 0.1% in July, compared to 1.1% in June, bringing the annual rate down to 9.9%.  At the same time, the value of existing properties in Spain fell by 0.4%.

The average house price now stands at £198,915, according to Halifax and £184,270 by  Nationwide’s estimation.  “We expect the downward trend in house price growth to continue as the five interest rate rises since last summer have an increasing impact on household spending and housing demand” said Martin Ellis, chief economist at Halifax.  However, he added that the high level of employment and the property shortage in some areas of the UK mean that prices are unlikely to actually fall.

The news that the Bank of England decided to maintain UK base interest rates at 5.75% in August is seen as supporting the gentle pace of price cooling, although most analysts believe a rise to 6% or more is inevitable later in the year.

Alan English, City Editor, Moneyam.com

SAVINGS

Nearly half of British people do not save enough money for their holidays but jet off anyway leaving the credit card to pick up the tab.  Research by Alliance & Leicester shows that 10% of people take holidays without paying for the previous one and one in four took a year to pay off their last holiday.  Most people are indulging in two holidays a year but 44% of people do not save up the full amount needed for their holidays.

As well as not saving up, many Brits are overspending on holiday, with 27% of people admitting to spending more than they intended and 9% said they overspent their budget by over £500.  A fifth of people who go all out on spending put the extra cash on a credit card that they cannot afford to pay off straight away.

A spokesman for Alliance & Leicester said: “We all like to have a holiday to look forward to each year and for many booking another one is the perfect way to beat post-holiday blues.  With holidays just a mouse-click away, the temptation to get away from it all has never been greater.  Holiday dreams can turn into financial nightmares.  So much time and effort is put into booking and planning our holidays, it’s important the same attention is given to considering how to fund them.”

Alan English, City Editor, Moneyam.com

SPAIN SET FOR A SLOW DOWN?

The International Monetary Fund (IMF) believes that Spain is on course for a gentle economic slowdown but warns of risks from high private sector debt and a possible property market crash.  “The central scenario of a smooth deceleration of growth over the medium term”, the body said in a report released recently.  That gentle outlook came with reservations.  The IMF warned the “sustained increase in private sector indebtedness” seen in the country’s current account deficit may dent the economy, leading to a more prolonged slowdown.  The IMF is particularly worried about a “sharper-than-expected balance-sheet consolidation” in corporate Spain and a “possible correction in high real estate valuations” and said companies may move to consolidate their balance sheets.  Speaking on real estate, the members said the slowdown so far has been gradual, with “deceleration in line with the scenario of a smooth landing”, but advised that the Bank of Spain must be vigilant.  The need to regain competitiveness within the eurozone may also put a drag on growth, it said.  The IMF recommended remedies.  It stressed the need to “safeguard budgetary stability” and said demand will have to be tempered.  Furthermore, it said Spain must become more efficient, expanding supply and improving its competitiveness by “increasing productivity and reducing inflation” compared with the eurozone.  It said Spain’s recent fiscal progress was due to buoyant revenues although spending has continued to rise steadily.  It recommended that the government’s budget for 2008 maintain spending, as a proportion of GDP, at a constant level.  Regional Spanish were also called on to tighten their belts.  The IMF encouraged early action to place the pension and health care systems on a sustainable long-term path.

Alan English, City Editor, Moneyam.com

WHO CARES ABOUT DEBTS?

Remarkably, approximately 6 million Britons would only start worrying about their debts, excluding their mortgage, if they passed £15,000.  This includes the 5% - or 1.4 million people - who would only start to be concerned if their debts exceeded £50,000.  Even so, getting into the red is still seen by many as a major social taboo, with 18% citing bankruptcy and 11% getting into debt as their most socially embarrassing life event, well ahead of being caught using illegal drugs or getting a divorce.

The findings come as consumer confidence reaches an annual high with CreditExpert’s Personal Credit Index showing a three point rise in the last quarter to 100, a figure last seen in April 2006.  This rise in confidence could be seasonal, with the sunny spring weather, longer days and two council-tax free months playing a part, as well as recovery from the post-Christmas spending binge.

The study also reveals that the percentage of people with credit or loans who say they are very comfortable with their borrowings has jumped from 29% in January to 41%.  More than half (54%) of all adults are comfortable with their level of borrowing, a six point rise on the previous quarterly Index.

The Index, which is based on survey data from Ipsos MORI in April 2007, tracks consumers’ current credit confidence and future expectations on a quarterly basis.

Alan English, City Editor, Moneyam.com

UK BUDGET TAX CHANGES

Gordon Brown has delivered what is almost certainly his last UK Budget with the surprise announcement at the end of his speech that basic rate income tax will be cut from 22% to 20%, though not until April 2008.  He also raised the starting point for the higher 40% tax rate from its current level of £33,00 of taxable income, to £43,000, also in tax year 2008-09.  However, there is a sting in the tail which will affect those on low incomes.  The 10% income tax rate which currently applies to the first £2,150 of taxable income is to be abolished, so at today’s tax rates and allowances, anyone with income of £7,185 will be £215 a year worse off in 2009.

Pensioners will benefit from an above-inflation increase in personal allowances up from £7,280 for the current tax year 2006-07 to £7,550 for 2007-08 for those between the ages of 65 and 75 and an increase from £7,420 to £7,690 for the over 75s.

The chancellor said that this means some 580,000 pensioners will pay no tax at all and by April 2011 no pensioner aged 75 or over will pay any tax until their income reaches £10,000 - the official poverty level.  This will put only an extra £27 a year in the pockets of the over 75s because at the moment these pensioners pay only 10% tax on the £270 of income that will escape tax from April 2008.  The chancellor also announced that the inheritance tax threshold will rise to £350,000 for the tax year 2010-2011.  The thresholds for earlier years have already been announced and stand at £300,000 for 2007-08, £312,000 for 2008-09 and £325,000 for 2009-10.

Alan English, City Editor, Moneyam.com

YOUR UK WILL IS IMPORTANT

An up-to-date, correctly-written will should be a key element of anyone’s financial planning.  Surveys show most UK adults do not have such a will; either because one was never written in the first place or because their circumstances have changed and they have failed to amend an existing will.  Inertia and a fear of tempting fate often over-ride the obvious common sense of making a will.  Motivate yourself by considering the consequences of not writing down your wishes.  In the UK when no will exists and one partner dies, his or her spouse is entitled to the first £200,000 plus personal belongings and half of the estates’ residue, providing there are no children.  If there are children then the spouse gets £125,000 and half of the remainder in the form of a life trust, where the children share the other half.  If you are not officially married your surviving partner has no automatic right to any of your inheritance when you’ve left no written will.  This is “dying intestate” and comes with a rigid set of rules determining who gets what.

Children, grandchildren, parents, siblings, nephews, nieces, aunts, uncles and grandparents are all in the queue.  If no takers can be found, your estate goes to the Crown.  It is especially important for unmarried couples to write wills.  The situation is clear; die intestate and your partner will receive zero if you’re not married, no matter how long you’ve lived together.

Most people’s biggest asset is their home.  If you plan to bequeath your share of it to someone other than your co-owner, ensure you and the co-owner are registered as tenants-in-common rather than joint tenants; otherwise the property will be automatically transferred to the surviving owner.

Alan English, City Editor, Moneyam.com