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The UK’s Bank of England Monetary Policy Committee (MPC) has reduced base rate by a further 0.5% and voted to begin quantitative easing, a less conventional economic stimulus to increase the money supply.

Neil Young, CEO – Young Group, believes its greatest impact will be to broaden the divide between the mortgage ‘have’ and ‘have nots’. Those with existing mortgage loans will see a benefit but first time buyers or those looking to secure a new mortgage still face hurdles that are not helped by a reduction in base rate.

“The fall in interest rates is good news for those who already have a mortgage in place but is adding to inertia in the market. Lower base rates are no incentive for first time buyers, nor those seeking new mortgages, as tough lending criteria mean they remain out of reach to all but those with significant deposits or equity,” commented Neil Young. Read more…

It was widely predicted that the UK’s Bank of England Monetary Policy Committee (MPC) would announce a further cut in base rate today. In line with consensus predictions, the rate has been reduced by 50 basis points, bringing the base rate down to a new all time low of just 1%.

Neil Young, CEO – Young Group, is concerned that this month’s cut in the UK’s base rate will not have the impact that the Bank of England hopes. “The further cut in base rate will benefit those lucky enough to be on tracker mortgages and some on standard variable rates if the lenders opt to reduce their rates, but in total that’s only around 35 per cent of mortgage holders.”

Up to 65 per cent of borrowers will see no benefit from the Monetary Policy Committee’s (MPC) decision and are not in a position to change their mortgage for a more favourable product due to lenders’ restrictive lending criteria.

“The economy is crying out for liquidity but successive cuts in base rate have not made an appreciable impact on lenders’ willingness to provide credit. Whether purchasers and homeowners are looking for mortgages or businesses are seeking funding, lenders are still placing restrictive hurdles in their path,” continued Young. Read more…

The UK ground to a halt this week as the result of a straining transport network brought to its knees by the heaviest snowfall in 18 years.

The effect was most stark in London, which saw all of the capital’s buses confined to their depots and only a handful of train services running and only one tube line functioning. The Federation of Small Businesses (FSB) has estimated that 1 in 5 workers were not able to make it into the office, at a cost to the economy of £1.2 billion per day.

Young Group’s CEO, Neil Young commented; “The cost of the adverse weather is staggering, but it has been those lucky enough to live in city centres, close enough to walk to work, who have been left holding the economy together.” Read more…

House price data for December 2008 issued today by the Land Registry indicates that UK house prices fell by 13.5% during 2008. Property portfolio managers Young Group takes the opportunity to set 2008’s house price movements in its wider context against equity and pension fund performance. Neil Young, Young Group’s CEO also reflects upon untapped demand and constrained supply that could indicate future rapid recovery of house prices.

“There’s truth behind the phrase ‘as safe as houses’.
People will always need a roof over their heads; there’s
an inherent demand for homes.”

Neil Young, CEO – Young Group

The Property Market:

• Property prices do fall e.g. in the early 1990s, property in England fell by 15%.
• Property prices have fallen only in 5 out of the last 55 years. House prices are currently more than three times the level of the early 1990s. (Source: DCLG)
• Property has a 100% record of price recovery.
• Taking an aggregate of indicators, UK property prices fall by an average of 12.8% during 2008. (Source: Chesterton Poll of Polls)
• Historically property doubles in value every 7-10 years. (Source: DCLG) Read more…

Today’s decision to reduce the base rate by 0.5% to an all time low of 1.5% was widely anticipated but base rate cuts alone are no longer an effective economic tool.

The direct impact of base rate cuts felt by borrowers is limited by lenders’ collared tracker products and their unwillingness to pass on the lower rates in SVRs. This is seen particularly from lenders that are not government funded. However, today’s fall does offer a degree of reassurance and stability.

Neil Young, CEO of property portfolio managers, Young Group, believes that with rates so low, and with little scope to fall further, lenders now have more certainty; “with rates reaching a new low, there is a limit as to how much further they can fall. This enables lenders to increase the confidence of their forecasts when planning product for the year ahead and should lead to an increase in their willingness to lend.”

“This first MPC decision of 2009 is akin to the Bank of England giving its opening team talk of the season. Base rate is unlikely to fall much further, lenders know what’s expected of them and the onus is now on them to go out there and perform.” Neil Young, CEO – Young Group Read more…

Today’s Bank of England base rate cut from 3.0% to 2.0% will boost the buy-to-let sector by more than £400 million, according to property portfolio managers, Young Group.

Furthermore, Young Group has identified that, all told, this year’s cuts in base rate from 5.5% to the current level of 2.0% has boosted the buy-to-let sector to the tune of £1.4 billion*.

Investors see their income from property taxed – typically at 40 pence in the pound – which means that the Treasury’s annual take of the revenue could amount to £560 million, representing £80 million for each and every 0.5% drop in rates.

“December’s 1.0% rate cut alone saw investors with tracker mortgages provide an additional Read more…

Today’s unprecedented 1.5 per cent cut in base rate is great news for those with tracker mortgages – and may also bring relief for those on variable rates.

Buy-to-let investors at Young Group’s myBASE1 development in Southwark completed on their purchases earlier this year, the majority taking tracker rate mortgages; many on 3 year deals tracking below the base rate, for example with Birmingham Midshires – part of HBOS – tracking 0.4 per cent below base rate, and thanks to subsequent base rate cuts, are now saving over 50 per cent on their cost of finance.

This translates to a widening in the yield gap on an average £360,000 2 bedroom apartment at the development to 2.4 per cent, providing investors with an additional £650 per month in their pocket.

“The death of buy-to-let is something that’s been touted in the press for some time, but looking at the hard facts the picture is far from one of doom and gloom, and the benefits seen by investors at myBASE1 in Southwark, London are being experienced by anyone on a tracker mortgage” pointed out Neil Young, CEO of property portfolio managers Young Group. Read more…

November’s meeting of the Bank of England’s Monetary Policy Committee (MPC) is widely expected to result in a second consecutive base rate cut of 0.5% but may not bring relief for homeowners.
Neil Young, CEO of property portfolio managers, Young Group, explains that whilst this would be good news for the 30% of home owners that currently have tracker mortgages, a reduction in base rate alone will not be the cure-all that many expect.

“A cut in base rate alone is not a magic bullet. The credit markets rely heavily on the bank’s confidence, reflected in the rate of interbank lending. The 3 month LIBOR rate has not fallen significantly since the Bank of England’s surprise half a per cent cut in base rate at the beginning of October and remains around 6 per cent. Unless LIBOR falls further, the cost of finance to banks and mortgage lenders remains significantly higher than base rate and lenders will not reflect the base rate change in their products because their cost of borrowing hasn’t dropped – and consumers taking out new mortgages won’t benefit.
“I wouldn’t be surprised if lenders begin to offer mortgage products that track LIBOR rather than base rate in the near future.” Read more…

With news of the demise of Lehman Brothers, the respected 158 year old investment bank, on everyone’s lips it’s an opportune time to reflect on the performance of equity investments and tangible property assets.

The Property Market:

• Property prices can fall e.g. in the early 1990s, property in England fell by 15%.
• Property prices have only fallen 5 out of the last 55 years. House prices are currently more than three times the level of the early 1990s. (Source: DCLG)
• Property has a 100% record of price recovery.

• Despite current headlines, UK property prices have fallen by an average of just 1.2% year on year 2007-2008. (Source: Chesterton Poll of Polls)

• Historically property doubles in value every 7-10 years.

The Financial Market:

• Stocks also fall e.g. in the 3 months post ‘Black Monday’ in 1987 the FTSE 100 fell by 33%.
• Since the FTSE 100’s last high of 6,939 in Dec 1999, it has still not recovered (reaching a high in September 2007 of 6,752) and now stands at 5117 (down 24% from September 2007).

• Companies cease trading: Lehman Brothers, Northern Rock, Railtrack, Rover, etc – where 100% of the investment can be lost overnight.

“Don’t invest if you don’t understand: the ‘Dragons’ don’t…”

Read more…