Property prices – where will they stop?


The National House Building Council announced that the number of new build houses built in the UK between from the month of March to May rose by 4% year on year (2013-2014). Within these three months, there was a total of 37,975 new houses registered. If we annualise this i.e, multiply by 4 to give us an estimate for the year, just over 150,000 homes are being built annually. This is just over half the amount of houses the Future Homes Commission recommended the UK would need to build each year to keep up with household and population growth, not to mention the vast interest from foreign investors in the UK’s thriving capital, London. The current demand is estimated to be almost double the supply, there is no doubt prices will continue to rise for the foreseeable future. The Bank of England announced a cap on mortgage lending last week in an attempt to normalise the housing market. The Financial Policy Committee (FPC) have announced that no more than 15% of any financial institutions (bank/building society) new house purchase lending can be at a Loan to Income (LTI) of 4.5 or more.

Loan to Income example
John earns 55k and Tina earns 45k. Together they want to buy a house. A loan to income of 4.5 essentially means they borrowed 4.5*(45k + 55k) = 4.5*(100k) = 450,000

Institutions have been lending at higher LTI ratios primarily due to a combination of slow living wage growth in the UK and an increase in property prices due to demand outweighing supply and overseas cash buyers.

In my opinion, I don’t believe this will solve the problem. If anything, it will price out more domestic first time buyers out of the market with more power given to foreign investors to continue to drive up prices and make becoming a homeowner an ‘elite’ privilege in the nearer future.



Mortgages: if it wasn’t hard enough already…


Following the 2008 financial crisis, the Financial Conduct Authority (FCA) took a detailed look at the mortgage market with a view to address what has been seen in the past as irresponsible lending practices. As a result, on the 26th May individuals in the UK get a mortgage changed and new rules introduced by the FCA have now come into effect.

Going forward, lenders of residential mortgages will have to demonstrate that they have taken appropriate steps to ensure the borrower can afford the mortgage not just at the time of application but also if interest rates were to go up in the future. There will also be much more focus on the individuals expenditure as well as income and more supporting evidence will now be required. As a result, mortgage applications are going to take longer and any potential interest rate rises would be negatively correlated with the amount of money. It would be interesting to see if the amount of mortgage applications spike up this month to avoid the impending regulations – I would assume so. What surprises me is why wasn’t this introduced earlier? A major contributor of the crisis back in 08 was the greed of mortgage brokers who were arranging sub-prime mortgages for any Tom or Jerry who could barely afford their mortgages at the time and became screwed when rates rose. This change in my opinion comes a few years later than it should. It will also be interesting to monitor the next quarter how the number of mortgage applications is affected, and whether there is a spike in the amount of joint mortgages obtained in the UK (whether that figure is available is another issue). I would expect to definitely see an increase due to additional checks which will be implemented making it even harder to obtain a mortgage. As if it wasn’t hard enough already!

What effect may this have on property prices you may wonder? I believe it won’t. There will be many individuals who may now become priced out of buying in a very over saturated market, but prices will continue to rise as overseas investment in UK properties continues to pick up. How does that affect you and I? Well the stringency in the long term would be beneficial to us as the unfortunate scenario of property repossession is taken into account, however in the short term it is a pain. Future income (fixed and/or variable) is hard to predict; so over cautious mortgage lenders may affect the chances of an individual stepping on the property ladder.

Watch this space.


The economic recovery – UK employment


On Wednesday the Office of National Statistics released information which can be seen as an indicator to how the British economy is faring. The unemployment rate of the economically active population is now 6.9%, the lowest since 2009 and the number of people in work is 30.39 million. The number of people out of work fell by 77,000 to 2.24 million in the three months to February.  The jobless figure for 16 to 24-year-olds fell by 38,000 in the three months to February to 881,000, the lowest for five years (source BBC business).

What does this mean in reality? In a perfect scenario everyone would be employed, earning money living happily ever after – however their are a finite number of resources and jobs available. There has been a mindset shift amongst individuals where they are now content with doing a diverse range of jobs than just their preferred role which was over saturated with respect to the number of applications received for each individual job opening. A reduction in the number of unemployed individuals is definitely positive for many reasons. Being able to provide for ones self provides a psychological sense of independence, which should* lead to improved morale and long term productivity. Productivity is an interesting one however because it’s not the easiest variable to measure – a traders measure of productivity would be completely different to a cleaners appraisal.

A reduction on the number of unemployed individuals in the UK also has an impact on the amount of benefits claimants. The claimant count – the number of people claiming Jobseeker’s Allowance – fell by 30,400 to 1.14 million in March. This is positive as benefits are essentially paid by government through the income generated primarily through taxes and spending cuts so the less benefits paid by the government, the more money saved which could be to reform the economy.

Also the Gross Domestic Product / Gross Domestic Income of the UK will increase. The higher the GDP, the healthier the country is economically, so this is definitely a positive sign for Britain. Youth unemployment however is still an issue. Although the amount of 16-24 year olds without work is decreasing, the youth unemployment is worryingly high at nearly 20%. Curbing this is a priority for Labour Government if they win the next general elections – under their Jobs Guarantee plan, 18 to 24-year-olds out of work for a year will be offered a taxpayer-funded job for six months – with those who refuse losing benefits.

In conclusion there is still a lot of work globally that needs to be done to fully recover from the aftermath of the financial crisis but the signs definitely good for the UK, considering parts of Spain still boast of unemployment rates of around 26%. Continued and stable progression should be the aim, with the low interest rates remaining low for the considerable future, companies can afford to borrow more to expand their operations and hire even more people who are out of work.

Make sure you follow @capitalmoments big things coming very soon.

*This is my assumption and cannot be taken as a scientifically proven theory – it makes sense though right!

The Budget Breakdown Part 1- Savings & Taxes


On the 19th of March 2014 George Osborne delivered his second budget proposal to Parliament. The Budget, or Financial Statement, is a statement made to the House of Commons by Chancellor of the Exchequer that outlines the state of the British economy. It provides a detailed outlook on the nations finances and any proposals to changes in Taxation.

The outlook of the Budget was deemed to be positive – further strengthening peoples beliefs that the UK economy is on the path to recovery, recovering at a faster rate that what was forecasted. This lead to the Governments independent fiscal watchdog, The Office of Budget 13 Responsibility, revising their forecasts for UK growth in 2014 to 2.7% an increase of 0.3% from the prediction from December. The unemployment rate has had a revised forecast of 6.8% from 7.1% predicted in December ’13. This rate is expected to fall to 6.5% in 2015, 6.1% in 2016 and 5.7% in 2017. What does this mean you may wonder? Simply less people will be out of jobs year on year primarily down to the improvement in the market paving the way for the creation of new opportunities in the UK. Inflation (Consumer Price Index) is expected to be at 1.9% which would finally lead to the money people take back from work after tax (the real wages) increasing

The focus of my post today is to breakdown the Budget’s implication on us from a savings and taxation perspective.

Personal Allowance – Personal allowance has been raised to 10,500 in 2015-16. The personal allowance is the first chunk of income that individuals can earn before they have to pay tax. Now this has been raised, this benefits people on the lower end of the income spectrum as firstly more will avoid the income tax burden and secondly it will reduce the tax bill for many more. A basic rate tax payer will save just over 200 pounds by next year on their annual income tax bill.

Premium Bonds – Premium Bonds are simply a savings account you can freely put money in and take out when you want, where the interest paid is decided by a monthly prize draw. You can win between £25 and £1 million, tax-free. The limit on premium bonds will rise from £30,000 to £40,000 in June and then to £50,000 in 2015-16. There will also now be two £1 million prize draws per month

Isa – From July a New Isa system (Nisa) will be in place which will allow cash and share Isa’s to be merged into one account with a maximum tax-free annual saving of £15,000. The Junior ISA saving limit also increases to £4,000. Demi (Thenoviceinvestor82) will elaborate about this more on his post on investments.

Higher rate tax – the higher rate tax threshold has been increased for the first time in years. Higher rate tax will be payable on income over £41,865 in 2014-15 and goes up to £42,285 in 2015-16.

Pensions – A reform of the UK’s pension system which will completely overhaul the way Britons save for retirement was announced. Pensioners have been given more control and flexibility over their pension funds. From April 2015 savers with defined contribution policies no longer have to buy an annuity when they retire. People will be free to withdraw some or all of their pension pot at any time and will only be taxed at marginal income tax rates rather than at the current rate of 55%. This had catastrophic effects to some of the players in the pensions industry – specialist annuities provider Just Retirement saw 42.4% of its value wiped out. Another provider, Partnership was hit with shares closing 55% down. In total, £3bn off the total value of some of the biggest annuities providers was wiped out.

Defined contribution: A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee
Annuity: a fixed annual retirement income that is paid to someone for the rest of their life.

In conclusion it was a positive Budget especially for pensioners and the reforms were seen as a strategic decision by the government to win older voters ahead of the 2015 general election. However it was a difficult day for the Pensions industry and it will be interesting to see how it recovers. Lower income earners have been made better off due to the personal allowance increase.

Make sure you read the other 3 summaries to come from the Capital Moments team sometime this week on the Budgets impact on
Investments –
Consumption –
Exports –