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Mortgage Lending Up but Skipton Raise Rates - 28-01-2010
Mortgage lending was "surprisingly strong" in December, but the figures came as one building society announced a sharp rise in rates.

The Council of Mortgage Lenders (CML) said UK mortgage lending increased by 14% in December compared with November, to £13.7bn. But Skipton Building Society announced that thousands of its customers would see a hike in their mortgage bill. It will raise its standard variable rate from 3.5% to 4.95% on 1 March. It is removing the ceiling on the standard variable rate (SVR) that guaranteed the rate would be no more than 3% above the Bank rate - which is currently at a record low of 0.5%.

The building society - the fourth largest in the UK - said that it was enacting the clause in contracts which allowed it to remove the ceiling "in exceptional circumstances". Some 29,000 Skipton customers will see rates rise in March, with another 35,000 on deals that will revert to the SVR in future months. Relatively few lenders have similar ceiling promises in place for existing borrowers.

Property Sales Hit 2 Year High - 28-01-2010
Further evidence of the recovery in the UK housing market has come from figures showing completed residential property sales hit a two-year high in December. Provisional figures from HM Revenue and Customs (HMRC) show 104,000 deals involving properties priced above £40,000 were completed in December.

It was the first time since December 2007 that the number has risen above the 100,000 level. Transaction levels had hit their lowest point during the slump in January 2009. In that month, only 41,000 properties were sold. This was the smallest number sold in any month since current records began in 1977. Lower level The rebound in sales and prices as 2009 progressed took most analysts by surprise, yet many have predicted a relatively static 2010.

The HMRC figures revealed that the number of sales in 2009 ended up relatively similar to the level of the previous year. Some 848,000 homes were sold during 2009, the HMRC said, which was a slight fall from the 920,000 sold the previous year. However, this was in stark contrast to the housing boom earlier in the decade. In 2007, there were 1.62 million properties sold, which was close to the 1.67 million of 2006. Both the Nationwide and Halifax house price surveys calculated that prices ended 2009 slightly higher than they were at the start of the year.

Mortgage approvals up - 28-01-2010
The number of mortgages approved for house purchases rose at the end of last year, according to figures from the major UK banks. But overall, mortgage approvals in 2009 were 27% lower than the previous year and the lowest since British Bankers' Association records started in 1997. Some 45,897 home loans were approved for house purchases last month. This showed the extent of the recent recovery in the mortgage market as it was double that of December 2008. The association's statistics director David Dooks said the proportion of mortgages approved by the major UK banks had grown. He said the squeeze on mortgage lending during the downturn had come from specialist lenders largely withdrawing from the market and a contraction in building society finance

Will UK interest rates go negative? - 09-09-2009
The last time the Bank of England met, in August, it shocked many by increasing the amount of extra money it was pumping into the economy. The Bank added £50bn into the economy through a process known as quantitative easing (QE) - £25bn more than its original plans to create up to £150bn on the UK's balance sheet by, in effect, printing money. Some suggested this was a sign that Bank Governor Mervyn King does not think that QE is working yet. And the central bank has cut interest rates to a record low of 0.5% in an attempt to boost lending in the economy.

So, should the men that set our interest rates consider setting interest rates below zero? Swedish case The British Chambers of Commerce (BCC) suggested on Wednesday that this should be the case. "One must now question the conventional view that cutting rates below 0.5% will not help," said BCC chief economist David Kern. "By cutting rates further and by considering, in limited circumstances, a negative interest rate - along the lines adopted in Sweden - the MPC could discourage hoarding of cash, and encourage lending," he added.

The discussion among economists of negative interest rates comes directly from what happened recently in Sweden. In July, the Swedish central bank - the Riksbank - surprised many when it set a rate at -0.25% - below zero for the first time. That was on the deposit rate - the rate on money left by commercial banks at the central bank, which it normally earns positive interest on. Banks were, in effect, being charged for keeping money at the central bank rather than lending it out to consumers and businesses to boost consumer spending and growth. Riksbank head Stefan Ingves said it was better for banks to be "active" rather "than just sit on the money". Extra lending is, of course, the point of QE. Banks in the UK currently have about £136bn in reserves held at the central bank, according to the most recent official figures.

The idea that the UK could adopt that model was further stoked by comments that Mr King made on the Swedish policy decision. "It's an idea we will certainly be looking at, whether the effectiveness of our asset purchases could be increased by reducing the rate at which we remunerate reserves," King told reporters recently. He has been worried that banks are hoarding the extra cash that has been given to them, rather than lending it out to the wider economy. This makes it seem likely that the Bank will adopt a negative interest rate, either today or in the near future. Or does it? Not true "There are not negative rates in Sweden, or anywhere," said Goldman Sachs economist Ben Broadbent. He says that while formally the deposit facility has a negative rate, in practice the Swedish central bank uses other methods to take care of banks' excess reserves and the deposit facility is not actively used. Mr Ingves admitted as much: "It is more symbolic because it's a system which de facto isn't really used," he said. "It shows that this is technically possible to do, but it's in no way a major component in the way we execute monetary policy today." And the Riksbank has not adopted QE, and so is not pumping money into its economy in the same way. (And anyway, it was a rate for commercial banks, not consumers. So there was never any chance of them passing it on and people having to pay nothing on their mortgages, for example.) In fact, Mr Broadbent argues that it is almost impossible to have an actual negative interest rate. This is because it makes no sense to keep money with the central bank - and be fined for the privilege - when you can just keep your money in cash and pay nothing. Mr Broadbent said some have suggested that the only way to have a negative rate would be to "to tax physical cash" - by physically removing bank notes from the system, such as taking out £10 notes above a certain serial number. "The idea that by looking at the reserves at the Bank of England and saying that shows it's not being passed on by banks is nonsense," he said. Tweaking QE It is difficult to know exactly what the Bank is thinking of doing next, or if it is even thinking of changing QE at all.

Mr Broadbent thinks Mr King and the other members of the rate-setting Monetary Policy Committee could be discussing introducing a "second" interest rate. Currently, commercial banks are forced to keep a certain proportion of their funds with the Bank - known as its excess reserves - on which the central bank pays 0.5% interest. What the bank could be considering is keeping the current deposit rate on a certain percentage of their reserves, and then charging a a zero interest rate on the rest, Mr Broadbent suggested. "This would improve and increase the power of QE," he said. That is because it would encourage the individual banks to expand their balance sheet - moving their reserves into something that offers a higher return, such as making new loans. This is how QE is supposed to work - by encouraging banks to lend on and therefore increase the supply of money in the economy, rather than in the central bank's vaults. He argues this is better than what the BCC suggests, which is to cut the base rate lower from 0.5%. "The problem is that this also reduces banks' earnings," Mr Broadbent said, because the banks get less interest on their deposits and on revenues from products linked to the base rate, such as tracker mortgages.

Wait and see One question would be: why would Mr King want to make any changes to QE now? Recent data has encouraged the view that an end to the recession is in sight. This week, respected researchers the National Institute of Economic and Social Research said the UK economy grew 0.2% in the three months to August. And official data recently showed UK manufacturing output rose at its fastest rate in 18 months in July. "It's very puzzling, because the economy is certainly a lot better than it was before," Mr Broadbent said. "You would have thought it would have been best to do this in March" when QE was first announced. The Bank would only change the way QE worked if it thought it was not working.

Many think that QE has been a success. And the Bank has said the results of the exercise will not be known until at least nine months from the start of the plan. It will probably won't be until the next set of minutes of today's Bank's meeting, released on 23 September, that we will know more about what Mr King and his colleagues really think about QE and whether it has been successful or not. Source: http://news.bbc.co.uk/1/hi/business/8246449.stm

Mortgage approvals 'on the rise' - 29-07-2009
Signs of a further pick-up in the housing market during the summer have been revealed in the latest figures from the Bank of England. The number of mortgages approved for house purchases in June rose to 47,584 - up from 44,169 the previous month and the highest number since April 2008.

It was the fifth month in a row that approvals have risen. Another survey suggests a spillover onto the rental market, with the number of "reluctant landlords" falling. The supply of rental properties more than doubled in the year to May, as people who could not - or chose not to - sell looked for tenants instead. But now a squeeze on the number of properties on offer, and the traditional summer increase in tenant demand, has meant that typical rents have risen by £6 a month since May, according to website Findaproperty.com. 'Gradual' improvement The Bank of England's mortgage approval figures are still well down on levels seen in the housing boom and indicate that demand is still subdued. "Demand is flat because potential buyers believe that the bottom of the market has not been reached yet," said Chris Skinner, banking analyst at Balatro. He said house-buying chains were being broken as a result, but that banks were starting to make mortgages more accessible to customers.

The Bank's figures show that net lending for house buying in June, by all lenders, grew by £343m - only very slightly higher than the rise in May which was the smallest monthly increase on record. The number of mortgages approved for remortgaging grew to 35,011 in June, although this was below the average of the last six months. The number of other loans secured on people's homes also increased in June compared with May. "I think the mortgage approvals data suggests that the market is improving gradually, and in our view it will continue to improve over the next coming months, said Amit Kara, UK economist at UBS. "This in part because there is resilient demand, but also because Northern Rock and some of the other banks are being encouraged to lend." 'Challenging' times

The value of mortgages approved by building societies was at the highest level of the year in June, according to the Building Societies Association (BSA). However, while this offered signs of stabilisation, the value was still more than 30% down on the same month a year earlier. In the savings market in June, building societies saw customers withdraw £2.2bn more than they put in in June, compared with depositing £419m more than they took out last June. "The withdrawal experienced by the building society sector is not unexpected given the very challenging economic backdrop," said the BSA's head of savings Brian Morris. "With rising unemployment, subdued income growth and the official Bank rate at an historic low, it is very difficult to attract retail savings. "There is evidence households are looking to take advantage of the low interest rates to pay off debt rather than save. These conditions are expected to persist into 2010."

The Bank of England figures also showed that the increase in the amount that consumers had borrowed in June was in line with the average of the past six months. Net consumer credit increased by an estimated £71m in June, led primarily by net credit card lending which rose by an estimated £167m. The net figure on other types of loans and advances fell by £96m. This was still well down on a year ago. In June 2008, before the height of the credit crunch, there was an increase in net consumer credit of £716m.

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