The economy picked up pace in the three months to June, recording a sixth consecutive quarter of above-average growth and boosting expectations that further interest rate rises will be needed to curb inflation.
Gross domestic product rose by 0.8% in this quarter and by 3% compared with the same period a year earlier, according to the Office for National Statistics (ONS).
David Brown, economist at Bear Sterns, said: “Since the bulk of growth comes from consumer spending, it leaves domestic demand at risk of over-heating with negative consequences for inflation. It would be no surprise if the Bank of England is straining on the leash for another hike in rates.”
The impressive growth record has boosted tax receipts and lifted employment to record levels, but it has also created a challenge for the Bank of England, charged to ensure growth does not spur runaway inflation. However, many including the Financial Services Sector also believe that the economy has peaked and is set to slump.
UK could be set for an economic downturn
Hector Sants, new Financial Services Authority (FSA) chief executive, has reinforced the FSA’s view that the UK could be set for an economic downturn.
Speaking at the FSA’s Annual Public Meeting, Sants suggested that the UK was at the “peak of the economic cycle and have been warning banks for some time to prepare for deterioration in the credit markets”.
Sants said the FSA is focusing on ensuring firms have properly tested their business models to ensure they can withstand market volatility.
The concerns follow a number of warnings from Clive Briault, FSA managing director of retail markets, of potentially troubling times ahead for the sub-prime lending market.
In his last speech as FSA chief executive, John Tiner, said: “We have been keeping a close eye on developments and have commented in the past that risk has been under-priced. For us, the key to understand the exposures and the transmission system from investors into the banking sector which underpins financial stability and to be confident that the banks are stress testing these exposures is to test the adequacy of the amount of capital in each firm and the system as a whole.
“At present, we believe the system overall is robust, but this is clearly an area the FSA will continue to watch very closely.”
Are higher borrowing costs starting to cool demand in the housing market?
According to the British Bankers’ Association (BBA), underlying net mortgage lending growth eased in June suggesting higher borrowing costs may be starting to cool demand in the housing market.
BBA said mortgage lending rose by £5.1bn last month, down from £5.8bn in May and below the recent average of £5.3bn.
David Dooks, BBA director of statistics, said: “We’ve seen the trend gradually slowing down since the turn of the year.”
Data from the Building Societies Association (BSA) supported that view, showing net advances of £0.9bn in June, down from £1.15bn in May. The BSA said approvals amounted to £3.97bn last month, down from £4.24bn in May.
Brian Morris, BSA head of savings policy, said: “It seems the successive interest rate rises is now being felt and is affecting affordability.”
The Bank of England has raised interest rates five times since August last year as it attempts to curb above-target inflation. Financial markets expect it to hike again this year, taking borrowing costs to 6%.
“With many commentators expecting another rate rise soon, lending may well cool further over the remainder of the year and into 2008”, Morris said.
Hunt for surplus land for new and affordable homes
Following the Prime Minister’s pledge to increase the number of new homes by three million by 2020, the Department for Transport and the Department for Communities and Local Government (DCLG) have been working together to identify surplus land.
Around 470 sites have now been identified following a review with BRB (Residuary) Ltd (who looks after the residual responsibilities and liabilities of the former British Railway Board) and the Highways Agency (HA) of their surplus landholdings. These sites could make a considerable contribution to the Government’s increased target of 240,000 homes a year by 2016.
Ruth Kelly, transport secretary, said: “My department has identified over 2,500 acres of land that could potentially be used for new and affordable homes and is working with English Partnerships to ensure that this land is assessed as quickly and efficiently as possible.
“This could mark a significant contribution of land for new homes, and I am pleased that we are making such swift progress in bringing forward proposals to meet the Prime Minister’s priority of more new and affordable housing. In addition, the department is reviewing its land holdings and if further surplus land is identified housing use will be given high priority.”
Consumers, Estate Agents and Redress Bill has received Royal Assent
The Consumers, Estate Agents and Redress Bill has now received Royal Assent but The National Association of Estate Agents (NAEA) still believes there are some key issues which need to be ironed out.
The bill is designed to create a new, stronger and more coherent consumer advocacy body to introduce redress(reform) to the energy, postal services and estate agency sectors as well as improving regulation of estate agents and doorstep selling.
Peter Bolton King, chief executive of NAEA, says: “This is clearly a positive step for the industry. We believe redress for consumers is extremely important, to the extent that we already insist all our Principal, Partner and Director members belong to an independent redress scheme, as provided by the Ombudsman for Estate Agents.
“But redress on its own is not enough. Initiatives need to be put in place to prevent bad practice from happening in the first instance. By requiring all agents to belong to an approved industry body with competency standards the government could very easily address this issue.
“In addition, the issue of redress for residential lettings still needs to be addressed. The lettings market is extremely active in the UK, yet no provision has been made to provide compensation for consumers who deal with lettings agents in the latest bill. Fortunately, this is something the government has now recognised and we eagerly await further feedback on the matter.”
Tenant friendly leasing encouraged by the BPF
The British Property Federation (BPF) has launched an accreditation scheme to encourage tenant friendly leasing which will highlight those commercial landlords committed to high levels of service.
Anyone bearing The Commercial Landlords Accreditation Scheme (CLAS) badge will be committed to the new lease code and will have procedures in place to handle tenants’ concerns. CLAS has been devised by the Owners and Occupiers Property Forum, headed by consumer rights expert, Sir Bryan Carsberg.
Yvette Cooper, MP for housing and planning, said: “This new landlord’s accreditation scheme will give businesses a better deal on commercial property leases. Tenants will be able to see whether a landlord has signed up to best practice. They will be able to go to the new independent complaints board if an accredited landlord ignores the code. The challenge now is to make sure that all landlords sign up. We shall be keeping a close watch on the market to see that it makes a real difference.”
New Drainage and Water search
Severn Trent Searches has launched an enhanced CON29DW Drainage and Water search for your property’s area, ahead of the introduction of Home Information Packs (HIPs) on 1 August.
It’s a required element of HIPs, and has been designed to increase the amount of information available to homebuyers and to improve consumer protection. New elements covered in the report include risk of flooding which indicates whether a property is at risk of internal flooding from overloaded public sewers and actions that can be taken to reduce or remove that risk; risk of low water pressure or flow to assess whether a property is at risk of problems with low water pressure, location of nearest public sewage works which reveals the distance and direction to the nearest sewage treatment works from the property and therefore the risk from odour or insects and water quality analysis which ensures that water is safe to drink and aesthetically acceptable.
“The revisions and additions to the CON29DW search are sensible and benefit consumers so we decided to introduce this service in advance of HIPs”, said Mark Jarvis, general business manager of Severn Trent Searches. “It will give our customers more information on which to base their decisions, and is part of our overall aim of giving a market leading service.”
DCLG’s Housing Green Paper
The Department for Communities and Local Government (DCLG) has launched a Green Paper on housing.
The paper outlines how the Government intends to reach the Prime Minister’s target of three million new homes by 2020, and offers practical direction to local authorities and their partners in moving forward the housing strategy for the region.
Pam Alexander, South East England Development Agency’s (SEEDA) chief executive, said: “It is vitally important that we achieve a balance between the provision of affordable and sustainable housing in the South East which will support the economic growth ambitions for the region and the absolute necessity to ensure that all housing is built in areas that can sustain the extra development in a socially supportive and environmentally responsible way.”
David Bexon, managing director for SmartNewHomes.com, believes the government is being unrealistic. “With plans to improve nearly every area of the house building and planning process immediately, I fear these initiatives could be more of a wish list than a realistic programme. What we now need from the Government is action and not words”, he said.
Living in a house in the country
According to the Knight Frank Prime Country House Index, prices of country houses grew by an average of 3.3% in Q2 2007, leading to an annual price growth of 11.6% for manor houses and 10.4% for all country houses.
The main points of the index is that manor houses continue to be the strongest performing country house sub sector, with an average growth of 4.1% in the quarter. Also, the average price of farmhouses increased by 3%, while cottages increased by 2.8%. Once again, the South West is the best performing region looking at price growth in the second quarter of 2007 (5.3%).
However, in the last 12 months East Sussex has led the way in capital appreciation by increasing by 27.5%, Wiltshire is placed second with property prices increasing by 25%, third is Cornwall with properties showing an increase of 24.6% and fourth is Kent with capital growth standing at 17.9%
Liam Bailey, Knight Frank’s head of research, says: “Payment of City bonuses together with an increasing international presence in the country house market has aided price growth. Cottages have increased price by 2.8% to average a little over £562,000 while the price of farmhouses increased by 3% to an average price of just over £1.3m.”
