Base Rate to stay at 0.5% for next two years

Mortgage market running at two speeds

Landlords predict portfolio increase

Repossession hotspots to be tackled by new Government campaign

Bellway buys up land

According to the Centre for Economics and Business Research (CEBR), the Bank of England (BoE) base rate will stay below 2% for the next five years until 2014.

The CEBR has predicted that interest rates will remain at 0.5% until 2011 with the BoE having to spend an estimated £75bn on quantitative easing over a wider range of assets that it is currently. The forecast also indicates tax rises and a £100bn reduction in spending to plug the gap in the Government’s finances. Presuming the Conservative party gets elected, the CEBR breaks down this figure as £20bn on tax increases and £80bn on spending cuts.

Douglas McWilliams, chief executive at the CEBR, said: "We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward. Our analysis says that this ought to work. If it does so, we are likely to see a major re-rating of equities and property which in turn should stimulate economic growth after a lag."

Whichever party is in power, the Government will need to decrease the budget deficit to £50bn by 2014-15 from the currently predicted deficit of £143bn for that tax year, the forecast stated. The CEBR thus puts growth at an average of +1.4% over the next five years with it predicted to dip by -4.3% this year before a steady increase to +2.3% in 2014.

Mortgage market running at two speeds

New data released by the Council of Mortgage Lenders (CML) has indicated that the current mortgage market is both declining and improving at the same time, with house purchases continuing to recover but, in contrast, remortgaging is flagging.

Whilst the number of house purchases were down by -5% in August from July, they were +29% up on the previous year. However, this is still -47% below the average for the previous seven years prior to the credit crisis (100,000 loans), but is more than double the activity from the start of 2009.

Paul Samter, CML economist, said: “House purchase activity has revived from its moribund state at the beginning of the year. It will be a drawn out recovery process with seasonal ups and downs, but house purchase activity is now on a firmer footing.”

Remortgaging, meanwhile, is continuing to deteriorate because of the extremely low interest rate environment and the constrained lending criteria required for the best deals. There were 32,000 remortgages in August, which was down -22% on July and -57% compared to August 2008.

Samter continued: “Remortgaging demand has fallen away in the low interest rate environment and this is dragging down gross lending levels overall.”

The data also indicated that first-time buyers had on average a 25% deposit, whilst home-movers effectively borrowed 66% of the property’s value.

Landlords predict portfolio increase

A report by Paragon Mortgages has stated that landlords have predicted that they expect their portfolios to increase by an average of +0.8% in the next 12 months.

According to the report, this is the first time that landlords have made a positive prediction on the value of their portfolios since Q1 2007. Of the 200 landlords polled, 97% indicated they have no plans to sell any properties in the next three months and 14% have intentions to purchase investment properties in the next 12 months.

John Heron, managing director at Paragon Mortgages, said: "Interestingly, landlords have not generally seen falling house prices as the catalyst to sell property and have used weaker prices to add to their portfolios."

However, despite the positive outlook from landlords, the current buy-to-let mortgage market may restrict some landlords from purchasing any further property due to the limited availability of suitable financial products.

Heron added: "Despite strong rental demand and the availability of property at good value prices, landlords may well be frustrated in their attempts to buy because of a shortage of buy-to-let finance. There are only two lenders making any levels of buy-to-let finance available at present because of the continuing dysfunction in the money market. It is vital to the longer term health of the private rented sector that the Government considers this specialist market as well as the more politically attractive owner-occupied sector."

Repossession hotspots to be tackled by new Government campaign

John Healy, the Government’s housing minister, has launched the second stage of his national Mortgage Help campaign, which will target struggling homeowners who are in ‘repossession hotspots’ with the aim to help them save their homes by taking control of their finances.

There are 22 areas around the UK which have been deemed as having a higher risk of repossessions due to high unemployment figures and the number of court orders for repossessions. They are Barking and Dagenham, Corby, Knowsley, Salford, Newham, Walsall, Redditch, Halton, Sandwell, Wolverhampton, Nottingham, Birmingham, Manchester, Bolton, Liverpool, Sunderland, Reading, Wigan, Swindon, Northampton, Kingston-upon-Hull and Cannock Chase.

Healey said: "The worst thing anyone facing money worries can do is bury their head in the sand. We've seen recent drops in the numbers of repossessions - but I know the threat will remain high throughout next year and I want people to have the help they need.

"Over 300,000 people have benefited from the range of Government support available at every step of the way from free debt advice to help with mortgage interest payments and, for the most vulnerable, the Mortgage Rescue Scheme.

"I want other struggling homeowners to follow in their footsteps, go to our website or make that call to the National Debt line for details of the comprehensive range of support that's available."

You can call the National Debt line free on 0808 808 4000 or visit www.direct.gov.uk/mortgagehelp. They offer impartial advice and provide steps and action plans that can be used by concerned homeowners to combat any financial problems.

Bellway buys up land

Housebuilder, Bellway, has stated that it has purchased £120m worth of land during August and September as it emerges from a year of ‘partial hibernation’ after its pre-tax profits slid to £29.8m, an -82% decline on the previous year.

It stated that it is looking to open new outlets ‘selectively’ with the land purchased having the potential for 3,370 new homes. According to the firm, it has reservations of 58% ahead of a year ago with forward orders representing 61% of its current year’s planned output.

However, the company has warned that with the pace of recovery still "uncertain" because of a shortage of mortgage availability and the risk of unemployment, it has been encouraged by signs of firmer house prices.

John Watson chief executive of Bellway, said: "This stability, whilst still fragile, is extremely welcome and, consequently, the group is now looking to selectively increase both work in progress expenditure and the number of outlets."

The company said that as a result of its lower level of borrowing in comparison to its major industry rivals it will be in a stronger position to capitalise on an eventual market recovery.

PIN’s latest mortgage recap