Good afternoon all,
As we had thought in previous bulletins, this mornings meeting of the MPC has brought no surprises in leaving the rate unchanged at 5.0%, although the persistency of increasing inflation still bears heavily on these decisions.
July's MPC meeting saw an even split in the voting by the nine members, seven voting to keep rates at 5%, one voting for a 0.25% cut and one for a 0.25% increase and we see the same voting structure in the August meeting as per my prediction from our last bulletin - 'I would expect to see a similar voting pattern emerge when the minutes of this months meeting are released on August 20th'.
As inflation continues to weigh heavy on the British public' expenditure, the pressures from Unions representing their members still fight on for inflation linked pay structures despite the pleas from Mr Darling and Mr King for restraint.
This weeks reports from the Organisation for Economic Co-operation and Development (OECD) that the UK economy will officially slip into recession in the last 2 quarters of this year, pressures the MPC to reduce rates to stimulate the economy, but again I would reiterate my expectation for the MPC to retain the rate at 5.0% for the balance of this year.
Recently we have seen Oil prices fall to as low as $108 a barrel from its near $150 a barrel high a few months ago which is some relief to those who directly rely heavily on this commodity which ultimately feeds through to the costs of goods in supermarkets and shops and affects us all.
Alistair Darling and the Treasury made an announcement on Tuesday this week that Stamp Duty Land Tax threshold is increased on the lower band taking the threshold up from £125,000 to £175,000 on property purchases for a 12 months period from the 3rd of September. Stamp Duty will therefore not be payable on such transactions at or below £175,000 but will still be payable at 1% of the chargeable consideration above £175,000 up to and including £250,000.
Whilst this will encourage some buyers back into the market place, the higher limits of £250,000 and £500,000 at which Stamp Duty is charged at 3% and 4% respectively should perhaps also have been reviewed and increased accordingly to encourage buyers at these levels to further their house purchase goals.
The new level will assist those buyers (especially First Time Buyers) wanting to purchase properties below this new level, but unless the sellers of those properties have some incentive to make their onward move, potentially into these higher bands, it is unlikely to have much of an impact.
The estimated cost of this increase is £600 million and in conjunction with this announcement, the Communities Secretary has announced a £1 billion fund to assist 6,000 families under threat of repossession and assistance to 10,000 First Time Buyers with loans of up to 30% of their property purchase. Eligibility is understood to be clients with incomes of below £60,000 which I would hazard a guess includes almost all First Time Buyers.
Mortgage products have continued to reduce in price with some lenders relaxing slightly on the loan to values at which they are willing to lend. We do see however that the reductions mainly benefit those borrowing less than 75% of their property's value with those wishing to borrow at the higher levels still paying the price of high mortgage product rates and arrangement fees.
I would expect these product reductions to level off in the next couple of weeks and as such September could well be the time to secure that remortgage product you have been waiting all summer for.
Borrowers who took out 95% or 100% mortgages in recent years will still continue to find difficulty in obtaining lending from the market leaving their options limited at what the existing lender will provide. Many are finding that their existing lender is unwilling to accommodate requests for 'new products' and worse still where there are options to choose a new lender we have seen the Valuation reports for properties come in at below market value.
I have written a letter to the Royal Institute of Chartered Surveyors (RICS), the governing body for surveyors, in order to get a handle on this practice and will let you know in due course what RICS stance is.
The official press release from the Bank of England is available via the link below.
http://www.bankofengland.co.uk/publications/news/2008/045.htm
I have continued to be active in my role on the Committee of the Northern Rock Shareholders Action Group.
We have had a tremendous response from the private individual shareholders who support our case and have suffered personal losses in this respect but the legal case is expensive and we are urging former shareholders to support this financially with nominal contributions based on their former shareholding.
Every Northern Rock shareholder whose shares were confiscated on the day of nationalisation, whether they be a private investor, windfall shareholder, pension fund or institutional investor will receive the same level of compensation whether they contribute or not, but we do need the donations.
The UKSA has given some guidance on the likely donations but any donation would be welcome, which can be made via the following link http://www.uksapay.org.uk/donation.cfm
A court date has now been set for the case to be heard. The three separate actions being taken by the Plaintiffs for the private shareholder (UKSA), SRM Global and RAB are to be heard as one case over 4 days from the 13th of January 2009.
More information on this is on our website and the recent update from the UK Shareholders Association detailing this further can be found at www.uksa.org.uk/NorthernRock.htm
Again, I trust you find this monthly update timely and useful. I am looking to enhance the level of information provided and would welcome any suggestions on the content or news items you would like to be kept abreast of. As ever, should you not wish to receive these bulletins, please let me know.
Kind regards
Chris Hulme
Director , The Clayton Hulme Partnership
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