June rate cut in doubt

The City was expecting the Bank of England to cut interest rates from 5% to 4.75% next month, having left them unchanged last week. But the price of goods leaving British factories in April up 7.5% over the last 12 months, the fastest rate of price growth since records began in 1986. It came as manufacturers faced a record 23.3% jump in input costs, with crude rising more than 60%, food over 30% and fuel more than 20%.

City economists described the figures as 'appalling' and 'truly horrible' for the Bank of England. This is likely to drive the official rate of inflation over the Bank's 2% target, possibly even breaking 3% and remaining there. This will limit how much the Bank of England can reduce interest rates.

Howard Archer of Global Insight said: 'The April producer price data are truly horrible and very worrying indeed for the Bank of England.

'It highlights why the Bank was unwilling to enact a back-to-back interest rate cut last week, and raises serious questions as to whether the Bank will be willing to cut interest rates from 5% to 4.75% as soon as June, despite current signs that the economic downturn may be deepening and widening.

'For now at least, we still expect the Bank to act in June, but it is by no means a gimme.'

People want house prices to fallhouse prices

A BBC-commissioned survey has found that 28% of respondents wanted house prices to drop against 22% who hoped for an increase in house prices. And giving an indication that crash fears may be misplaced, almost two-thirds of respondents said a fall of more than 10% in house prices would not negatively impact on their household spending.

This survey follows a series of gloomy data from the mortgage industry. In April average house prices fell by 1.3%, according to the Halifax. It contributed to the first 12 month house price drop since February 1996.

Level house prices or a fall in prices could help hard-pushed first-time buyers who have struggled in recent years to get onto the property ladder with ever increasing prices. It could also help those hoping to move up a level in the future, as the steps between the house prices narrows. Fears of the impact of a sizeable fall in house prices appear to be less pronounced than with the '90s property crash.

More than 60% said a drop of more than 10% would make no difference to their spending plans or make them likely to spend more. That compared with 38% who said it would make them more likely to cut back.

Interest Rates On Hold

The Bank of England has, as predicted on Monday, announced that it will hold interest rates this month, following last month's rate cut to 5%. There was intenst pressure for the rate to be cut another 0.25% to 4.75%, but the monetary committee were concerned over the threat of rising inflation.

Whereas this is good news for savers, householders with mortgages will be disappointed that there is not another potential cut in their repayments.

At the same time, the European Central Bank kept interest rates at 4% to counter its worries about inflation on the Continent.

Experts are predicting a cut next month, with mixed views as to har far the cuts will continue this year - possibly taking the base rate down to 4.5% or even 4% by the end of the year, with the most optomistic expecting further cuts to 3.75% over the next 9 months.

No interest rate cut???

Following last month's rate cut where the banks did not all follow suit, is expected that the Bank of England will not cut rates this week. This is because Sterling is falling on the currency markets:

'Sterling represents one of the inflation risks,' said George Buckley, chief UK economist at Deutsche Bank.

'We have seen a long period of lower prices thanks to cheap imports and a strong pound. That is now coming to an end.'

As Sterling weakens, the pound buys less an dputs the price of imported goods up, increasing inflation. But some economists do predict a rate cut, saying that it will come soon, so why not sooner than later?

Halifax House Price Drop

A report by the Halifax agrees with the report from Nationwide earlier in the weekin showing that house prices have dropped in the previous 12 months.

It is the first time in over 12 years that a drop in house prices over a year has been reported by the Halifax, with an average 0.9% drop since last April, taking the average house price to £189,027. The last time they reported an annual house price drop was February 1996.

Halifax chief economist Martin Ellis said: 'We are expecting a modest decline in house prices in 2008, and there is a strong chance that will continue into 2009. House prices are high in relation to earnings so there is a problem for people entering the market, and there is a general squeeze on spending as well.'

This news piles on more pressure to the Bank of England to cut interest rates, although many lenders have still to pass on rate cuts since last month's rate cut, with some lenders actually increasing rates since the cut.

House Prices Dropped In A Year

For the first time during the current credit problems, a major survey has shown house prices have dropped over the last 12 months.

The survey, by the Nationwide, shows that average house prices have dropped 1% since April 2007, bring the average price to £178,555. This follows 133 consecutive months of house price rises, since March 1996.

Natiowide's chief economist Fionnuala Earley said: 'April's fall in prices continues the trend of the last six months and reflects the weakening sentiment in the market brought about by poorer affordability and tighter financial market conditions.'

Buyers Hit Record Low

The effect of the credit crunch on the houseing market can be seen by new figures that show the number of new mortgage deals completed was down to just 64,000 in March, 44% lower than the same time last year.

This is the lowest level since this data has been collected - which started in 1993, during the then home buying slump.

But remortgages were only down from 109,000 in February 2007 to 98,000 in February 2008 according to Bank of England figures.

Despite a cut in interest rates, lenders have increased rates, increased deposits and reduced mortgage products available. According to MoneySupermarket, the average best fixed rate from main providers was 6.18%, while the average tracker rate was 6.29%, and just 32 mortgages offering 95% loan-to-value were left on the market.

Nationwide increases mortgage deposit

The Nationwide Building Society is to reduce its maximum loan to value ratio (LTV) to 90% on nearly all of its products for new borrowers from 1st May. The exceptions are its three-year fixed rate mortgage and its three-year tracker.

And any new customers wanting to take out the group's standard variable deal, which it calls its base mortgage rate, will now need a deposit of at least 25%.

The Nationwide is not the first lender to limit lending to customers with only a 5% deposit. Lloyds TSB will only lend 95% of a property's value to people who have a current account or other products with it and apply for the loan through a branch.

The Abbey also only offers its 95% mortgages on a five-year fixed rate deal and a standard variable rate.

95% LTV mortgages are following the trend of the 100% and 125% mortgages following the credit crunch and slowly being withdrawn or becoing harder to apply for, as lenders protect their debts.

More repossessions this year

The Centre for Economics and Business Research (CEBR) has warned that around 33,400 people could lose their homes this year, 23% more than 2007. Lastest mortgage offers will also remain expensive until the current economic situation settles down.

The CEBR predicted repossessions should stay well below the 75,000 a year levels seen in the early 1990s and the housing market will begin to recover in 2010 after interest rates fall as low as 3.5% towards the end of next year.

Housing Market Is Only Half Of What It Was

The National Association of Estate Agents has reported that its members sales have reduced from an average of 14 to 7 in March, compared to last year. The Bank of England has also claimed that the number of people pulling out of house purchases as they are unable to secure the necessary loans has jumped.

OFT To Review Bank Charges

The OFT have won the first part of the battle against the banks in the high court and can now assess the terms and conditions of charges for fairness.

The OFT will begin reviewing bank charges immediately and is expected to announce its findings in July, before heading back to the high court. Once it decides whether these bank charges are unfair and returned the case to the high court, the loosing side ie expected to appeal, delaying finalising individual cases until next year.

More rejected credit cards

In the wake of the credit crunch, banks have rejected an estimated 3.24m new credit card applications over the last 6 months, or 18,000 per day.

It is thought that Barclaycard, the biggest credit card company, is rejecting up to half of all those applying for a credit card it strives to protect its exposure to bad payers. Whilst other credit card providers are reducing spending limits and increasing interest rates and charges.

The report, by MoneyExpert.com, found that 7% of adults have experienced a credit card rejection in the last 6 months. Being rejected by one company can also make it harder to ger money from other companies as this can be recorded on your credit file.

Bank Charges Decision

The Office of Fair Trading (OFT) has confirmed that it will announce its decision on unfair bank charges this Thursday. The OFT is deciding whether unauthorised overdraft charges fall under the Unfair Terms in Consumer Contracts Regulations.

Once the decision is revealed the watchdog will decide on the next steps to take.

Bank of England to bail out banks?

The Bank of England looks set to shore up British banks today by £50m of tax payers money. It will effectively guarantee bad mortgage debts that banks migh run up, although critics are saying that this will enable banks to profit from their good decisions, whilst taxpayers pick up the bills for the banks' mistakes.

But this assitance doesn't come with any guarantees that the banks will follow the Bank of England's lead and reduce interest rates.

There are concerns that too many cheap mortgage deals have been scrapped. The number of mortgage products available is down from 15,599 in the summer, to under 4,000 currently.

Liberal Democrat Treasury spokesman Vince Cable said: 'It is obviously necessary for urgent action to be taken to unblock the mortgage market and to break the crippling effects of the credit crunch.

'However, we cannot have a situation where the banks are able to privatise their profits and nationalise their losses. Since the mortgages from the banks are of inferior quality and higher risk than the Government bonds which they are replacing, the implication must be that taxpayers are shouldering the risks and losses of the banks. This cannot be right.

'We need urgent reassurances from the Government that the exchange is taking place on a discounted basis so that the banks and not taxpayers carry any losses.'

London House Prices Falling

Rightmove has reported house selling prices in London have fallen in nearly every borough between March and April. Average Kensington and Chelsea house prices have fallen by £33,000 to £1,458,558 - down more than 2.2% in 1 month.

Across London, the average house price has fallen by £3,838, with only 5 boroughs able to report an increase.

First time buyers struggle more than before

A report by the housing charity Shelter has shown that first time buyers are suffering the "hardest ever battle" to get into the property market.

Whilst the average property price has jumped 200% over the last 10 years, average salaries have increased only 53%. And whilst house prices are now falling lenders are no longer offering 100% mortgages, meaning first time buyers must put down at least a 5% deposit and up to 25% o get the best deals.

Ten years ago monthly mortgage repayments accounted for £1 in every £8 of family income, whereas now that figure has increased to £1 in every £5.

Pay more for your mortgage

A report out yesterday from Mform showed that mortgage arrangement fees have almost doubled over the last year, to an average £5,000.

It looked at the average charges on the five most competitive 3-year fixed deals and compared costs from last March to yesterday's top 5. A year ago the average charges were £578 whereas by yesterday that had increased 96% to £1,132. Likewise, 2-year deal have seen average charges rise from £999 to £1,478.

Calls for homebuyer protection

Michael Coogan, director general of the Council of Mortgage Lenders, is calling for a shake-up of the system for homeowners at risk of losing their homes.

He has suggested the Income Support for Mortgage Interest be revisited. Currently it does not cover the first 9 months of arrears and is capped at £100k, whereas the average mortgage is around £160k.

Halifax Raises Mortgage Rates

The Halifax has made it's second round of mortgage rate rises in just 9 days, less than a week after the Bank of England dropped interest rates.

These increases add more than £1,000 repayments to a typical £158,100 home loan. Popular deals such as the 2 year fixed rate and a number of tracker mortgages will rise by 0.5%. The 2 year fixed deal was set at 5.72% 2 weeks ago for those with 10% deposits. This was increased to 6.09% last week and again to 6.59% from today.

The Alliance & Leicester also raised rates twice last week - with a fixed rate mortgage going from 4.99% to 5.74% in just three days - the same time as the base rate cut.

Estate Agents Could Close

The downturn in the property market could cause the closure of up to a third of Britain's estate agents this year, estimates Movewithus.

They predict that 4,000 of the country's 12,000 property businesses might be forced to close their own doors by December.