Nationwide said that house prices dropped by a seasonally adjusted 0.2 percent last month after a similar decline in December, and are just 0.6 percent up on a year earlier.

Economists polled by Reuters had expected prices to remain flat on the month, giving an annual rise of 1.4 percent.

UK housing market

“The weakness in buyer demand is partly a reaction to the uncertain outlook for the economy, especially the labour market. But affordability is also part of the explanation – in particular, finding a sufficient deposit,” said Nationwide’s chief economist, Robert Gardner.

Britain’s housing market, formerly a major driver of consumer spending, has been extremely sluggish since the start of the financial crisis, a point reinforced by Bank of England mortgage data on Tuesday.

Nationwide said that the average first-time buyer now opted to put down a 20 percent deposit, compared to 10 percent in early 2008. Mortgages with lower deposit requirements are available, but tend to carry punitive interest rates.

However, for those home-buyers able to find a 20 percent deposit, low interest rates mean that servicing a mortgage is now cheaper than four years ago and close to its long-run average, with initial payments now costing 31 percent of take-home pay, down from 46 percent in 2008.

uk.reuters.com

The bank suggests the steady market conditions which have seen house prices and house sales stabilise in 2011 are likely to continue into next year.

However, it seems much is set to depend on how the UK economy performs during the next 12 months, which in turn will depend on how events unfold in the Eurozone.

UK Housing Market

Despite the uncertainty created by events in Europe, the bank says the low Bank of England base rate and favourable affordability conditions are set to support the housing market.

Indeed, mainly as a consequence of low interest rates, typical mortgage payments for new borrowers have fallen from a peak of 48% of average disposable earnings in mid 2007 to 26% in autumn this year.

This is significantly below the average of 37% over the past 25 years and is at its lowest since 1997.

Martin Ellis, housing economist at Halifax, said that as long as rates stay low, the odds will continue to be stacked favourably for those who already have a mortgage and those who are able to raise the required deposit.

“The favourable affordability position should also help to keep down the numbers of homeowners forced to sell their properties because they cannot keep up with their mortgage payments,” he added.

“A significant rise in the number of forced sellers is often a factor associated with sharp house price falls.”

Although house prices have been forecast to end 2012 close to where they started it, regional variations are expected across the country.

London and the South East seem set to enjoy the strongest prices thanks to their tendency to perform better economically, while anywhere outside of southern England is expected to struggle by comparison.

“Weak economic growth and the prospect of continuing high, and probably rising, levels of unemployment led by large scale public sector job losses, will constrain housing demand,” added Martin Ellis.

“Continuing significant pressures on householders’ finances will also limit many people’s ability, and willingness, to buy a home.

“These pressures will come from a combination of subdued earnings growth, high (but falling) inflation, the substantial fiscal tightening that is taking place and an ongoing re-balancing of household sector finances with many families seeking to reduce their debts.”

moneyfacts.co.uk

Stock market crisis

Panic is once again sweeping through stock exchanges across the world, with the FTSE 100, the Dow Jones and the Asian markets all taking a pounding. Here we look at what it all means to you, and what you can do about it.

Pensions

The closure of final salary pensions and the shift to ones dependent on the stock market means the falls over the past month are more painful than ever for millions of workers. At the beginning of July, the FTSE 100 was standing at just over 6,000, but since then has lost about 17%-18% in value – more than £200bn – and further falls are looking likely.

Worst hit are those approaching retirement: they won’t be able to make up the losses. What’s more, the turmoil in markets has sent annuity rates to rock-bottom lows. Annuity rates determine how much pension income you get in return for the money you saved during your lifetime, so this means pensioners retiring today will see a lower income.

What can I do? More of the same: save more, work longer, retire later. Younger workers can ride the storm if markets recover. Older workers may feel compelled to shovel yet more cash into their workplace additional voluntary contribution schemes. Someone retiring now should speak to an independent annuity adviser urgently.

Savings

Last time around, when Northern Rock and then the Icelandic banks crashed, there was real panic about the security of savings. This time around the banks at the centre of the storm – Italian ones such as Unicredit and Intesa – are virtually invisible on the UK high street. If Spain moves centre stage then expect a rumble of concern about Santander, although it has passed stringent EU tests on its capital strength.

What can I do? The UK Financial Services Compensation Scheme has been improved since the last crisis, and now guarantees the first £85,000 of an individual’s savings (so a husband and wife or civil partner can protect as much as £170,000). The standard advice, if you have more than that amount, is to spread it around different accounts at providers which are not in the same banking group.

Mortgages

Here’s the silver lining. While the Italians and Spanish have seen money market interest rates shoot towards 6%, the reverse is happening in the UK. Short-term money has, oddly enough, become cheaper as markets now think the Bank of England won’t raise interest rates until well into 2012. In recent weeks, banks and building societies have been rushing out rate cuts on nearly all their deals, so if you’re coming off an expensive fixed-rate mortgage you’re one of the lucky ones.

The rate on a five-year fix has tumbled from about 4.5% to a record low of around 3.59% (see, for example, Yorkshire building society’s deal and others at moneyfacts.co.uk); two-year fixes have dropped below 2.7%; while tracker deals start at 2.49% at HSBC.

But the new banking crisis is probably bad news for first-time buyers, effectively shut out of the market by demands for huge deposits. This is unlikely to ease anytime soon as banks do everything they can to preserve their capital.

What can I do? If you’re on an existing tracker deal, which follows the Bank of England base rate, then you’re probably wise to do nothing and enjoy the ride. If you have a large mortgage, cannot afford a rate rise and think inflation is going to return, then jump into one of the five-year fixes.

Petrol, Gas, and Electricity

Good news. The oil price has come back from a peak of about $125 a barrel during spring to about $105. Commodity prices are under downward pressure as growth in China is slowing. If the world economy goes into a double-dip recession expect further falls.

Bad news. The “big six” energy providers have all raised prices, with 17%-18% increases in the gas price and about 10% added to electricity bills. However, if the wholesale price of gas and electricity tracks the price of oil, as it tends to do, maybe households will see an easing off in further price rises. But the utility companies have a long history of failing to pass on price falls in the wholesale market, so don’t expect price cuts in the short term.

What can I do? Now that all the energy providers have raised their prices, it is worth shopping around for the best deal.

Investments

Bad luck if your fund took a bet on European banks recovering. Ones that can play markets going down (the hedge funds and Ucits III funds) may in some cases have benefited. In general, financial advisers tell clients that the important thing is diversification, although one of the features of the 2008-09 market decline is that all asset classes – equities, bonds, property – went down, so diversification didn’t pay off much.

The big play of the past few years – mining and commodity stocks fuelled by voracious demand from China and other emerging markets – will look exposed if global growth slows.

Gold has been the safe haven choice for investors, but even it is losing some of its shine. The gold price hit a peak at nearly $1,900 an ounce in early September but has since fallen back to about $1,700. Gold has an interesting relationship with the US dollar. When the dollar is weak, it tends to rise; when the dollar is strong, its price falls back. As the euro crisis has deepened, the dollar has been strengthening. In recent weeks it has moved from $1.65 to the pound to just $1.55

guarian.co.uk

UK Houses

House prices fell by 1.2pc in August, wiping more than £2,000 off the cost of the average home, according to the latest housing data from the Halifax.

This ends a three-month run of modest rises, but on an annual basis the cost of the average home has slipped by 2.6pc over the past year. This does not take into account inflation – so in real terms the average home is now worth almost 8pc less than it was 12 months ago.

According to the Halifax, the average home in the UK is now worth £161,743. Earlier this month Nationwide Building Society also reported that house prices were falling, although its data showed a more modest decline month-on-month.

Martin Ellis, the housing economist at the Halifax, said current low volume of sales tended to make house prices more volatile from month to month. “The underlying trend, as measured by the latest three monthly figures, showed a modest improvement in house prices from the second consecutive month,” he said. Prices in August were 1pc higher than they were in the previous three months.

He pointed out that it wasn’t all bad news for home owners. “The recent decline in average mortgage rates has further boosted home affordability for those able to raise a deposit to make a new purchase.” He pointed out that low interest rates were likely to continue to support the market, but increased uncertainty about the economic outlook and pressure on householders’ finances would continue to constrain demand, which was likely to act as a brake on prices.

“Overall we expect broad stability in both prices and activity over the coming months.”

However, while the bank remained optimistic about the housing market, others remain nervous about house prices as many households feel their budgets stretched by rising inflation, particularly food and fuel bills, flat wages and growing unemployment.

The UK-based property company PPR Estates said it had seen an increase in the number of “distressed” sellers, those who are looking to sell their home or commercial property because they cannot afford the mortgage repayments but are in negative equity. It said for the first time this quarter it had received growing number of such inquiries from people in the London area – indicating that the London property bubble could burst.

Over the past few years prices in London have increased, while those in the rest of the country have seen falls.

telegraph.co.uk

Inflation

Inflation can reduce the spending power of your money but there are ways to reduce its most corrosive effects.

With inflation running far ahead of the Bank of England target, most savers are finding that their money is worth less by the day. But there are steps that savers can take to avoid what has been described as a “slow motion bank robbery” – with a number of new products launched that promise to “inflation proof” your savings and deliver a real return. Below we look at the most popular options.

1. Inflation-linked bonds and accounts

With inflation a concern for many savers, some banks and building societies have launched inflation-linked products for those concerned about their cash losing value. However, it can be difficult to work out which ones are best for you, and some tie your money up for a long time.

The current bonds from National Savings & Investments have the advantage of not requiring you to pay tax on your interest, and offer 0.5pc above the RPI when held for five years. However, you can take your money out earlier and still get a return as long as you hold them for at least a year. You can put in £15,000 per issue. The bonds are available from www.nsandi.com.

Rival products include the Post Office’s bond which pays 1.5pc over RPI over five years or 0.5pc over three years, but is subject to tax, and a new bond launched by the Cambridge Building Society which pays 1pc over RPI fixed for five years.

2. ISAs

For those who pay tax on their interest it is almost impossible to outrun inflation. Based on June’s inflation figures, a basic rate taxpayer would require an account paying 5.63pc to beat the lower level of inflation (CPI), while a 40pc taxpayer would require an account paying 7.5pc to beat the same measure.

This makes it more important than ever to use your tax-free cash ISA allowance of £5,340 a year. The best rates are available to those who are willing to put their money away for five years, and include Northern Rock’s fixed-rate Isa paying 4.26pc over five years, just below June’s CPI figure. With inflation predicted to fall back from here in the coming months, this product should help your cash to maintain its value.

3. Mortgage overpayments

Once you have exhausted your tax-free savings options, there is one more option that can help you to outrun inflation, if you have a home loan. This is to make overpayments on your mortgage. By offsetting your savings against your debt, you effectively end up with an interest-free savings rate at whatever rate you are paying on your mortgage.

For many people this will be better than a top-paying savings account. However, you need to make sure that you do not fall foul of your lender’s rules on overpayments. Some mortgages are fully flexible, allowing you to make overpayments and get them back freely, while others do not allow you to take overpayments back, or will charge you if you make too many.

If you are thinking about remortgaging and like this option you could consider an offset mortgage with a bank like First Direct. The bank is currently offering a two year fixed rate of 2.99pc for those looking for a 65pc mortgage, which has flexible features.

4. Top paying savings account

If you want total security for your savings and have exhausted all other options and used your tax-free allowance, the best you can do is to find the best paying home for your money. You will get more interest if you tie up your money for longer, but the tax, if you have to pay it, is likely to take the total return way below inflation. Top accounts include a five year bond at 5pc from KRBS, and a similar product from Melton Mowbray building society paying 4.75pc.

5. Low-risk investments

£If you are happy to take on more risk, a portfolio of dividend-paying shares can help you to outrun inflation. This is only an option for those with a diversified portfolio and who can withstand (both emotionally and financially) the ups and downs of stock markets. The good news is that after a dreadful couple of years, the number of companies increasing or reinstating dividends this year outnumbers those that cut or cancelled payouts in 2009.

But investors might prefer to buy funds than invest in a spread of dividend–paying companies, which tend to be equity-income funds. These funds have had a tougher time than many over the past three years, but are starting to come into their own as dividends make a comeback. Equity income funds include Threadneedle UK equity Income, Rathbone Income and Newton Global Higher Income.

telegraph.co.uk

Mortgage Rates

According to official monthly data, published by the Bank of England, the average rate offered on a two-year fixed rate mortgage to those home owners with a 25 per cent deposit, was 3.36 per cent, during June.

This was down from 3.51 per cent the month before and 3.67 per cent a year ago and was the lowest level since January 1995, when data was collected in this way. Experts said it would have been the lowest ever because not that many fixed rate mortgages were taken out before the early 1990s.

The record average figure, follows a series of eye-catching deals being offered by some mortgage providers, as they try and lend more money to customers, after a year of failing to hit their lending targets.

It is also further evidence of how the financial crisis – which has squeezed the disposable income of millions of families has finally benefited many home owners.

Melanie Bien, director at the broker Private Finance, said: “These figures show that there are some very cheap deals around and if you have a good sized deposit you can dramatically reduce your monthly mortgage payments.

“Some people have absolutely benefited from the crisis.”

The Bank of England slashed its Bank Rate to a record low of 0.5pc more than two years ago, in an attempt to keep the economy afloat and help families hit by the financial meltdown. However, six months after its radical move, the average mortgage rate had actually increased, as nervous banks were reluctant to lend money to anyone without a perfect credit history.

Since then rates have moved up and down, and only in recent weeks have they improved significantly with the likes of Chelsea Building Society offering a 3.5pc five-year fixed-rate mortgage and Yorkshire Building Society offering a 2.79pc two-year deal.

Banks have started to act as a result of “swap” rates – the rates that lenders use to underpin mortgage deals – started to fall. These have come down as a result of the markets betting that interest rates are unlikely to rise for the rest of this year or well into next year.

However, Ms Bien warned that while rates had fallen substantially, only those with a decent deposit could enjoy low rates. “The big issue is that if you want a high loan-to-value deal, you aren’t going to be offered a good rate.”

telegraph.co.uk

House prices to edge lower in early 2011

The Royal Institution of Chartered Surveyors said the overall outlook for the housing market in 2011 is likely to be the same as this year, with much resting on the economic outlook and it warned that public spending cuts could prompt further falls in house prices.

Simon Rubinsohn, chief economist at RICS, said: “A key risk is that the economy performs more poorly than we currently envisage.

“It is conceivable that the fall-out from the programme of public spending cuts could be greater with the jobless total rising in a more market fashion. In these circumstances, it is likely that the appetite of those considering making a purchase in the residential sector could turn out to be rather weaker than we currently anticipate.”

Unemployment is expected to rise sharply over the next couple of years, reaching the three million mark next year, according to experts.

Vicky Redwood, an economist at Capital Economics, said: “The recovery in the UK labour market appears to be flagging even before the public sector job cuts have really started.”

RICS predicts house prices will stabilize in 2011 following a narrowing of the gap between the demand and supply of properties.

A lack of suitable properties helped to push up prices at the beginning of this year, leading to a mini property boom in some areas. As more properties have come onto the market for sale, prices have fallen.

“It is quite conceivable that by the final quarter of 2011, national house prices will not be that very different from where they currently stand,” Mr Rubinsohn said.

Halifax said at the beginning of this month that values have dropped £5,000 since the beginning of the year amid the mortgage freeze. It brings the typical value of a home in Britain to £164,700.

Concerns about borrowers’ ability to repay their loans have prompted banks to demand larger deposits for the best rates. RICS suggests this trend is unlikely to change.

Mr Rubinsohn said: “There are sufficient reasons to doubt that there will any meaningful improvement in the flow of mortgage finance over the coming twelve months.

“Moreover, it is not difficult to go one stage further and conclude that the balance between the debt and equity requirement for house buyers has changed for the foreseeable future if not for good. In this environment, we find it hard to believe that sales activity in the residential market will be very much higher in 2011 than in 2010.”

Britain’s biggest building society said the average price of a home dropped 0.3 per cent in November, the equivalent of almost £1,000 in a month.

It brings the average price of a home to £163,398, down from £164,381 in October.

It follows a drop in prices of £6,000 in September, recorded by Halifax, Britain’s largest mortgage lender.

Prices have dropped amid an increase in the supply of properties for sale.

Martin Gahbauer, Nationwide’s chief economist, said: “Much of the weakness in property values since the Spring has been driven by a return of sellers to the market, following unusually low levels of property for sale in 2009 and early 2010.”

Demand for property has been low amid a lack of affordable mortgages, with signs that lending criteria will remain strict in the months ahead.

Banks are still demanding substantial deposits for the best rates amid fears that home owners will be unable to keep up their monthly repayments amid concerns about the economy and unemployment.

The latest housing survey from Nationwide found prices dropped 0.4 per cent in the year to November compared with a rise in annual growth of 10.5 per cent in April.

Catherine Penman, head of research, Carter Jonas, said: “A notable improvement in both pricing and sentiment was evident during the first half of the year which has since been counteracted by an increasingly cautionary tone and heavy downward pressure on prices during the second half of the year.

“This negative pressure is expected to continue with an estimated 5 per cent decline in house prices across the UK expected in 2011 as job losses intensify.”

By Myra Butterworth, Telegraph.co.uk

A total of just 31, 767 mortgages for house purchases were approved in August, the lowest level since April last year, according to the British Bankers’ Association

It is the third consecutive month during which mortgage approvals dropped despite the property market typically seeing a bounce in activity during the summer.

Banks are restricting the best mortgage deals to borrowers with a large deposit and a perfect credit history.

Nick Hopkinson, director at Property Portfolio Rescue, said: “The ‘mortgage famine’ is continuing to worsen.

“Against this backdrop, house prices are going to fall further just as certainly as the autumn leaves will fall off the trees in the next couple of months.”

The annual rate of house price inflation has dropped from 6.6 per cent in April – when a shortage of suitable homes led to a mini property boom – to 4.6 per cent in August, with typical values now at £168,000.

Economists warned the weak mortgage market will continue for at least another year.

Paul Diggle, a property economist at Capital Economics said: “The August lending data from the BBA was always likely to add to the picture of a subdued mortgage market.

But the significant fall in mortgage approvals for house purchase only adds to the evidence that last years’ housing market recovery is unwinding.

“There is little prospect of a meaningful improvement in mortgage approvals for at least the next 12 months. But the weak mortgage market could well continue for much longer than that.”

And David Dooks, BBA statistics director, said :”Demand for mortgages continues to be weak despite more properties reportedly coming on to the market. Even with stable or falling house prices the current economic climate makes it unlikely that demand will pick up in the near future.”

By Myra Butterworth, Telegraph.co.uk

Banks and building societies are increasingly nervous about offering these deals to borrowers, ahead of new lending rules, designed to curb excessive lending.

Coventry Building Society has become the latest mortgage lender to stop offering interest-only deals to first-time buyers. And there are fears that other lenders may be reluctant to offer these deals to people remortgaging, particularly if they have little equity in homes. With house data suggesting a dip a prices again, this equity is likely to be squeezed further in coming months.

It is estimated that more than one million people took out these loans between 2005 and 2009, as house prices boomed. David Hollingworth, of London & Country said: “As the name suggests, the monthly mortgage repayments are only covering the interest on these loans. Borrowers are not paying back the money they’ve borrowed to buy the house.”

Interest-only deals were traditionally sold alongside a repayment vehicle, usually an endowment policy or, as these fell out of favour, an Isa. The assumption was that the growth on these investments would be sufficient to repay the money borrowed at the end of the mortgage term. But the Financial Services Authority, and the Ombudsman are increasingly worried that many of these home owners have no means of repaying this capital – and could potentially lose their home at the end of the mortgage term.

Why did home owners opt for these deals? The answer is simple: interest-only deals are cheaper than repayment mortgages, so people either have lower monthly payments, or can effectively borrow more.

When house prices were racing ahead many people used the mortgages to gain a rung on the housing ladder. If you could afford to repay £1,000 a month on an interest-only basis you could – when banks had far more generous lending criteria – get a loan of £350,000; on a repayment basis, this same payment would mean a loan of just £200,000.

Now regulators are putting pressure on banks and building societies to defuse the “mortgage time bomb”. Lenders will be trying to switch people back onto a repayment deal, where the capital is gradually repaid over the term, but this will mean a sharp increase in monthly payments.

Melanie Bien, a director of Private Finance, says: “Repayment mortgages offer more security than interest-only deals, but forcing everyone on to one, regardless of their circumstances, is not realistic.”

Banks and building societies will also be obliged to tighten lending criteria and required to use a repayment mortgage as the basis for calculating affordability. This doesn’t mean interest-only mortgages will be banned, but it will stop people using them solely as a way to increase their borrowing ability.

But how will these changes affect those on interest-only deals? Read on.
CAN MY BANK FORCE ME TO SWITCH TO A REPAYMENT DEAL?

No. If it has offered you an interest-only deal in the past it can’t force you to switch, even if you don’t meet its present lending criteria. You can continue on current terms, but may find you have less choice if you need to remortgage.
WHAT WILL HAPPEN WHEN I NEED TO REMORTGAGE?

You are unlikely to be offered an interest-only deal from another bank, at least not without substantial equity in your home (30pc or more) and proof you are contributing to some other repayment vehicle. Similarly, your bank may require the same if you are to qualify for one of its fixed or tracker deals. In such cases your only option will be to stick with your bank’s standard variable rate. This may not look too bad at the moment, while interest rates are low, but when rates rise you can expect your monthly mortgage repayments to increase significantly.
WHAT WOULD COUNT AS A SUITABLE REPAYMENT VEHICLE?

Most banks would want to see you paying into an investment where, even on modest growth projections, it would repay the loan at the end of the mortgage term. Previously, banks would have accepted a future inheritance, or even selling the property and downsizing as a way of paying off the loan, but far fewer will grant an interest-only mortgage on this basis now.
HOW MUCH MORE WOULD A REPAYMENT MORTGAGE COST?

Exact costs will depend on the type of mortgage you have, and the interest rate. But assuming a borrower had a £150,000 mortgage that charges a rate of 3.5pc they would expect to pay £438 a month on a 25-year interest-only mortgage. If this was switched to a 25-year repayment mortgage the monthly payments would be £751.
I AM MOVING HOUSE. WILL I BE FORCED TO TAKE OUT A REPAYMENT MORTGAGE?

Much will depend on your circumstance. If the loan is “portable” and you are not borrowing more you should be able to move it. If you are extending your borrowing facility, the lender may insist you move to a repayment deal.

However, you might have the option of keeping your current deal, but taking out the additional mortgage on a repayment basis.

By Emma Simon, Telegraph.co.uk