Entries Tagged 'In the News' ↓

According to the Council of Mortgage Lenders (CML) the number of homes repossessed by mortgage lenders rose by 12% to 11,300 in the third quarter of the year. Figures suggest that many more borrowers could lose their homes as the economy falls into recession.

The number of people in arrears compared with the previous quarter, also rose by 8% to 168,000. Repossessions have climbed as more borrowers struggle to meet their mortgage repayments - as low-interest rate deals come to an end and unemployment increases.

Last property slump

While the number of homes being repossessed by lenders has increased progressively in the past few years, they remain lower than they were in the depths of the last property slump in the early 1990s.
The number of repossessions this year now stands at 30,200. By contrast 75,500 homes were taken back by lenders in 1991.

New EU figures show that the Eurozone economy shrank by 0.2% in the third quarter of this year. This follows a 0.2% contraction in the 15-nation economic zone in the previous quarter from April to June. Two consecutive quarters of negative growth are classified as a recession.

The news follows data indicating that Germany and Italy, two of the biggest Eurozone economies, are already in recession. Germany is the manufacturing dynamo of the European economy. When there are problems there, it pulls the rest of the Eurozone down with it. This is the first recession seen since the Euro’s creation in 1999.

Analysts forecast further gloom ahead. Further quarters of negative GDP growth are expected, until the third quarter of 2009. Current forecasts indicate that the Eurozone region will shrink by 1% next year. The gloomy forecasts are founded in uncertainty relating to the recent financial turmoil on money markets and slowing exports exacerbated by the strengthening euro against the dollar and pound.

Analysts are now believe that a sharp decline in household spending and a property crisis are likely to push the Spanish economy into recession in the next quarter. Meanwhile, the wider European Union (EU), made up of 27 nation states, is also in danger of falling into a recession with the region’s output shrinking by 0.2% in the third quarter.

The member states of the Eurozone are Germany, France, Italy, Spain, Belgium, the Irish Republic, the Netherlands, Luxembourg, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.

It has been confirmed by the Bank of England that the UK entered recession in the middle of 2008. It is believed that the recession will continue well into 2009.

In its quarterly inflation report, the Bank stated that the economic climate has changed markedly since August. The Bank now expects inflation to decline to 1% by 2010, well below its 2% target.

The Bank of England projects that the UK economy will contract 2% by early next year. Unemployment figures have hit an 11-year high, while sterling continues to decline on international markets.

Markets are expecting interest rates to drop below 2% within a year, the lowest Bank of England base rate since it was established in 1694.

In a dramatic and unexpected move, the Bank of England has the cut the base interest rate by one-and-a-half percentage points to 3%. It now stands at its lowest level since 1955.

Last month the base rate was cut from 5% to 4.5%. There had been widespread calls from industry for a major interest rate cut as the UK faces the prospect of a prolonged recession.

It is the first time the Bank of England has cut rates by more than half a percentage point since it gained its independence from the Government in 1997. The Bank stated that it considers that the risks of high inflation have now disappeared.

The cut should help to improve conditions in the credit markets, and allow banks to reduce their lending rates. Lloyds TSB is the first of the big lenders to promise to pass on the rate cut in full to its variable rate mortgage customers.

The move has been broadly welcomed by business and the trade unions.

According to HBOS house prices fell by another 2.2% in October. This latest drop means that the average UK residential property now costs £168,000, nearly £30,000 less than a year ago. Essentially, prices have fallen back to the level that they were at in October 2005.

The Financial Services Authority (FSA) has just announced that number of property repossessions has risen sharply. The number in the second quarter of the year was 11,054, up 71% compared with the previous year.

The FSA also said that the number of borrowers struggling with home loan arrears had risen. Homeowners are urged to contact their lender as soon as they find themselves in difficulty with repayments. The Council of Mortgage Lenders has estimated that 45,000 homes will be repossessed in the UK in 2008, a rise of 27,100 over last year’s figure.

Negative equity

The Bank of England has reported that UK house prices are showing a sharper decline than properties in the US. The Bank has estimated that 500,000 homeowners in the UK are in negative equity as a result of a 13% fall in UK property prices since their peak in October last year. It predicted that this number will increase to 1.2 million - 1 in 9 UK homeowners - if house prices decline by another 15% over the coming months.

The economy contracted between July and September confirming , for the first time in 16 years, that the UK is on the brink of recession. Indeed, the UK will be classed as being officially in recession if the economy slows in the fourth quarter as well.

Economic output fell by 0.5%, according to the Office for National Statistics, a bigger-than-expected drop, hitting UK shares and weakening the pound. It is the biggest drop in UK gross domestic product (GDP) since the first quarter of 1990.

The 0.5% fall has increased expectations of further interest rate cuts from the current level of 4.5% to stop the slide. Rates could go as low as 3% by the middle of next year and possibly even lower, stated a UBS analyst.

Global slowdown

The slowdown in the UK comes as fears of a global recession ravage financial markets around the world. Ireland is already in recession, France is close to recession and the US - the world’s largest economy - is  now believed to be in recession.

The Bank of England has warned that the global financial slowdown was likely to send the British economy into a recession. Prime Minister Gordon Brown has echoed this warning and a similar one from a key think tank. He said the global slowdown was likely to cause “recession in America, France, Italy, Germany, Japan and - because no country can insulate itself from it - Britain too”. He also said the British banking system had been closer to collapse earlier this month than at any time since the start of World War I.

Concerns about the British economy have pushed the pound to a five-year low against the US dollar.

The deal was initiated by the board of the Barnsley BS to protect itself from the possible loss of up to £10million deposited with Icelandic banks. This merger with the larger Yorkshire BS is expected to be completed by the end of the year. There will be no windfall for Barnsley savers.

The Yorkshire is the third-largest building society in the UK with 136 branches and 1.9 million members. The Barnsley has only 8 branches and 60,000 members.

In September, the UK’s biggest building society, the Nationwide, staged a rescue takeover of two small societies, the Derbyshire and the Cheshire.

The Barnsley is the latest casualty of the troubled Icelandic banking system, which has seen hundreds of thousands of UK savers losing access, at least for the time being, to their accounts with the Icesave internet bank and other Icelandic financial institutions.

According to a recent survey by the Royal Institution of Chartered Surveyors (Rics), the decline in the property market is becoming even more serious. In September, estate agents sold less than one property per week on average.

The number of properties sold in the UK was the lowest since the Rics survey began in 1978. The figure is a staggering 52% lower than in September of last year.

Mortgage providers such as the Nationwide and the Halifax have reported that house prices have fallen by 12% in the last year.