12.01.12 by Andrew Montlake
Our Predictions For 2012
IntroductionFor many, 2012 was always meant to be the year when everything began to improve, after all we are entering the 5th year since the credit crisis first took hold and the feel good factor from the Olympics was meant to help propel us out of the gloom.
However, if we have learnt anything from the last 5 years it is to expect the unexpected and this particular storm has yet to blow itself out. In fact, for some, the real damage is yet to come with a dramatic finale expected in the Eurozone. The worrying displays of ineptitude we have seen from some European leaders makes you wonder if any solution can be found, but there is nothing we can do to control this.
The only thing we can do therefore is to put the Euro issues to one side and assume that things will remain much the way they are, whilst being aware of the effects of both a disorderly break up as well as a sudden workable "peace-plan".
On top of all this, there is a certain Mayan prophecy which may trump everyone, so it is pointless even worrying about the mundane!
In the face of such a bewildering environment, attempting to predict anything may seem to be foolish folly, but here at Coreco we like to encourage discussion and feedback, so here are is our own take on what the New Year holds for the property and mortgage markets.
House Prices London and the South East
2011: up 3.6%
2012 Prediction: up 3%
The Nationwide Property Index stated that 2011 saw prices rise by 1% overall, yet again confounding those who have predicted a house price crash. It was no surprise that London saw the strongest growth, (5.5% over the year), but what may have been surprising was the fact that there was less regional variation than in recent years.
There is no doubt that London & the South East will yet again lead the way, less affected by public sector job cuts and still attracting foreign buyers from Europe and both the Middle and Far East.
Those able to move i.e. those who meet the tougher mortgage criteria and have decent levels of equity may have been playing the "wait and see" game for a while now. The job market, new relationships, new families and divorce pressures are all taking their toll and the need to "move on" is getting ever greater.
Whilst new government initiatives to assist the house-building industry are a step in the right direction, they are still just a drop in the ocean and the shortage of supply against a steady, though unspectacular demand, together with a continuing low-interest rate environment, will be enough to keep prices at a similar level to 2011 at worst.
UK Base Rate
2011: 0.5%
2012 Prediction: end 2012 at 0.5% - 0.75%
By rights, this should be the easiest prediction to make. As of January 5th, Interest Rate futures point to the first rate hike not coming until 2015, but these are of course extremely volatile. There are not many who believe that Bank of England Base Rate will move until at least 2013 in the face of some increasingly bleak economic data and of course the Euro issues.
Whilst inflation has taken longer than some expected to fall, the Monetary Policy Committee is still adamant this will begin to come down to below the 2% target by next year. Of course, inflation is a good thing to help erode our record levels of debt, so I suspect that the Bank of England has been quite relaxed about the higher inflation rates than it may have publically suggested.
The only note of caution here is that whilst we may well even see yet another round of Quantitative Easing by Spring, I am optimistic enough to believe that towards the close of the year we could be in a very different place. If there is an improvement in outlook, nationally and globally, as well as inflation still proving uncooperative, a late, small rise in Base Rate could help to head off future issues.
The Mortgage Market
2011: £138 Billion (CML estimate)
2012 Prediction: £140 Billion
Whilst we agree that lending will be pretty similar to 2011, around £138 billion of gross lending and 852,000 residential property transactions, I think there are reasons to be optimistic, rather than continue to get weighed down by a dark cloud of disillusion.
Mortgage costs will continue to rise slightly, whether or not the Euro issues are sorted, but for different reasons and, whilst we may well slip back into a technical recession, things do actually feel different to the first credit crunch.
Whilst 3 month LIBOR has continued to sneak up, (now at 1.09%), as the cost of funding has undoubtedly increased, lenders are still talking about lending. They still have plans to bring more products to the market, enter into new areas and there is also every sign that competition will increase, however slight this is.
A rejuvenated Northern Rock under the stewardship of Virgin Money, a return of the smaller Building Societies, High Street giants Tesco and Santander entering the Buy to Let market and new lenders such as Castle Trust and Metro Bank amongst others could all help to push the traditional Lloyds, Barclays, Nationwide and RBS into doing that little bit more.
Apart from an expected growth in the Buy to Let market, we expect to see more remortgage activity as a new breed of borrowers begin to revert to variable rates far above what can currently be achieved on the open market.
The publishing of the FSA's latest paper on the Mortgage Market Review may on the face of it dampen down this expectation as it seems too many borrowers may no longer qualify for a loan. However, the FSA have left lenders room for manoeuvre whilst cracking down on the greatest excesses, yet importantly removing the biggest obstacle of all; uncertainty.
Finally the whole industry has something to work with and this should lead to a more sustainable market in the future.
FTSE 100
2011 Close: 5,572 (down 5.55%)
Prediction: end the year 6,000
Perhaps the most difficult to predict given recent volatility across the globe, the FTSE does still have some things going for it in the eyes of investors.
For one, the UK generally is looking more and more like a safe haven in the current Euro crises as Gary Baker, European equity strategist at Bank of America Merrill Lynch, recently stated: ‘The UK looks to be a relative winner from the current turmoil at this point. The FTSE 100 index is full of sectors we currently like: healthcare, energy, telecoms and basic materials."
It is the spread of industries within the FTSE 100 that is key. At the start of 2012 the biggest sector is Oil & Gas, (20% +), followed by basic resources, (14.5%) and banking (11%). Whilst banking may well be an area to struggle, many analysts are optimistic that the energy and resource sectors could far outweigh this, especially if expected further oil price rises do kick in.
So whilst we will no doubt see another volatile year, we could see a return of the losses last year with the index meandering back up and even passed, the 6,000 level by the close of the year.
Summary
In summary, 2012 could be seen as another 2011 with one crucial difference, it is not 2011!
We are another year further forward, it is an Olympic year, surely there must be some kind of conclusion to the Euro issues one way or another and people are generally fed-up about, or even getting used to, living in difficult times.
With typical British wit and stoicism, if our Government can keep their heads, our regulators and banks do nothing crazy, we exploit our safe haven status and avoid the mad ravings of the rabid Ratings Agencies, in due course we might be able to look back on 2012 and say, "Yep, that was the year that things started to get better".
In fact, Euro aside again, what is really worrying some in the City is actually the potential speed of an upturn. If the Euro does not go Kaput , if there is a feel good factor, if job losses are not as severe as thought and if the costs of QE do lead to higher inflation for longer and the global slowdown begins to turn toward the end of the year, what then?
I know that is a lot of ifs, but someone needs to think about these things.
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MAB 4051
Monty’s Mortgage Blog
13.02.12
Mortgage Market Watch 6
There I was pondering what to write this week and all of a sudden we seem to have been inundated with some stat-tastic facts and figures from the Office of National Statistics and the good ol’ CML, as well as a controversial policy change from a major lender. But first the headlines, Swaps have risen slightly, apart from 1 year money, whilst LIBOR has remained steady.
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