House price bubble is biggest threat to Help to Buy success

Brokers and lenders are united in their belief that a house price bubble represents the biggest threat to Help to Buy’s success.

Research from the Intermediary Mortgage Lenders Association, which polled 300 brokers and 16 of its 20 members in July, shows 60 per cent of lenders and 59 per cent of brokers believe artificially inflated house prices are the biggest threat to the Help to Buy scheme. Imla members anticipate prices to rise by 2.7 per cent by the end of the year.

Imla executive director Peter Williams says: “There is a clear consensus that first-time buyers stand to benefit most from the second part of Help to Buy. But if house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other.”

Source Money Marketing August 28th 2013

Premium Bond prize chances to be cut, NS&I says

The chances of winning a prize in the UK Premium Bonds draw will be reduced from 1 August, as savings rates continue to fall.

National Savings and Investments (NS&I) will cut the prize fund, arguing that it must balance the needs of savers, taxpayers, and the savings sector.

There will be only three prizes of £100,000 each month, rather than five. Other prize odds will also fall.

About £44bn is invested in Premium Bonds by 21.6 million people.

The number of people who have invested in Premium Bonds has fallen by about 1.4 million in the last 10 years, but the amount invested has more than doubled, excluding the effect of inflation.

Millions in prizes

Investors in Premium Bonds forgo interest in order to have the chance to win tax-free prizes.

However, following the changes in August, the odds of each £1 Premium Bond number winning a prize will change from 24,000 to one, to 26,000 to one.

Some 1.7 million tax-free prizes will still be paid each month, totalling £49m, from August. The total value of prizes at present is £57m.

NS&I said it needed to make the changes owing to its unique position being backed by the Treasury. It must reflect the market, and not be too competitive or out of line with the rest of the market.

"Rates across the savings market have fallen over recent months, resulting in NS&I savings being increasingly attractive," said Jane Platt, NS&I chief executive.

"In light of our framework to balance the needs of our savers, taxpayers and the stability of the broader financial services sector, we now need to reduce the Premium Bond prize fund rate."

Wins range from £25 to a single jackpot of £1m. The highest award will not be affected by the change in August.

read more: http://www.bbc.co.uk/news/business-23418034

Louise O'reilly of Intuitive FS says "investors need to understand the impact of changes to premium bond draws''

Carney: Rates to stay at 0.5% until unemployment drops below 7%

The Bank of England will keep the base rate at 0.5 per cent until the UK’s unemployment rate falls below 7 per cent unless inflation spikes, governor Mark Carney announced today.

Presenting the latest Inflation Report, Carney introduced a policy of “explicit state contingent guidance” when it comes to the Bank’s monetary stance, with a link to unemployment. He also revealed that quantitative easing will not be unwound while unemployment is above 7 per cent.

The Bank is also prepared to add to QE while the unemployment rate remains above its desired level.

However, Carney added that the monetary policy committee will have to consider rate changes if its inflation forecast goes beyond 0.5 per cent of its target over 18-24 months or if there are any threats to financial stability.

“It is important to be clear that bank rate will not automatically be increased when the unemployment threshold is reached. Nor is 7 per cent a target for unemployment,” Carney said.

“So 7 per cent is merely a ‘way station’ at which the MPC will reassess the state of the economy, the progress of the economic recovery, and, in that context, the appropriate stance of monetary policy.”

The use of forward guidance, which was widely expected by the market, follows similar action by the Bank of Japan in 1999 and the US Federal Reserve in 2012. Carney also implemented forward guidance at the Bank of Canada in 2009 when he was governor.

According to the Office for National Statistics, the UK’s unemployment rate currently stands at 7.8 per cent.

The Bank of England expects median unemployment to stand at 7.3 per cent over the next three years, the Inflation Report shows, meaning the base rate is likely to remain at its historic low throughout the forecast period.

Read more: http://www.moneymarketing.co.uk/1075578.article?cmpid=amalert_1300495574&cmptype=Carney%3A+Rates+to+stay+at+0.5%25+until+unemployment+drops+below+7%25

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