Brexit reassurance, housing uncertainty and UK borrowing

Later today the Bank of England governor will aim to reassure nervous investors following the EU referendum. Markets remained calm ahead of Mark Carney’s speech although UK shares dipped slightly while the pound remained steady, as the market recovery seen over the past couple of days stalled.

According to the BBC, the FTSE 100 share index was down 0.3 per cent at 6,339.15 in early trade. But it remains near the level it closed at last Thursday before the referendum result was known. The pound was little changed against both the dollar and euro, although it remains well below levels reached before the referendum. Meanwhile, Nandini Ramarkrishnan, global market strategist at JP Morgan Asset Management, told BBC 5 live‘s Wake Up To Money that it was ‘a pretty momentous event’ when earlier this week the yield on UK 10-year gilts (government debt over 10 years) dropped below 1 per cent. In the near term yields could drop even further as people buy bonds but, in the longer term, if the UK’s growth weakens and inflation returns then the demand for bonds could ebb, she said. Thisismoney reports that the collapse in gilt yields could be stoking a ‘pension time bomb’ as annuity rates are slashed 8 per cent and final salary scheme deficits widen after the Brexit vote.

Both annuities and final salary pensions, which provide retirees with a guaranteed income for life, are underpinned by gilt yields. One pension expert said: ‘This is without doubt the toughest period annuities have had to endure.’ And a veteran financial markets pundit warned: ‘We are building up a pension time bomb.’

Housing

One of Singapore’s largest lenders, UOB, says it has suspended its loan programme for London properties. The decision comes in response to uncertainty caused by the UK’s decision to leave the EU, the bank said. Singaporeans were the top Asian buyers of UK commercial property in 2015, according to consultancy Knight Frank.

In other housing news, Brexit uncertainty triggered demand for property to fall to the lowest level seen in three years, according to the National Association of Estate Agents’ May Housing Market report.

Estate agents recorded an average of 304 house hunters registered per member branch in May, as uncertainty in the lead up to the referendum stalled buyers. This was down six per cent from April, and the lowest recorded since November 2013 when 292 buyers were registered per branch. Compared to May 2015 when 383 house hunters were recorded – demand has decreased by 21 per cent year on year. 

In line with falling demand, last month the supply of houses available to buyers increased marginally – from 35 properties available to buy per branch in April, to 37 in May. The number of sales agreed in May decreased to an average of eight per branch, a drop from nine in April falling to the same level seen during the seasonal slowdown in January.

UK borrowing British consumers borrowed more than expected in May to buy homes and fund other purchases in a sign of confidence before last week’s decision to leave the EU. The Guardian reports that the amount of credit extended to borrowers, which includes credit cards, personal loans and overdrafts, rose by 9.9 per cent compared with a year earlier. This was the fastest annual rate in more than a decade and up from 9.6 per cent in April. Over the month consumer credit rose by about £200 million to £1.5 billion in May. UK lenders approved 67,042 mortgages for house purchases last month, up from 66,205 in April, according to figures published by the Bank of England. Economists had forecast a drop in approvals to 65,250. Energy bills A total of £320 million will be invested over the next five years in schemes across the country’s towns and cities to take low carbon heat and supply it to keep homes and businesses warm. The Government is consulting on how best to deploy £320 million allocated in the Spending Review for investment in heat networks. Dubbed ‘central heating for cities’, heat networks are already used widely across Scandinavian cities to keep homes warm in winter. The Government says this has the potential to reduce heating costs by more than 30 per cent for some households.