Brits have on average £24,500 in savings account, after putting away £260 every month
UK savers say that their average interest rate is 3.3%, 1.95% below the Bank of England’s rate
Despite this, only 23% of savers have switched accounts in the last year to capitalise on better interest rates
7 out of 10 brits (71%) feel that banks profits are too high
Smart money app Plum is calling out banks for profiteering from high interest rates and not passing interest back onto savers.
Despite recent hikes in the Bank of England’s base interest rate, which currently stands at 5.25%, many UK banks have been slow to adjust their savings account rates accordingly. This has left consumers feeling short changed and struggling to make the most of their money.
New research from Plum shows that the average UK saver is putting away £260 in savings each month, with a total of £24,500 in their savings accounts. In addition, the research found that the average Brit is getting 3.3% interest on their savings account, 1.95% under the base rate. This means that on average, customers are losing out on £478 in interest per year1, equating to a hefty £17 billion across UK savers2.
Despite savers being able to gain higher interest rates by switching, the majority of savers (77%) hadn’t done this. They cited similar rates between banks (28%) and liking their current banks (30%) as the biggest barriers, even though 71% of people felt that banks profits were too high.
The biggest motivator for saving was for an emergency fund (49%), with holidays coming in second (44%). Saving up to buy a house or for home improvements was the biggest motivator for people under 45 (47%) and for the 55-64 age bracket, saving for retirement was their biggest priority (51%).
In July this year, the FCA set out a 14-point action plan to ensure banks and building societies are passing on interest rate rises to savers appropriately, with those that fail to justify their pricing decisions by the end of 2023 set to face robust action from the FCA.
Victor Trokoudes, Founder and CEO of Plum, said: “While banks have been quick to increase interest rates on loans and mortgages, they have been sluggish in boosting interest rates on savings accounts.
“We are in the midst of a cost-of-living-crisis and consumers are continuing to face financial pressures. So it’s really disappointing to see that many banks are not passing more of this money back onto customers, effectively devaluing their hard earned savings.
“While the FCA has pledged to take action against this behaviour by the end of 2023, it’s by no means a silver bullet. Borrowers are paying more while savers see minimal benefits, highlighting that the business models of the major banks are inherently misaligned with the interests of their customers.
“The Bank of England has raised rates 14 times since December 2021, and they are expected to remain high. That’s why it’s so important that the public know that they don’t need to stand for this and allow banks to take their deposits for granted. We’ll be offering a new service that better reflects these base rate changes so their money can work harder.”
Plum, which has already helped people to set aside £2bn, is launching a new product that allows people to earn higher returns that are more closely aligned to the Bank of England base rate
Half a million mortgage-holders are facing an imminent financial shock as their fixed deals end in the run-up to Christmas or January, the most expensive time of the year for many consumers, Which? is warning.
Figures from regulator the Financial Conduct Authority (FCA) show that around 500,000 fixed-rate mortgages will come to an end in November, December or January.
As a result of higher interest rates, most affected homeowners moving onto new deals will have to pay hundreds of pounds more each month compared to their previous deal.
Data from Moneyfacts shows that the market-leading two-year fixed-rate mortgage is currently 5.53%, from Coventry Building Society. Earlier this year, the average rate for this type of mortgage went above 6%, yet those who fixed their deal in December 2021 could have got rates below 2%.
The average mortgage holder has £147,000 left to pay off, according to the FCA. In September 2021, someone taking out a two-year fix with 20 years left on their loan would, on average, have paid £770 a month.
However, someone in that same scenario today would be paying £1,106 a month – a £336 difference, which equates to £4,032 extra annually.Data from the FCA also suggests another spike in mortgage deals coming to an end next Spring, with over 180,000 homeowners set to come off fixed-term rates in April.
With average rates for both two and five-year mortgage deals hovering around 6% and many experts predicting the fifteenth successive Bank of England rate rise tomorrow, it is unlikely that homeowners whose deals are ending in the coming months will be able to find deals at anywhere near the rate they have been previously paying.
Mortgage holders can generally lock in a rate up to six months before their current deal expires, and can pull out of that deal should they find a better rate elsewhere. Homeowners whose fixed deals are expiring by the end of the year should be looking at new deals and how they will affect their finances now.
The consumer champion is calling on banks to ensure they are ready to provide appropriate support to customers. That means firms are ensuring that their customer service support – via phone calls, email and chat support – is properly staffed and resourced, including during the Christmas holiday period.
Those concerned about their ability to make mortgage repayments should contact their lender in the first instance – and doing so will not affect their credit score. Support could include a temporary mortgage holiday, temporarily paying only the interest on the mortgage (and not the capital repayment), or extending the term of your mortgage. The most suitable option will depend on individual circumstances, so it is crucial that lenders are offering tailored support.
Mortgage holders whose fixed-rate deals are coming to an end in April should be able to search for and lock in a competitive rate soon. The FCA’s new Consumer Duty, which holds firms in financial services to higher standards of customer service, should mean that customers are supported in a way that meets their financial needs. Companies that fail to do so should expect to face tough action from the regulator.
Ele Clark, Senior Money Editor at Which?, said: “The rock-bottom interest rates homeowners enjoyed for more than a decade are firmly behind us, and those who need to remortgage are feeling the full force of the last two years’ worth of rate rises.
“With around half a million mortgage-holders’ fixed-rate deals coming to an end in the next few months, it’s vital that lenders are offering adequate and fully resourced customer support to help borrowers assess their options.
“Under the new Consumer Duty, firms must support their customers throughout the term of their mortgage. If they don’t, we’d expect them to face tough action from the regulator.”
Chancellor Jeremy Hunt met the UK’s principal mortgage lenders and the Financial Conduct Authority (FCA) yesterday to agree support for people struggling with mortgage repayments.
The latest market indicators (FCA; UK Finance) show that mortgage arrears and defaults remain below pre-pandemic levels, which were themselves extremely low. The FCA reported 0.86% of total residential mortgage balances in arrears in the first quarter of 2023 which is significantly lower than the 3.32% rate in 2009.
The proportion of disposable income spent on mortgage payments is currently at 5.4%, compared to around 10% in the 1990s and prior to the financial crisis.
The average homeowner re-mortgaging over the last twelve months had around a 50% loan-to-value ratio. This indicates homeowners have considerable equity in their homes, which makes it easier to manage repayments.
Lenders have less than 10% ‘owner-occupier mortgages’ on their books with loan-to-value rates greater than 75%, compared to around 25% before the 2008 financial crisis. Taken together, this puts the market in a significantly stronger position than before.
The lenders – which cover over 75% of the market – agreed to a new mortgage charter providing support residential mortgage customers. These are:
Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
A new agreement between lenders, the FCA and the Government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to.
Both options can be taken without a new affordability check or affecting their credit score.
Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
Providing well-timed information to help customers plan ahead should their current rate be due to end.
Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.
The Chancellor of the Exchequer, Jeremy Hunt, said: ““There are two groups of people that we are particularly worried about. The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments. And the second are people who are having to change their mortgage because their fixed rate comes to an end, and they’re worried about the impact on their family finances of higher mortgage rates.
“So today I agreed with the banks and the principal mortgage lenders and the Financial Conduct Authority three very important things.
“The first is that absolutely anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score.
“The second is that if you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked and no impact on your credit score. That gives people a powerful new tool for managing their monthly budgets – and it will begin taking effect within the next two weeks.
“And finally for people who are at risk of losing their home in that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home, but in that extreme situation they have agreed there will be a minimum 12 month period before there’s a repossession without consent.
“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.
“Tackling high inflation is the Prime Minister and my number one priority. We are absolutely committed to supporting the Bank of England to do what it takes. We know the pressure that families are feeling. That’s why we’ve introduced big support packages around £3,000 for the average household this year and last.
“But we will do what it takes, and we won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses.”
Martin Lewis, founder of MoneySavingExpert.com said: “The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes.
“Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England’s aim is intended to squeeze people’s disposable incomes, no one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.
“I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible.
“I’m pleased to see it looks like the Chancellor has listened and those measures are going to be put in practice by the banks. We need to make sure everybody knows their rights if they are in trouble with their mortgage, so they can feel comfortable speaking with their lender and understand the measures that they can request for help.”
Nikhil Rathi, chief executive of the Financial Conduct Authority, said: “Today’s productive meeting builds on the work we’ve done over the last year to ensure those who get into difficulty receive the tailored support they need.
“We’ll move quickly to make any changes needed to support today’s commitments.”
Ian Stuart. Chief Executive Officer, said HSBC UK said: “We’re firmly focused on supporting our customers in this challenging economic environment, so we welcome the meeting with the Chancellor today, and with the support of the regulators, the concerted efforts across our industry to help customers through these measures.
“It’s important that customers feel comfortable contacting us if they feel they are getting into financial difficulty because whilst every customer’s situation is different we have a range of options that we can use to help them find their way through. We stand ready and remain committed to our customers.”
David Duffy, Chief Executive Officer, Virgin Money said: “Today’s commitments are an important next step in ensuring that customers feel supported as they navigate rising rates and high inflation.
“At Virgin Money, we are committed to supporting customers in the current economic environment and will continue to work with Government, regulators and industry to help those facing financial difficulty.”
Dame Alison Rose, Group Chief Executive, NatWest said: “Our priority is to help the people, families and businesses we serve to navigate this ongoing economic uncertainty.
“Today’s announcements, following very productive discussions between mortgage lenders, government and regulators, will provide further flexibility and reassurance to customers who may be anxious about their household finances.
“We stand ready to support those worried about the future, and encourage anyone experiencing financial difficulty to get in touch.”
Business Activity Index falls to 45.8 in October from 48.0 in September
Contraction in new orders quickens
Growth in employment further weakens
The contraction across Scotland’s private sector firms deepened during October, according to the latest Royal Bank of Scotland PMI® data. Adjusted for seasonality, the Business Activity Index posted below the neutral 50.0 threshold for the third month running, at 45.8, indicating a sharp decrease overall.
Inflows of new business also went into further decline, the latest downturn being the most severe in 20 months. To further add weakness across the sector, inflationary pressures reaccelerated from September’s recent low, as service providers reported quicker upturns in input costs and charges during October.
The gloomy performance resulted to the softest intake of workers in 18 months, with goods producers reporting their first reduction in employment since January 2021.
New business received at Scottish private sector firms fell sharply during October. The rate of decrease quickened from September to the fastest in the current fourth-month sequence of reduction.
Of the two sub-sectors, manufacturing firms reported the steeper downturn. Companies noted that looming recession, economic uncertainty and the cost of living crisis weighed on client activity.
The downturn in incoming new business across Scotland outpaced the UK-wide average.
Output expectations for the year ahead across private sector firms in Scotland strengthened in the three months to October. The increase in confidence was underpinned on planned expansions and investment, with firms also hopeful of future economic stability. That said, sentiment was relatively muted in context of historical data.
Business confidence across Scotland was broadly in line with that recorded for the UK as a whole.
Employment across the Scottish private sector expanded for the nineteenth month running in October. However, amid a cooldown in hiring activity at service providers, with goods producers reporting their first contraction since January 2021, the overall rate of growth ticked down to the joint-lowest in the aforementioned series.
The rate of job creation across Scotland remained softer than that seen at the UK level, which similarly also slowed in October.
October’s survey showed a sustained fall in levels of outstanding business across Scotland’s private sector. The respective seasonally adjusted index posted below the neutral 50 threshold for the fifth consecutive month, the latest reading signalling the fastest depletion in work outstanding since January 2021. As per surveyed businesses, declines in new orders allowed firms to work through previous backlogs.
The rate of contraction in Scotland was the third-fastest across the UK, ahead of Northern Ireland and Wales.
October data signalled a robust rise in input costs across Scotland’s private sector, thereby extending the run of inflation to 29 months. Adjusted for seasonality, the latest reading increased from September’s 13-month low as a result of a reacceleration in input price inflation reported at service firms. The uptick in average costs was attributed to higher wages and utilities, cost of living crisis and general inflation adding strain on costs.
Despite being severe, the pace of input price inflation was however, softer than the UK average.
In line with the upturn in average cost burdens, charge levied by Scottish private sector firms also inclined from September’s recent low at a quickened rate during October.
The rate of charge inflation across Scotland posted weaker than the UK-wide average which slowed during October.
Source: Royal Bank of Scotland, S&P Global.
Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, commented: “The Scottish private sector reported a third month of contraction during October. The downturn in activity quickened on the month, as stubbornly high inflationary pressures, the ongoing cost of living crisis and a threat of recession deterred growth. New orders received at firms also fell further.
“Employment trends across the sector indicated a slowdown in hiring activity over the recent months. The latest upturn was the joint-softest in the current 19-month sequence of expansion. At the same time, the level of outstanding business also fell at a much sharper rate. The data thus suggesting the further weakness in the labour market will not be surprising.
“As we proceed into the final quarter of the year, market conditions are set to become more challenging. The aggressive interest rate hikes, the decline in the value of sterling against the dollar and the rebound in post-COVID demand phasing out, all amidst the ongoing cost of living and energy crises, all point to an extremely difficult period for Scotland.”
How the new interest rates affect house prices and rent across the UK
Housing market: hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed, finance experts advise
Landlords will likely increase rent prices or sell to cope with increased mortgage repayments
Inflation and interest rates will keep rising, but house prices are already slowing down
TODAY, the Bank of England will decide what the new base interest rates might be, currently at 1.75%. Top market analysts expect this to further rise to 2.25%.
The Office for National Statistics announced on August 17th that UK inflation rose to 10.1%, from 9.4% two months earlier. The Bank of England expects it to further increase, peaking at 13.3% in October. The accompanying higher interest rates and bleak two-year economic outlook generally means bad news for homebuyers, landlords and renters across the UK.
Top market analysts at CMC Markets expect interest rates to further rise to 2.25% this month. This directly impacts mortgages on variable rates – around 1 in 5 households in the UK – and another 3.1 million whose fixed-rate periods expire in 2022-2023, according to UK Finance estimates.
Borrowers whose repayments are directly linked to the base rate, as set by the Bank of England, will now face mortgage repayments at rates between 3% and 4%, up from 1.75% and 2.75% only five months earlier. This will inevitably spill into rent prices.
CMC Markets analysed the latest data for June 2022 from HM Land Registry, published on August 17th, and concluded that the likely tendency for house prices is in a temporary slowdown, which is good news for those waiting a little longer to buy a home.
Michael Hewson, Chief Market Analyst at CMC Markets comments: “Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge.
“This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised. Remember, house prices may be slowing down, but they are not decreasing. Importantly, since this is transactions data processed at the time, it does not take into account the big leap in interest rates that the Bank of England announced later that month, let alone the even bigger hike in August.
“Therefore, despite the soaring inflation and rising consumer prices across the board, UK house prices appear to be trailing behind because demand for homes has generally come to a screeching halt. Most buyers are weathering the storm for a few more months at least, while some are also working out how the cost of living crisis will pan out in the medium term so that the new mortgage is not squeezing their pockets beyond their comfort zone.
“For those still keen to get on the property ladder, there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages. They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with.
“The buy-to-let market is equally volatile. Landlords will either pass the increased mortgage repayments onto tenants by increasing their rent or simply sell fast to lock in a better price. Right now though, those already on the property ladder are generally better off staying put rather than moving or re-mortgaging. They would not get a good deal on their old house in this market and may likely end up losing more money overall.”
What did the Bank of England do earlier in August?
The Bank of England explained that the rise in interest rates was necessary due to external pressures which are expected to persist. This means that British firms and residents will continue to feel this weight reflected on rising domestic prices, wages outpaced by soaring inflation, and even higher mortgage repayments, despite the Bank’s attempt to widen the borrowing pool through less restrictive mortgage rules.
Although historic, the Bank’s decision was not a surprise for trading analysts at CMC Markets, a London-headquartered financial services company, who believe the Bank was expected to raise interest rates higher than 1.25% during the June meeting, as a means to keep import inflation in check.
This is on the backdrop of a 10% year-to-date depreciation of the British pound sterling against the US dollar and an indication from the Federal Reserve, the US central bank, of a further interest rate increase by 0.5% or 0.75% in September.
Michael Hewson comments: “The UK currently fares worse than both the EU and the US. This is due to its closer dependence on energy shocks than the States and less government intervention to soften the blow compared to its European counterparts.”
What’s next and when will things calm down?
Other than adjusting the interest rates to the accurate level to keep abreast of import inflation, the economic projections for the UK paint a bleak outlook for the next two years.
The UK is projected to enter a recession in the final quarter of this year, the Bank of England announced. The country’s economy will contract by 1.25% in 2023 and 0.25% in 2024, however, inflation is becoming a much bigger long-term threat, with unrealistic chances of falling back to the desired 2% much before 2024.
The current political race for the Conservative Party leadership and the consequent fiscal policies promoted by the new British government is a major factor to take into account for any inflation, GDP, and unemployment projections and investment decisions.
As it stands with the current measures, inflation is expected to peak at 13.3% in October – a sharper increase than the Bank anticipated in June, originally estimated at 11%. It will continue to rise throughout 2023 only to decline in 2024.
Meanwhile, forecasts for the Consumer Price Index (CPI) are less optimistic now, expected to decrease only to 9.5% in the third quarter of 2023, although the Bank anticipates a sharp fall in prices immediately thereafter.
Selling prices are set to increase to reflect rising costs while real household post-tax income is expected to plunge in 2022 and 2023. The Bank predicted that core prices will peak at 6.5% this year, meaning that, in the following six months, food and energy will constitute more than half of the headline CPI.
The next meeting for the Monetary Policy Committee, where the Bank of England will decide what the new base interest rates might be, is today – September 22nd.
How the new interest rates affect house prices and rent
Housing market: hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed, finance experts advise
Landlords will likely increase rent prices or sell to cope with increased mortgage repayments
Inflation and interest rates will keep rising, but house prices are already slowing down
The Office for National Statistics announced last month that UK inflation rose to 10.1%, from 9.4% two months earlier. The Bank of England expects it to further increase, peaking at 13.3% in October. The accompanying higher interest rates, currently at 1.75%, and bleak two-year economic outlook generally means bad news for homebuyers, landlords and renters across the UK.
Top market analysts at CMC Markets expect interest rates to further rise to 2.25% in September. This directly impacts mortgages on variable rates – around 1 in 5 households in the UK – and another 3.1 million whose fixed-rate periods expire in 2022-2023, according to UK Finance estimates.
Borrowers whose repayments are directly linked to the base rate, as set by the Bank of England, will now face mortgage repayments at rates between 3% and 4%, up from 1.75% and 2.75% only five months earlier. This will inevitably spill into rent prices.
CMC Markets analysed the latest data for June 2022 from HM Land Registry, published on August 17th, and concluded that the likely tendency for house prices is in a temporary slowdown, which is good news for those waiting a little longer to buy a home.
Michael Hewson, Chief Market Analyst at CMC Markets comments: “Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge.
“This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised. Remember, house prices may be slowing down, but they are not decreasing. Importantly, since this is transactions data processed at the time, it does not take into account the big leap in interest rates that the Bank of England announced later that month, let alone the even bigger hike in August.
“Therefore, despite the soaring inflation and rising consumer prices across the board, UK house prices appear to be trailing behind because demand for homes has generally come to a screeching halt. Most buyers are weathering the storm for a few more months at least, while some are also working out how the cost of living crisis will pan out in the medium term so that the new mortgage is not squeezing their pockets beyond their comfort zone.
“For those still keen to get on the property ladder, there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages. They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with.
“The buy-to-let market is equally volatile. Landlords will either pass the increased mortgage repayments onto tenants by increasing their rent or simply sell fast to lock in a better price.
“Right now though, those already on the property ladder are generally better off staying put rather than moving or re-mortgaging. They would not get a good deal on their old house in this market and may likely end up losing more money overall.”
What did the Bank of England do earlier in August?
The Bank of England explained that the rise in interest rates was necessary due to external pressures which are expected to persist. This means that British firms and residents will continue to feel this weight reflected on rising domestic prices, wages outpaced by soaring inflation, and even higher mortgage repayments, despite the Bank’s attempt to widen the borrowing pool through less restrictive mortgage rules.
Although historic, the Bank’s decision was not a surprise for trading analysts at CMC Markets, a London-headquartered financial services company, who believe the Bank was expected to raise interest rates higher than 1.25% during the June meeting, as a means to keep import inflation in check.
This is on the backdrop of a 10% year-to-date depreciation of the British pound sterling against the US dollar and an indication from the Federal Reserve, the US central bank, of a further interest rate increase by 0.5% or 0.75% in September.
Michael Hewson comments: “The UK currently fares worse than both the EU and the US. This is due to its closer dependence on energy shocks than the States and less government intervention to soften the blow compared to its European counterparts.”
What’s next and when will things calm down?
Other than adjusting the interest rates to the accurate level to keep abreast of import inflation, the economic projections for the UK paint a bleak outlook for the next two years.
The UK is projected to enter a recession in the final quarter of this year, the Bank of England announced. The country’s economy will contract by 1.25% in 2023 and 0.25% in 2024, however, inflation is becoming a much bigger long-term threat, with unrealistic chances of falling back to the desired 2% much before 2024.
The current political race for the Conservative Party leadership and the consequent fiscal policies promoted by the new British government is a major factor to take into account for any inflation, GDP, and unemployment projections and investment decisions.
As it stands with the current measures, inflation is expected to peak at 13.3% in October – a sharper increase than the Bank anticipated in June, originally estimated at 11%. It will continue to rise throughout 2023 only to decline in 2024.
Meanwhile, forecasts for the Consumer Price Index (CPI) are less optimistic now, expected to decrease only to 9.5% in the third quarter of 2023, although the Bank anticipates a sharp fall in prices immediately thereafter.
Selling prices are set to increase to reflect rising costs while real household post-tax income is expected to plunge in 2022 and 2023. The Bank predicted that core prices will peak at 6.5% this year, meaning that, in the following six months, food and energy will constitute more than half of the headline CPI.
The next meeting for the Monetary Policy Committee, where the Bank of England will decide what the new base interest rates might be, is set for September 15th.
Annual Scottish house price growth now 8.4% – highest in 2022
Average Scottish house price is £220,870,
Second-highest number of May transactions in last 10 years
21 of 32 Local Authorities had rising prices in the month – same as in April
Largest annual increase at 22.6% in Argyle & Bute
17 Local Authorities reached peak prices – 3 more than in April
Scott Jack, Regional Development Director at Walker Fraser Steele, comments:“One would never claim any market is bullet proof but on the current evidence Scotland’s property market remains at the very least in robust form. The rise in interest rates and the increase in the cost of-living are not yet having a marked impact on house price growth.
“The average price paid for a house in Scotland in May 2022 according to our data is £220,870, establishing yet another record price for the country – the eleventh occasion that this has happened in the last twelve months. This price is some £17,100 higher than that seen in May 2021, meaning that prices have risen by 8.4% on an annual basis. This annual growth rate is the highest recorded to date in 2022.
“The market transaction data too is robust – defying any expectations of a slow-down on this evidence. The provisional figure for May 2022 is 9,092 transactions, which is the second highest May figure of the last ten years – the highest having taken place in 2019, being the year before the pandemic struck.
“Ultimately demand is strong, but the supply of desirable stock remains low. Property prices are therefore seemingly more resilient in the face of rising borrowing costs.
“Over and above homebuyers, property remains attractive to investors too as it continues to outperform other assets such as equities, which are affected more acutely by higher borrowing costs.”
Note:The Walker Fraser Steele Acadata House Price Index (Scotland) provides the “average of all prices paid for houses”, including those made with cash.
Table 1. Average House Prices in Scotland for the period May 2021 – May 2022
Commentary: John Tindale, Acadata Senior Housing Analyst
The May housing market
The average price paid for a house in Scotland in May 2022 is £220,870, establishing yet another record price for the country – the eleventh occasion that this has happened in the last twelve months.
This price is some £17,100 higher than that seen in May 2021, meaning that prices have risen by 8.4% on an annual basis. This annual growth rate is the highest recorded to date in 2022, although rates for the ten months from February 2021 to November 2021 inclusive were at the same level or higher – see Figure 1 below – with the blue horizontal line highlighting May’s growth rate of 8.4%.
Figure 1. The annual rate of house price growth in Scotland over the period May 2020 to May 2022 with trendline
On a monthly basis, prices in May 2022 rose by 1.0%, or close to £2,300. This monthly increase is almost double that recorded in April (0.6%), with rates currently oscillating on a monthly basis from December 2021 onward.
As we show on page 4, transactions remain relatively strong, with April sales being at a ten-year high for the month. Data for May sales have not yet fully emerged from the Registers of Scotland, but preliminary figures suggest that the total for the month will also prove to be amongst the highest of the last ten years.
We show on page 5 that high-value transactions are, in general, continuing to occur at record levels in 2022, compared to the previous seven years, with Edinburgh accounting for 50% of all sales in Scotland having a value of £750k or higher.
Transactions analysis
Figure 2 below shows the monthly transaction count for purchases during the period January 2015 to May 2022, based on RoS (Registers of Scotland) figures for the Date of Entry. (May 2022 totals are based on RoS Application dates.)
During the month of May, RoS has been processing further registrations with an entry date of April 2022, which provides us with an update on the number of transactions that took place in the month. The latest total for Scotland during April 2022 is now 8,232 sales, which is the highest number in the month of the last ten years. This suggests that the housing market in Scotland remains resilient, despite the potential headwinds of interest rate rises and the cost-of-living increases, which have been widely publicised in the press.
The provisional figure for May 2022 is 9,092 transactions, which is the second highest May figure of the last ten years – the highest having taken place in 2019, being the year before the pandemic struck.
In general, the peak month for sales in Scotland is August, with an average 9,350 transactions, so we can anticipate reporting on a slow build in the number of properties being sold over the next three months.
RICS (Royal Institution of Chartered Surveyors) in its May Residential Market Survey, is reporting that buyer enquiries are currently negative in Scotland, indicating there is less demand for homes this month, compared to a positive score seen over the last three months. However, RICS also notes that new vendor instructions are similarly lower this month, compared to the previous three months. On balance, RICS believes these two indicators are likely to balance each other out, leaving little change in house prices.
Figure 2. The number of sales per month recorded by RoS based on entry date (RoS applications date for May 2022), for the period 2015 – 2022. (Source: Registers of Scotland.)
Scotland transactions of £750k or higher
Table 2. The number of transactions by month in Scotland greater than or equal to £750k, January 2015 – May 2022
Table 2 shows the number of transactions per month in Scotland which are equal to or greater than £750k. The threshold of £750k has been selected as it is the breakpoint at which the highest rate of LBTT becomes payable.
Table 2 shows that there were 58 sales in excess of £750k during May 2022, and we anticipate that this number will increase as further sales for the month are processed by the Registers of Scotland. It is therefore quite likely that, excluding March 2021, we can report that in every month in 2022 there has been an increase in the number of properties sold in excess of £750k, compared to the same month from 2016 onward. The reason that March 2021 is excluded from the analysis is that it was exceptional, with sales being enhanced since it was the final month in which purchasers could take advantage of the LBTT tax holiday.
The rise in the number of high-value homes being purchased in 2022 is an indication that the “lifestyle changes” associated with the pandemic – “working from home” and the “race for space” – are still strong features of the current housing market. This, as we discuss on page 7, has resulted in strong competition for the properties that meet these requirements, with substantial price rises being seen at the top-end of the market.
The five authorities with the largest number of the 355 high-value sales that have been recorded to date in 2022 are: Edinburgh (179); Fife (21); Glasgow City (21); East Lothian (20); and finally East Renfrewshire (15). It can be seen from these figures that in 2022, Edinburgh accounts for just over half of this sector of the housing market.
Local Authority Analysis
Table 3. Average House Prices in Scotland, by local authority area, comparing May 2021, April 2022 and May 2022
Table 3 above shows the average house price and percentage change (over the last month and year) by Local Authority Area for May 2021, as well as for April and May 2022, calculated on a seasonal- and mix-adjusted basis. The ranking in Table 3 is based on the local authority area’s average house price for May 2022. Local Authority areas shaded in blue experienced record average house prices in May 2022.
Annual change
The average house price in Scotland has increased by some £17,100 – or 8.4% – over the last twelve months, to the end of May. This is a £1,500 increase over the £15,600 growth in prices seen in the twelve months to the end of April 2022
In May 2022, 31 of the 32 local authority areas in Scotland saw their average prices rise over the levels seen twelve months earlier – the one exception being West Dunbartonshire, where prices fell by -0.1%. In West Dunbartonshire, it was the average price of terraced properties that saw the most significant fall, from an average £130k in May 2021 to £120k twelve months later.
The area with the highest annual increase in average house prices in May 2022 was Argyll and Bute, where values have risen by 22.6% over the year. Last month we reported on the sale of a 5-bedroom detached home, located just outside Oban, in Argyll and Bute, having an asking price of £485,000, but selling for £600,000. This month there is a further example, with a five-bedroom detached property in Colintraive, overlooking Loch Riddon, having a guide price of £550,000, but being sold for £650,000. Two examples, in the same area, of the way in which competition for homes in remote beauty spots can result in a noticeable increase in average house prices.
On a weight-adjusted basis, which employs both the change in prices and the number of transactions involved, there are five local authority areas in May that account for 44% of the £17,100 increase in Scotland’s average house price over the year. The five areas in descending order of influence are: – Edinburgh (16%), Glasgow (8%); Fife (8%); South Lanarkshire (7%); and Argyll and Bute (5%).
Monthly change
In May 2022, Scotland’s average house price in the month rose by some £2,300, or 1.0%, which is near double the 0.6% increase seen in April. The average price in Scotland now stands at £220,870, which sets a record level for the nation for the eleventh month in succession.
In May 2022, 21of the 32 Local Authority areas in Scotland experienced rising prices in the month, the same number as in April. The largest increase in average prices in May, of 9.6%, was in Stirling, where the average price of detached homes increased from £377k in April to £417k in May. The average price for detached homes was elevated in the month by the sale of a five-bedroom detached Victorian villa in the King’s Park area of Stirling, for £875k, the third-most expensive property of the calendar year.
It is interesting to observe that the bottom four authorities in Table 3 above, which represent the four lowest priced areas in Scotland, have all seen price falls in the month – perhaps suggesting that the competition between buyers for homes is not so intense at the lower end of the price spectrum.
Peak Prices
Each month, in Table 3 above, we highlight in light blue the local authority areas which have reached a new record in their average house prices. In May, there are 17 such authorities, three more than in April. We can also add that Scotland itself has set a record average price in May 2022 – the fifth of this calendar year.
Heat Map
The heat map below shows the rate of house price growth for the 12 months ending May 2022. As reported above, 31 local authority areas in Scotland have seen a rise in their average property values over the last year, the one exception being West Dunbartonshire. The highest increase over the twelve months to May 2022 was in Argyll and Bute at 22.6%.
Comparisons with Scotland
Figure 3. Scotland house prices, compared with England and Wales, Wales, North East and North West for the period January 2005-May 202
Figure 4. A comparison of the annual change in house prices in Scotland, England and Wales, Wales, North East and North West for the period January 2005–May 2022
Scotland’s Eight Cities
Figure 5. Average house prices for Scotland’s eight cities from February 2021–May 2022
Figure 6. Average house prices for Scotland’s eight cities May 2022
UP TO £660 PER YEAR COULD BE SLASHED FROM HOUSEHOLD INCOME
In a letter to the chancellor last week, the Bank of England stated that it expected inflation to be “around 8 per cent” this spring. With Universal Credit set to rise by just 3.1 per cent in April, families with children on universal credit now face a real-terms cut of around £660 per year, on average.
This is an increase on Child Poverty Action Group’s original analysis which showed a cut of £570, when inflation was expected to be 7.25 per cent.
The £20 cut to universal credit last October plunged out-of-work benefits to their lowest level in 30 years. Latest analysis shows that the picture for families is going from bad to worse.
Without government action, families will be pulled deeper into poverty. Increasing benefits by anything less than 8 per cent risks pushing those with already stretched budgets past breaking point.
Anti-poverty charities wrote to the Chancellor last weekcalling for a minimum 7% benefits rise:
Prices are rising at the fastest rate in 30 years, and energy bills alone are going to rise by 54% in April. We are all feeling the pinch but the soaring costs of essentials will hurt low-income families, whose budgets are already at breaking point, most.
There has long been a profound mismatch between what those with a low income have, and what they need to get by. Policies such as the benefit cap, the benefit freeze and deductions have left many struggling.
And although benefits will increase by 3.1% in April, inflation is projected to be 7.25% by then. This means a real-terms income cut just six months after the £20 per week cut to universal credit.
Child Poverty Action Group’s analysis shows families’ universal credit will fall in value by £570 per year, on average. The Joseph Rowntree Foundation has calculated that 400,000 people could be pulled into poverty by this real-terms cut to benefits.
The government must respond to the scale of the challenge. Prices are rising across the board. Families with children in poverty will face £35 per month in extra energy costs through spring and summer, even after the government’s council tax rebate scheme is factored in. These families also face £26 per month in additional food costs. The pressure isn’t going to ease: energy costs will rise again in October.
A second cut to benefits in six months is unthinkable. The government should increase benefits by at least 7% in April to match inflation, and ensure support for housing costs increases in line with rents. All those struggling, including families affected by the benefit cap, must feel the impact.
Much more is needed for levels of support to reflect what people need to get by, but we urge the government to use the spring statement on 23 March to stop this large gap widening even further. The people we support and represent are struggling, and budgets can’t stretch anymore.
Alison Garnham, Chief Executive, Child Poverty Action Group
Emma Revie, Chief Executive, The Trussell Trust
Graeme Cooke, Director of Evidence and Policy, Joseph Rowntree Foundation
Morgan Wild, Head of Policy, Citizens Advice
Dan Paskins, Director of UK Impact, Save the Children UK
Imran Hussain, Director of Policy and Campaigns, Action for Children
Thomas Lawson, Chief Executive, Turn2us
Sophie Corlett, Director of External Relations, Mind
Dr Dhananjayan Sriskandarajah, Chief Executive, Oxfam GB
Caroline Abrahams, Charity Director, Age UK
Eve Byrne, Director of Advocacy, Macmillan Cancer Support
Kamran Mallick, CEO, Disability Rights UK
Katherine Hill, Strategic Project Manager, 4in10 London’s Child Poverty Network
Karen Sweeney, Director of the Women’s Support Network, on behalf of the Women’s Regional Consortium, Northern Ireland
Satwat Rehman, CEO, One Parent Families Scotland
Mark Winstanley, Chief Executive, Rethink Mental Illness
James Taylor, Executive Director of Strategy, Impact and Social Change, Scope
Irene Audain MBE, Chief Executive Scottish, Out of School Care Network
Steve Douglas CBE, CEO, St Mungo’s
Richard Lane, Director of External Affairs, StepChange Debt Charity
Robert Palmer, Executive Director, Tax Justice
Claire Burns, Director, The Centre for Excellence for Children’s Care and Protection (CELCIS)
The Disability Benefits Consortium
Dr. Nick Owen MBE, CEO, The Mighty Creatives
Peter Kelly, Director, The Poverty Alliance
Elaine Downie, Co-ordinator, The Poverty Truth Community
Tim Morfin, Founder and Chief Executive, Transforming Lives for Good (TLG)
UCL Institute of Health Equity
Dr Mary-Ann Stephenson, Director, Women’s Budget Group
Natasha Finlayson OBE, Chief Executive, Working Chance
Claire Reindorp, CEO, Young Women’s Trust
Businesses in Scotland are also calling for the Chancellor to announce new measures to help with rising costs ahead of his Spring Statement tomorrow, according to a recent survey from Bank of Scotland.
As inflation hits the highest levels seen since 1992, over half (55%) of Scottish businesses said that direct help with energy bills and rising costs tops their wish list for the Chancellor. This was followed closely by calls for a reduction in VAT, cited by two-fifths (40%), while almost a quarter of firms (23%) want increased funding to help create new jobs and develop skills.
Rising prices remain a key challenge for business. Almost half (46%) of respondents said they are concerned about having to increase the costs of goods and services and over one in ten (14%) stated that inflation is reducing profitability. Almost one in ten (9%) said rising prices had caused them to worry about having to make staff redundant and a further one in ten (9%) were concerned about not being able to pay their bills.
To help specifically with rising prices Scottish businesses are asking the Chancellor for a VAT reduction (46%), while a third (35%) have called for grants to cover rising energy costs. A further quarter (23%) called for grants to support investment in energy saving measures.
The data comes as businesses face continuing supply chain challenges, which are reducing the availability of stock (40%), causing hikes in freight costs (39%) and disruption through Rules of Origin and VAT requirements from EU suppliers (33%).
Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking, said:“Rising prices are causing multiple challenges for businesses across Scotland and the pressure from inflation shows no sign of abating in the near-term.
“As we wait for the Chancellor’s Spring Statement, we’ll continue to remain by the side of business in Scotland and support the country’s ongoing economic recovery from the pandemic.”
Responding to the ONS public sector finances statistics for FebruaryChancellor of the Exchequer, Rishi Sunak said:“The ongoing uncertainty caused by global shocks means it’s more important than ever to take a responsible approach to the public finances.
“With inflation and interest rates still on the rise, it’s crucial that we don’t allow debt to spiral and burden future generations with further debt.”
“Look at our record, we have supported people – and our fiscal rules mean we have helped households while also investing in the economy for the longer term.”
All will be revealed when the Chancellor delivers his Spring Statement (Budget) at Westminster tomorrow.
58% of firms expect their prices to increase in the next three months, the highest on record. 66% of businesses cited inflation as a concern, also a record high
1 in 4 (27%) firms were worried about rising interest rates, as concerns over rate hikes among manufacturers reach record high
Just under half of firms (45%) reported increased domestic sales in Q4, compared to 47% in Q3
The BCC’s Quarterly Economic Survey (QES) – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth – has shown the recovery stalled in the fourth quarter, with firms facing unprecedented inflationary pressures.
The survey of almost 5,500 firms showed that some indicators also revealed a continued stagnation in the proportion of firms reporting improved cashflow and increased investment. Inflation is the top issue for firms, while a rise in the interest rate was also a cause for concern for many.
Business activity
45% of respondents overall reported increased domestic sales in Q4, down from 47% in Q3. 16% reported a decrease, unchanged from Q3.
In the services sector, the balance of firms reporting increased domestic sales dropped to +26% in Q4, from +31% in Q3.
In the manufacturing sector, the balance of firms reporting increased domestic sales was +22% in Q4, down from +28 in Q3.
Prior to the surge in Omicron infections, hotels and catering had been most likely to report increased domestic sales (55%). This represented the beginning of a potential recovery as the sector was also the most likely to report decreased sales throughout the rest of the pandemic.
94% reported decreased sales and cash flow at the start of the pandemic in Q2 2020. Worryingly, a similar decline is now possible in the face of the Omicron variant and the implementation of Plan B which led to new restrictions for some.
Unprecedented Inflationary Pressures
58% of firms expect their prices to increase in the next three months, the highest on record. Only 1% expected a decrease.
The percentage expecting an increase rises dramatically to 77% for production and manufacturing firms, 74% for retailers and wholesalers, 72% for construction firms, and 69% for transport and distribution firms. These are the highest on record.
When asked whether firms were facing pressures to raise prices from the following factors, 94% of manufacturers cited raw materials, 49% cited other overheads, 30% cited pay settlements, and 13% cited finance costs.
When asked what was more of a concern to their business than three months ago, 66% of firms overall cited inflation (compared to 52% in Q3 and 25% in Q4 2020), the highest on record. For production and manufacturing firms, this rises to 75%.
Concerns over higher interest rates rise sharply
The percentage citing interest rates as a concern rose in the quarter. 1 in 4 firms (27%) reported interest rates as a concern, up from 19% in Q3.
The percentage mentioning interest rates as worry among manufacturers stood at 28% in Q4, the highest seen since the metric was first collected in Q4 2009 and up from 21% in Q3.
The percentage citing interest rates a concern among service sector firms stood at 29% in Q4, the highest seen since Q3 2014 and up from 22% in Q3.
Little recovery to Cash Flow
For firms overall, 31% reported an increase to cash flow, while 46% reported no change and 23% reported a decrease.
Given these figures were reported before the full impact of Omicron and the introduction of Plan B, this metric is a cause for concern, as some firms are still struggling to recover from large scale losses incurred since the start of the pandemic.
Most firms still not investing
Investment in plant, machinery, or equipment also continued to flatline in Q4, with 29% overall reporting an increase, while 60% reported no change, and 11% a decline. This was largely unchanged from Q3 and Q2.
Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:“Our latest survey suggests that UK’s economic recovery slowed in the final quarter of 2021 as mounting headwinds increasingly limited the key indicators of activity.
“The persistent weakness in cash flow is troubling because it leaves businesses more exposed to the economic impact of Omicron, rising inflation and potential further restrictions.
“The record rise in price pressures suggests that a substantial inflationary surge is likely in the coming months. Rising raw material costs, higher energy prices and the reversal of the VAT reduction for hospitality are likely to push inflation above 6% by April.
“The notable uptick in concerns over higher interest rates underscores the need for the Bank of England to proceed with caution on further rate rises to avoid undermining confidence and an already fragile recovery.
“The UK economy is starting 2022 facing some key challenges. The renewed reluctance among consumers to spend and staff shortages triggered by Omicron and Plan B may mean that the UK economy contracts in the near term, particularly if more restrictions are needed.
“Rising inflation is likely to limit the UK’s growth prospects this year by eroding consumers’ spending power and squeezing firms’ profit margins and their ability to invest.”
Responding to the findings, Director General of the British Chambers of Commerce, Shevaun Haviland, said: “Our latest survey paints a challenging picture for the UK economy as we start 2022.
“Many businesses were facing a struggle to improve their cashflow and raise investment even before the Omicron variant surged and Plan B was imposed.
“Supply chain disruption is continuing to persist, inflation is soaring, and rising energy costs are presenting firms with a huge headache.
“With companies now having to grapple with the impact of Omicron and further changes to the rules on imports and exports of goods to the EU, there are significant hurdles for businesses in the months ahead.
“The Government has listened to our previous calls for support, and it must do all it can to steady the ship and steer the economy through these uncertain times. If the current restrictions persist or are tightened further then a more comprehensive support package that matches the scale of any new measures, will need to be put in place.
“The focus must be on creating the best possible environment for businesses to grow and thrive. By supporting firms, they can begin to generate wealth, create jobs and support communities.
“That is by far the best way to sustainably deliver the tax revenue the government needs to support public services and the wider economy.”
