Archive for August, 2014

Interest rates: Minutes show two Bank policymakers voted for rise

Two members of the Bank of England’s Monetary Policy Committee (MPC) voted to raise interest rates in August, the first time in three years that policymakers have done so.

The minutes of the meeting on 6-7 August show Ian McCafferty and Martin Weale voted for a 0.25% rise to 0.75%.

It means the nine-member MPC voted 7-2 to hold interest rates at their historic low of 0.5%.

The pound jumped in expectation that rates may rise sooner than expected.

Sterling rose 0.20% against the US dollar to $1.66.

If follows official data on Tuesday which showed inflation fell to 1.6% in July.

It is the first time there has been a split on the MPC since July 2011. Interest rates have been unchanged since March 2009.

The minutes came a week after the Bank of England published its quarterly inflation report in which it halved its forecast for average wage growth, saying it now expects average salaries to rise by 1.25% this year.

Data from the Office for National Statistics (ONS) also showed average wages excluding bonuses grew by just 0.6% in the year to June. That was the slowest pace of growth since records began in 2001.

However, the Bank upgraded its growth forecast for this year to 3.5% from 3.4%, and for 2015 it forecast growth of 3%, up from 2.9%.

The MPC minutes showed that despite low wage growth both Mr Weale and Mr McCafferty felt that rapidly falling unemployment made it more likely that salaries would pick up in the coming months.

Both members made the argument that wages may not rise until spare capacity in the labour market was fully used up. But they also suggested an early interest rate rise was desirable as a way of anticipating inflationary pressures from wage rises.

The two members argued that recent robust economic growth had been underpinned by “stimulatory monetary policy” and that a rise of 0.25% would mean monetary policy remained “extremely supportive” given that before the 2008 financial crisis “normal” interest rates had been around 5% on average.

Bank Governor Mark Carney has said that any rise in interest rates would be gradual.

But for months now economists have been going through the minutes of the MPC with a fine tooth comb and examining almost every economic statistic for any hints as to when rates will rise.

So, two of the nine members of the MPC voting to increase rates is a massive clue for economists.

That matters not just for the millions of people with savings accounts, mortgages or other debts; it will also influence the rate of economic growth, the profitability of firms, the strength of the pound and the value of shares.

Which is why the subject is arousing so much comment and analysis.

City analysts said despite the split on the MPC, Tuesday’s inflation figures showed the Bank remained under no immediate pressure to raise interest rates.

Peter Hemington, partner at BDO, said: “There are still big question marks for businesses on when the rise might come. Businesses cannot plan for growth on the basis of vague or conflicting statements – policymakers can do more to provide certainty for businesses, enabling them to make informed decisions for the future.”

‘Not secure’
David Kern, chief economist at the British Chambers of Commerce, said it was “disappointing” that two members had voted increase rates.

“With inflation well below target and wage growth stagnating, any increase in interest rates at the moment would be premature,” he said.

“The economic recovery is still not secure and growth amongst UK businesses must be fostered in a low interest rate environment. The risks from raising rates too early are much greater than the risks of waiting just a little longer,” he said.

Laith Khalaf, senior analyst at Hargreaves Lansdown described calls for an interest rate rise premature adding: “The last time the committee vote split was in July 2011, shortly before the eurozone crisis kicked interest rate rises into the long grass. Yesterday’s inflation data and continuing anaemic wage growth may also put somewhat of a dampener on the enthusiasm for rate rises.”

Final bidders battle for Ulster Bank portfolio

FOUR investment firms have been named as the final bidders for a portfolio of assets being sold by Ulster Bank

he portfolio, which is being traded under the moniker ‘Project Achill’ has a par value of €1.2bn.

It includes a host of commercial properties including business parks and hotels in the UK, a number of apartments in Belfast and residential properties in north Dublin.

The portfolio also covers several office buildings in central Dublin.

The portfolio was expected to attract a lot of interest and so it has proved.

US investors Cerberus Capital Management, Lone Star, and Oaktree Capital Management have all progressed to the second and final round of the bidding process, CoStar reported. Deutsche Bank has also gone through and is the sole European representative to have progressed.

As well as the bids for the entire portfolio, individual borrowers were allowed to make an offer for their loans. It is believed a number of these bidders have also been able to make it to the final round of the process.

The final deadline for bids is now September 19.

‘Project Achill’ has long been seen as one of the more attractive portfolios within the Ulster Bank business.

Ulster is deleveraging sharply on the instructions of its parent Royal Bank of Scotland, which is still majority owned by British taxpayers.

When the process is complete, Ulster is expected to have sold off as much as €11bn worth of assets.

Loans to developers Paddy McKillen, Eugene Larkin, and Kevin and Michael Corbett are all understood to be included in the portfolio, which is 83pc made up of Irish property. UK loans make up the balance.

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Merchant Hotel: Ulster Bank sells loans attached to Belfast hotel

Ulster Bank is selling loans attached to Belfast’s high profile Merchant Hotel, according to a report.

They are part of a portfolio known as Project Nadal which includes loans attached to pubs and hotels across Ireland.

The bank is selling a variety of loans in a move to reduce its involvement in property-related lending.

Beannchor, the firm which owns The Merchant, says it would be business as usual.

However, the firm will have a new lender.

The Belfast Telegraph has reported that loans on a number of pubs controlled by Beannchor are also for sale.

They include the loans on the Garrick and Whites Tavern in Belfast.

A spokesman for Beannchor said: “This process is part of a well-publicised strategy by Ulster Bank to reduce its debt book, north and south.

“For Beannchor, it means we will have a new funder, but other than that, it is very much business as usual for The Merchant and the pubs in this portfolio.

“Our focus on the successful running of these high-performing assets continues unabated.”

The 2013 accounts for the company which owns the hotel, Merchant Hotel Ltd, showed a loss of £534,000 on a turnover of almost £11m.

Part of the reason for the overall loss was a provision of £1.2m for doubtful debts.

At that time, the company had borrowings of £21m with Ulster Bank and a note in the accounts stated that the directors were in discussion with the bank and “alternative funders” about refinancing that debt.

In 2012, the value of the hotel was written down from £34m to £22m.

A note in the accounts said that followed a review of land and buildings which was conducted “in response to the current economic climate”.

Beannchor is owned by Bill Wolsey, who is one of the leading figures in Northern Ireland’s hospitality business.

Not all the loans on his premises are for sale.

For example, a group of pubs he bought in 2011, and held in a company called North Down Leisure, are funded by borrowing from Santander.

Ulster Bank has been rapidly reducing its property-related lending over the last 18 months.

It is also selling a portfolio of loans called Project Achill which includes the borrowings related to office buildings in Belfast’s Titanic Quarter.

Repossessed homes sell for less than half of their value

Repossessed homes in Northern Ireland have been selling for around 42% of their ‘true’ market value, according to a mortgage administration company.

HML’s research said foreclosed homes in the province, which are usually sold at auction, were fetching the lowest percentage of market value of any region in the UK between 2008 and 2013.

Scotland and the north of England were next worst affected by low values for repossessions – yet prices were at around 63% of value, much higher than in Northern Ireland.

However, the province has faced the steepest fall in prices since the boom of 2007, with prices down around 50%. In addition, HML has estimated that around 41% of Northern Ireland home loans are in negative equity.

Greater London was least affected, with repossessed homes fetching just under 80% of market value. HML said repossessed homes “typically” sell for between 60 and 70% of true market value.

Damian Riley, director of business intelligence at HML, said many people who had their homes repossessed did not realise that they would still owe money to their lender if the house sold for less than what they still owed.

Figures from HML showed that nearly 200,000 UK mortgage holders still owed money, with an average shortfall of £43,000.

Nicola McCrudden, policy manager at Northern Ireland charity Housing Rights Service, said it was not surprised by HML’s report.

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