Lunchtime news Friday 18 April 2015

Investment bank Morgan Stanley predicts that house prices will fall by 15 per cent in the next two years, pushing one in 10 homeowners into negative equity, with first-time buyers being particularly affected. The report warns that these estimates may be too conservative as the figures do not take into account mortgages taken out this year.

The Bank of England’s chief economist has warned homeowners that house prices are likely to remain exposed to further falls in coming months, because of the continued short supply of new home loans. Saying that the Bank was ‘walking a tightrope between the threats to economic growth and the dangers from inflation,’ it ruled out promising to cut interest rates.

And the Council of Mortgage Lenders (CML) thinks things will only get worse as it predicts the level of mortgage lending will fall further. Its latest figures show that gross mortgage lending rose by 5 per cent last month, 17 per cent lower than March last year. An increase of around 20 per cent is typical for the period between February and March.

The Royal Bank of Scotland (RBS) is expected to ask its shareholders for up to £12 billion in extra cash (potentially raised through selling shares to existing investors) in a bid to improve its financial position. Other banks are expected to follow suit, however analysts stressed that this was ‘not a customer issue, it’s a shareholder issue’ and those with accounts at RBS should not worry.

Hometrack‘s research shows that buy-to-let investors are feeling the pinch of oversupply, as rents tumble in some city flats. The rental market in cities such as Liverpool and Nottingham was ‘never large enough to soak up’ the amount of building going on, and have seen rents drop by 2 per cent when comparing the first quarters of 2014 and 2015. Overall however, rents have increased by an average of around 4 per cent across the UK, with central London and the Docklands recording particularly large rises. The cost of renting compared with the cost of servicing a mortgage has narrowed significantly over the year to the end of March. In the first quarter of 2014 rents cost 75 per cent of mortgage costs, rising to 81 per cent by the first quarter of 2015.