On 22 December 2009, the Royal Institution of Chartered Surveyors’ (RICS) UK Housing Market Forecast indicated that house prices will finish the coming year one or two percent higher than at the end of 2009. Transactions are likely to rise to a monthly average of 70,000 from 55,000 to 60,000 currently.

RICS adds that supply should continue to increase in the early part of 2010 but will struggle to keep pace with demand providing a platform for further house price rises. Significantly, the inventory of stocks on surveyor's books still remains close to historical lows. However, the narrowing in the gap between supply and demand will gradually begin to exert a greater influence on the market.

The on-going caution of lenders, the uncertain economic climate and a flat labour market are all also likely to present challenges resulting in prices finishing the year only one or two percent higher than they started it.

Which way do you think house prices will go? Could changing interest rates also be a factor in determining the direction of the market?

On 16 December 2009, Moneyfacts released its financial analysis of the passing year. Moneyfacts observes that for some, the last year has seen reasons to celebrate, including borrowers on existing tracker mortgages deals or investors who have seen the stock market rally. However, for savers and those about to retire, it’s been another punishing year.

• 2009 has been a mixed bag for mortgages borrowers. Bank rate falling to an all time low meant those on existing tracker deals or and SVR as low as 2.50 percent saw their repayments plummet;
• Borrowers looking to secure a new mortgage deal, particularly a fixed deal, have not seen rates falling as much as they might expect, with rates steadily increasing during the year;
• Savers have had a dismal year as rates have fallen to record lows. Those that rely on the income from their savings to supplement their income, such as pensioners , have been the hardest hit, with many having to make changes to their lifestyle as a result;

Could 2010 see lenders reducing the perceived excessive margin for risk and passing on more competitive rates?

Could inflation be the Savers’ best friend next year as further rises may cause the MPC to increase rates sooner rather than later?

Share your views here.

The latest Business Outlook survey compiled by research firm Markit Economics on behalf of KPMG International, shows that business confidence has come surging back across virtually all geographies and industries.

The latest figures – which reflect confidence in expected performance over the next 12 months – suggest that recent signs of economic improvement are no flash in the pan and that a global recovery could now be well under way. 

The survey findings show confidence in future business activity running at +42.9 in manufacturing and +46.5 in services.

For the US and the BRIC economies, those figures rise to +54 and +54.1 respectively in manufacturing and +65.6 and +51.9 respectively in services.  Similar numbers are posted for confidence around future new orders and business revenues. Despite all the cost pressures, even confidence around improved profits stands at +32.1 globally for manufacturing and +36.2 for services. 
 
Prospects for increased employment in 12 months’ time are slightly less rosy – at +7.8 for manufacturing and +16.9 for services – suggesting that the recovery has some way still to run before all companies start thinking about full recruitment once more.
 
Is this renewed confidence premature or is it an accurate indication of the forthcoming recovery?

Let us know what you think.

On 19 October, the Financial Services Authority (FSA) set out proposals major reforms in the UK mortgage market to ensure that it works better for consumers and is sustainable for all market participants.

The review’s key features are:
•Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;
•Banning ‘self-cert’ mortgages through required verification of borrowers’ income;
•Banning the sale of products which contain certain ‘toxic combinations’ of characteristics that put borrowers at risk;
•Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears;
•Requiring all mortgage advisers to be personally accountable to the FSA;
•Calling for the FSA’s scope to cover buy-to-let and all lending secured on a home.

Are these proposals long overdue? Will they make it even tougher for first-time buyers to secure a mortgage?

Let us know what you think.

Should you be promoting luxury or premium in the new economy? I recently read Seth Godin’s newsletter that addressed this subject.

According to Seth a luxury is a needless expensive priced product that does not relate to top performance. A premium product is an expensive variant on a commodity product where you pay more, but you also get more.

Selling premium products must be part of your strategy and marketing mix. Consider what premium products you have in your range and cut down on the luxury.

Irrespective of the impact of the recession, it’s a fact that that accountants earn far less than they are worth. Why is this?

Perhaps the answer is that accountants think too little of themselves that they suffer from something called the “I’m not worth that” syndrome. Maybe lack of self esteem is the reason.

Colin Dunn, a chartered accountant formerly with Results Accountants' Systems (later RAN ONE) in the UK and now with ReNew Group Pty Ltd, based in Queensland, Australia thinks that lack of self esteem is the reason why accountants don’t earn what they’re worth.

Read Colin’s article “Why Lack of Self Esteem is Suppressing Profits in the Accounting Profession” and let us know what you think.

On 1 September 2009, the Bank of England reported that the total amount of personal debt in the UK in July 2009 had fallen for the first time since records began sixteen years ago:

Mortgage debt and other forms of borrowing such as bank loans, fell;

• The numbers of loan approvals for house purchase (50,123) and for remortgaging (35,206) were both higher than in June and above the previous six-month average, suggesting property sales will continue to rise;
• Consumer credit fell by a net £0.2 billion, below the previous six-month average. Credit card lending increased by a net £0.1 billion and other loans and advances fell by £0.3 billion. The annual growth rate of consumer credit continued to fall, to 1.4%; the three-month annualised growth rate fell by 0.8 percentage points to 0.2%:
• People repaid £635 million more than they borrowed during the month, reducing outstanding lending to £1.456 trillion;
• The amount outstanding on mortgages fell by £400m as people repaid more than they borrowed during July;
• The amount accumulated on consumer credit (such as loans and hire purchase debts)  dropped by a net £217m, even after a rise in credit card debt of £92m was taken into account.

Separate figures from the Building Societies Association showed that mortgage customers repaid £577 million more during July than was lent, the seventh consecutive month during which the figure has been negative. Gross lending by building societies in July 2009 was £2.1 billion, the highest monthly figure this year, but 42% lower than the £3.6 billion lent in July 2008.
 
The figures suggest that many people are choosing to pay down their debt as the economic downturn persists, and that banks remain picky about extending new lending - despite the Bank of England’s unprecedented efforts to get cash flowing around the economy. The negative net mortgage lending figure, the first on record, reflects the ongoing problems in the mortgage market with lenders struggling to find the funds they need to advance to borrowers.

The Council of Mortgage Lenders commented on the data from the Bank of England saying that the lending activity still remains weak, but has improved from the historic low levels of turnover at the beginning of the year. They expect volatility in net lending levels over the rest of the year and there may be other months in which negative net lending occurs as the recovery is likely to be sporadic and shaky at first.  Overall however, the figures are consistent with their view of a slowly improving house purchase market, yet still constrained by a lack of available funding and the fragile economic backdrop.
Main source: wwww.bankofengland.co.uk/statistics/li/2009/jul/lendind.pdf   
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What is the FSA playing at by including deference to discrimination and equal pay provision in its code on remuneration in the financial sector? Elaine McIlroy, senior associate at lawyers Dundas & Wilson, checks it out.

Few people could have been surprised by the final code of practice on financial sector bonuses published recently by the Financial Services Authority (FSA). As a response to the banking crisis, the Code on Reforming Remuneration Practices in financial services, which will be incorporated into the FSA Handbook from 1 January 2010, contained few shocks, other than perhaps being less stringent than might have been preferred by some.

But one section of the code stood out. In guidance that describes to firms how to achieve its aims, it states: "In considering the risks arising from its remuneration policies, a firm will also need to take into account its statutory duties in relation to equal pay and non-discrimination".

The overall purpose of the code is to crack down on remuneration policies and procedures that have rewarded inappropriate risk taking, viewed as a contributory factor to the banking crisis. It is ultimately intended to promote financial stability, and thereby, to protect consumers.

The code provides guidance for firms on how these aims are to be achieved, which as expected emphasises the financial risks. It contains an underlying "general requirement" that firms affected by it – 26 so far – must "establish, implement and maintain remuneration policies, procedures and practices that are consistent with and promote effective risk management". The code then sets out evidential requirements and additional guidance for firms on how to meet the general requirement.

Some of these measures were expected – for example, the requirement for firms to have in place experienced remuneration committees that can exercise independent judgement. These measures are clearly related to effective risk management and are properly matters for a regulator. But the guidance on equal pay and non-discrimination appeared to come out of left field. It is unusual that a regulatory regime designed to tackle the sort of risk that has given rise to the market crisis is concerned with the risks arising from matters such as equal pay and discrimination.

Risks associated with equality and diversity are not matters that one normally associates as being a cause of the market crisis or linked to "inappropriate risk taking". Although it may be commendable to draw matters such as compliance with equal pay and other discrimination legislation into the regulatory regime in this way (albeit that the references are in the form of 'guidance'), it is questionable whether such matters have been viewed as a factor that has driven the "inappropriate risk taking" which is at the heart of this regulatory response.

It is also unclear which risks affected firms should consider. For example, is the potential for equal pay litigation to be taken into account and, if so, how are firms to assess and manage this risk?

Businesses that will be bound by the code would be well advised to audit their remuneration processes to assess equal pay and other discrimination risks. Statistical evidence may be required to assist in this process and many of the larger banks may already have processes in place to conduct such a review. It will remain to be seen what standard of compliance the FSA may expect to see in this area.
Written by Elaine McIlroy, www.dundas-wilson.com

FSA confirms introduction of remuneration code of practice: Banks given new rules on bonuses
Bankers' pay deals are to be linked more closely with the long-term profitability of banks under new rules from the FSA who say that bonuses should not be guaranteed for more than a year, and that senior employees should have their bonuses spread over three years.

The new code, announced by the FSA on 12 August 2009, will require large banks, building societies and broker dealers in the UK to establish, implement and maintain remuneration policies consistent with effective risk management.

The new code is designed to achieve two objectives:

• First, that boards focus more closely on ensuring that the total amount distributed by a firm is consistent with good risk management and sustainability; and
• Secondly that individual compensation practices provide the right incentives.

Eight principles have also been added to the FSA's handbook to ensure firms understand how the FSA will assess compliance.

The code makes clear that it is not expected that firms will enter into contracts with individuals which provide guaranteed bonuses for more than one year. It is also expected that for senior employees two-thirds of bonuses will be spread over three years.

Firms are expected to provide the FSA with a remuneration policy statement by the end of October. This will have to be signed off by remuneration committees and will enable the FSA to check compliance with the code. Non-compliant firms could face enforcement action or ultimately, be forced to hold additional capital should they pursue risky processes.

Source: www.fsa.gov.uk/pages/Library/Communication/PR/2009/108.shtml

The policy statement: 'Reforming Remuneration Practices in Financial Services' can be downloaded from: www.fsa.gov.uk/pubs/policy/ps09_15.pdf        
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