As summer has turned to autumn in 2014 we have begun to see various signs of a slowing in the UK housing market. As the past growth was a trigger for the UK’s economic boomlet it poses not a few questions as to what happens next there too and it seems that such matters have also been on the mind of Bank of England Chief Economist Andy Haldane. From an interview with the BBC.
For the forseeable future, those headwinds to growth will be with us,they will be holding us back to a degree. Why is that? Because we are still paying for some of the cost of the crisis. Debt levels are still too high.
The last part about debt is a little awkward as Mr.Haldane is part of a Bank of England which used its Funding for Lending Scheme to boost debt via mortgage lending. As he was not on the Monetary Policy Committee back then perhaps this is a type of implicit criticism although for someone as “gloomy” as him it does beg the question of what he would have done?!
One area where if he was a dog he might catch a frisbee is where Andy Haldane points out that we as people have changed.
One interpretation is just that people are scared. People are scarred by the risk of something else going wrong, and are seeking safety, safety almost at any price
That is particularly awkward as you see when Andy Haldane was head of UK banking supervision he pushed them towards more safety and lower risk. Yes exactly what he is critiquing now! Sadly this is a regular feature of central banking where they are allowed to get away with criticising the consequences of their own actions by a largely supine media. Perhaps this is one of the behavioural biases he wrote about on the 17th of November. Central bankers put on one hat and ask for more bank lending then when they put on the other hat they set rules which restrict bank lending.
So Mr Haldane is in my view in a world described by the band Genesis.
This is a land of confusion.
Of course in the modern world this translate to him being selected by Time magazine as one of the world’s 100 most influential leaders. However my thoughts return to the same song.
Superman where are you now
When everything’s gone wrong somehow
The men of steel, men of power
Are losing control by the hour.
How does this affect the mortgage market?
There are two timing impacts here. Firstly Andy Haldane is telling us that the economic recovery is likely to struggle as we move into 2015. However if we look forwards those with variable-rate mortgages are likely to be cheered by his “lower for longer” view on UK official Base Rates. Regular readers will be aware of my view that an interest-rate cut is about as likely as a rise and Mr.Haldane may not be far away from that. Of course the danger remains that he contradicts himself again.
The Nationwide Building Society
It released its six monthly figures today and they gave a very downbeat view on activity in the UK housing market. Gross lending was down but look at net lending. From the BBC.
Britain’s biggest building society said that the figure was £13.1bn for the six months to September 30, down £900m from the six months to March 30.
Net lending was £2bn lower at £3.6bn.
So not only did total lending see a decline perhaps the “People are scarred by the risk of something else going wrong” factor apply as mortgages were repaid leading to a 36% fall in net mortgage lending. I have commented on this feature before as it is something that has become a regular in the credit crunch era. For example it took an extraordinary effort from the Bank of England’s Funding for Lending Scheme ( a near 1% fall in mortgage rates) to get the overall net mortgage lending figures to be consistently positive.
Of course this is only one lender and others may have done better but the Nationwide thinks not and the emphasis is theirs.
the Society accounted for almost a quarter (24.8%) of all net mortgage lending, ahead of its par market share.
Interestingly the new ISA rules seem to have provoked a burst of saving although much of it is no doubt switching for tax-free status.
Nationwide accounted for more than 20% (20.7%) of the growth in ISA balances.
I wonder about this a lot as a trend towards saving is in direct contradiction of what our central banking Supermen and Wonder Women want us to do.
Today’s overall mortgage numbers
The opening salvo from the British Bankers Association (BBA) has a theme of weakening to it.
Today’s figures suggest that the cooling of the property market has continued in recent weeks. Approvals were 16% lower in October than in the same month last year – the corresponding figure for September was a 10% decline.
Actually those are the new buyers approvals, the situation for remortgages is worse at -21% and the equity release situation is worse still at -34%. If we look back at past mortgage approvals for some perspective the average of the previous six months had been 41,549 and October was 37,076 or 10.8% lower.
We can see more signs of a slow down in house prices to come from these numbers as demand is being drained from the system. In the end this will affect prices and pull them back.
Interestingly demand seems to have shifted to unsecured borrowing.
Annual growth in unsecured borrowing is running at 2.8% – the highest rate since 2008.
This may not seem a high rate but this does represent quite a change on previous trends as if we go back the spring of 2013 the annual change looked like it was heading for a double-digit fall in percentage terms. Has the Bank of England engineered a switch from secured to unsecured borrowing in what would be yet another own goal?
The Funding for Lending Scheme was and indeed still is supposed to be boosting this. It deserves a mention as the abject failure is ongoing.
Outside of real estate annual growth in borrowing by the real economy in October is the same as it was a year ago at
If you are willing to only count the sectors where borrowing is rising then the situation is satisfactory.
There is positive and sustained growth in
the manufacturing, wholesale and retail
Today has seen more evidence that whatever steam the UK housing market has is fading and waning. This will in time move further into house prices as well as the wider UK economy. Should we see house price falls then it will be the first time for a while that houses will become genuinely more affordable. But the danger remains of yet more panic action by the government and the Bank of England and on this road we return to the possibility of more monetary easing which has become a modern theme of this blog. On that front there has been this from Bank of England Governor Mark Carney today.
Never believe anything until it is officially denied!
Also Mark Carney seems to be morphing into Mervyn King.
A more balanced recovery
Perhaps he has not looked at the trade of fiscal deficits lately. Or perhaps like Time Lords Bank of England Governors look different but are in fact the same person.
If you wish for a Matrix style blue pill
The cooling impact of global economy, low interest rates and political activities leading to May 2015 general elections have created opportunity for investors and home buyers in the UK property market.