Today has seen some rather familiar news on the UK house price situation from Rightmove. Let us get straight to it.
Price of property coming to market up by 1.0% (+£2,748), a more muted rise at this time of year.
This has resulted in a reduction of the year-on-year rate of increase to 5.4%.
So on their measure we continue to see house price growth and in terms of the month just gone some acceleration whilst the year on year increase has been trimmed. This in a way reflects the multitude of official influences on the UK housing and mortgage markets. For example the explicit impact of the Bank of England’s Funding for (Mortgage) Lending Scheme (FLS) is over. Also Rightmove try to trumpet the influence of the Mortgage Market Review but end up in a mass of contradictions.
The MMR introduced in April 2014 laid out a much-needed longer-term framework for responsible lending, but within a year its dampening effects have been muted by high demand outstripping supply.
On the other side of the equation has been the Help To Buy Scheme which has helped over 88,000 households to buy what I consider to be overpriced housing. Added to this came an additional effort earlier this month.
The plans will allow young first time buyers the opportunity to secure a new Starter Home at a 20% discount to the market price.
This begs so many questions. For example in a new estate, what is the market price?! If it is so easy why not 25% or 30% off? Backing this up comes from thinking if as clearly implied prices are too high for first-time buyers then why has the government and Bank of England put so much effort into pushing them higher?
Next we have seen an upwards push on house prices from lower mortgage rates. Back on the 9th of February I discussed what were and indeed remain extraordinary changes. From the Council of Mortgage Lenders.
Last November, the average new tracker mortgage rate fell to 1.96%, according to our regulated mortgage survey – the first time that it has ever dipped below 2%. For fixed-rate borrowers, it’s the same picture, with some lenders offering the lowest long-term rates the market has ever seen.
This has been driven partly by international influences as for example the continuing fall in bond yields in Europe and the fact that Bank of England policy still supports lower mortgage rates just not so explicitly.
What about Buy To Let?
In itself buying a house to rent it out may provide a service for the economy. The catch is that in the UK this morphed into a type of investment/pension plan based around capital gains and “easy money”. Thereby it crowds out investment to other sectors and degrades our economic performance. Well here is Rightmove’s view on the current position.
controls limiting buyer affordability appear not to be restraining the more cash-rich buy-to-let sector. This active area of the market, with mortgage loan numbers up by 23% in 2014 compared to 20131, is set to receive a further injection of investment as the new pension rules come into force next month.
So Buy To Let is booming as we wonder if the other part of FLS is putting money into the property market via companies? Also we do not yet know the full details of the changes but we do know that we expect to see more pension liberalisation and those with lump-sums will if the past is any guide tend to put it into the already overpriced UK property market.
What does this mean?
If we move away from the Rightmove numbers partly because their weakness is that they use asking or selling prices rather than actual trading prices we can look at Friday’s LSL/Acadata report.
At £273,528, home values now £34,192 higher than at height of the housing boom in February 2008
So house prices are now some 14% higher than at the peak which helped to cause the credit crunch many of us are still suffering from. Also whilst we get plenty of hype around the issue of affordability because of the fact that mortgage-rates are as low as they have ever been there is an elephant in the room. This is of course if we compare rising house prices with the level of inflation adjusted or real wages. As real wages have been falling in the credit crunch era any such analysis provokes quite a problem and indicates a strong degree of stress in the system. Back in 2013 the UK Office for National Statistics produced some eye-catching numbers and of course in spite of a recent improvement the situation has seen an overall deterioration.
In real terms, the average earnings of UK employees in 2012 were at roughly 2003 levels, a new article from ONS has shown. After three decades of strong growth, real wages peaked in 2009. Since then inflation has outstripped wage increases in cash terms.
An index which compared house prices to wages would be truly terrifying right now. In a way the UK authorities have confirmed this by the way that they have provided subsidy after subsidy or what they call “help”. Of course it may turn out to be this version of Help.
Help me if you can, I’m feeling down
And I do appreciate you being ’round
Help me get my feet back on the ground
Won’t you please, please help me
With thanks to NicTrades for pointing this out to me I would like to refer to Woman’s Hour on BBC Radio Four. Here is a flavour of the topics discussed by the focus group as we move from the XY to the XX.
I look around at the children who are 19 and 20 and I don’t know how they will ever be able to afford a mortgage?
I would prefer the housing market to halve in all honesty and let people get in on the market even though I would lose money. But I don’t see it as losing money…..
When everybody was talking about house prices going up it made everyone very greedy and led to the sort of conversation I don’t like.
Young people won’t get a chance with landlords snapping up every available property….
I feel insecure for everybody else especially kids as it is much tougher than it was.
Where now you know it is just crazy…
I think that they have pretty much nailed it don’t you? As we wonder if Destinys Child provided something of a template in terms of attitude.
The shoes on my feet
I’ve bought it
The clothes I’m wearing
I’ve bought it
The rock I’m rockin’
‘Cause I depend on me
If I wanted the watch you’re wearin’
I’ll buy it
The house I live in
I’ve bought it
The car I’m driving
I’ve bought it
I depend on me
(I depend on me)
Well done to Women’s Hour for hosting for what can only in these times be considered something of a subversive discussion. But sadly the presenter Dame Jenni Murray embarrassed herself with this about the woman who wanted house prices to halve.
It seems to me that she is living in Cloud Cuckoo land…
Many of us would prefer what she considers to be Cloud Cuckoo land. On the other side we have official policy so aptly described by the purple one.
Let’s go crazy
Are we gonna let the elevator bring us down
Oh, no let’s go!
I said let’s go crazy (Go crazy)
Let’s go, let’s go