The outlook for UK monetary policy is one of the main determinants of what happens in the UK housing sector and house prices. After all we are still in the boom created by the bank subsidy scheme called the Funding for (Mortgage) Lending Scheme which began in July 2012 and as of the half-way point of 2015 amounted to some £61.4 billion. You might think that such a sum would be a matter of large public debate but it skulks in a shadow which the mainstream media fails to shine a light on.Oh and as to the “Open Mouth Operations” about it being for small and medium sized businesses or SMEs they got an extra £0.5 billion in the second quarter of 2015 whereas the total rose by £4.2 billion leaving an unspecified £3.7 billion rise. I think we know where that went!
Also the international environment changed last week with Mario Draghi of the ECB promising more policy easing including a hint of an interest-rate cut and China following with a 0.25% reduction. Even more yields in Europe are now negative with even short-dated bonds in Italy and Spain dipping in and out of it. This means that the UK with its “lower-bound” (Mark Carney) of 0.5% Bank Rate looking attractive which has seen the UK Pound £ nudge 1.39 after being more like 1.36. This means that UK monetary policy has tightened a little when we consider how much trade we do with the Euro area. It also represents a change as the UK Pound £ had been drifting a little lower.
Governor Mark Carney
Over the weekend an interview with the Bank of England Governor was published in the Mail on Sunday. The Bank of England has not published it as perhaps someone was embarassed by these bits. Actually you need to look into the Mail on Sunday achives now as otherwise there have been some redactions.
“the 50-year-old charmer” “matinee idol Governor” “British financial royalty with a pedigree to match”
Rather breathtakingly as the Toad of Toad Hall approach continues we are expected to believe that the Governor said this “‘Am I in trouble?” when this was a PR exercise masquerading as journalism. However there was one policy sound bite which applies to the UK housing and mortgage markets as it concerns his often repeated promise of an interest-rate rise.
There’s no certainty that they will happen, but it is a better position to be in if households expect what we think is likely to happen, and to some extent are prepared for it.
I doubt whether households will agree if he ends up doing a U-Turn and they have taken out a fixed-rate mortgage with penalties for changing based on his promises! Indeed they may already be worried by this.
For Carney, the concern is with those he calls ‘vulnerable’ – the householders who could find it hard to pay their bills if rates rise. He says: ‘While there’s been a lot of progress paying down debt, there’s still a substantial proportion of British households carrying a lot of debt.
They may fear that the ground is being tilled such that a U-Turn would be to protect the vulnerable especially as household debt is rising again. Let me show you from today’s British Banking Association release how households have been paying down debt.
the overall mortgage stock is now 1.7% higher than a year ago…….Over the past two years, net borrowing through personal loans has been rising and has expanded notably over the past two years.
Accordingly one might mull this sentence from the interview.
If events mean that does not happen and rate rises are not appropriate, then we will do the right thing and we will not adjust rates.
This is rather different to say the least from what we got at Mansion House back in June 2014.
The economy is still over-levered. The housing market is showing the potential to overheat.
So we have borrowed more since and house prices have risen as well as rents soaring so this must have happened ages ago, right?
It (the first interest-rate rise) could happen sooner than markets currently expect.
This was taken as a promise by markets back then as for a Bank of England Governor this was considered to be plain-speaking. Now we seem to be getting echoes of the past from one of Harold Macmillans supposed phrases/excuses.
Events my dear boy events
Today’s mortgage lending data
If we look at the BBA release for the main high-street banks we see that there is considerable growth on a year ago.
Gross mortgage borrowing was £12.1 billion in September, 17% higher than in the same month last year.
In fact net mortgage lending has been picking up again and was some £2 billion higher in September. If we look forwards we see this.
Approvals overall were therefore lower than in August but some 24% higher than at the same time a year ago.
So a dip compared to the very strong August numbers but still above the 6 month average. Even if we allow for the remortgaging boom inspired by the promises of Mark Carney there has been an increase in house purchase approvals of 14% on a year ago.
Putting it another way the reduction in mortgage-rates driven by FLS has been a major factor in this being reported by City-AM today.
HOMES in England and Wales are at their most affordable in 13 years, new research from Hamptons International claims…….The estate agent’s latest Ability to Buy index increased by two per cent year-on-year in the second quarter to bring it to its highest level since the first quarter of 2002.
As real wages have fallen in the credit crunch era that kind of leaves mortgage rates does it not? Some care is no doubt required with the exact number but the principle behind it seems fairly sound.
Up down and flying around
Bloomberg Business thinks that London is about to pass Mars I think.
Lower mortgage costs and a shortage of homes are fueling speculation that values in the U.K. capital are set to spike again. Lenders are also loosening borrowing conditions, with loan-to-income ratios rising for the first time in a year in the third quarter, according to the Bank of England. That’s prompting brokers to increase price forecasts for London homes,
Whereas Sober Look is well more sober.
Quote (UK property research firm): Chinese authorities curbing capital flows, impacting London property market –
I will have to go out and look at some point as Battersea Power Station and the Nine Elms development we have discussed on here before get mentioned.
There is much to consider here as we note that for all the cries of Bank of England independence it has been aligned with the UK establishment in boosting the housing market. The UK government has had its own policies and Deputy Prime Minister Nick Clegg asked for FLS to be put “on steroids” back in March 2013. Does £61.4 billion qualify? However the boom leaves us with situations like this as reported by the BBC.
The towns of Virginia Water and Cobham, in Surrey, have become Britain’s first million pound towns – where average house prices are more than £1m…..Beaconsfield in Buckinghamshire is also in the millionaire’s club, according to research by Lloyds Bank.
Now some of that is of course the London effect where overseas money poured into the property market and helped drive prices higher. Now we see that London prices are seeing a more troubled outlook and new developments may well be falling in prices. Now if that continues and spreads out to the rest of the country what happens next? What if a Bank of England Bank Rate rise contributed to that? It would be rather bizarre to go to so much trouble to pump house prices up and then to be the one who bursts the bubble. No wonder Bank of England Governor Mark Carney is engaging reverse gear.
Oh and what happened to putting business lending “on steroids”?
Companies’ net borrowing decreased by £1.0 billion in September mainly reflecting the unwinding of some short-term lending.
Over the past six months the average increase in borrowing by non-banks has been zero.