Hello and welcome to the summer solstice and longest day of the year which with apologies to any Australians reading this is one where even the rain cannot end my good cheer after the rugby. Also the UK’s national broadcaster seems to have spotted that house prices are extremely expensive in much if not all of the UK. So let us take a look at the research it has provided us with.
The Help to Buy Scheme
This has seen several changes since it began but one of the more recent changes was what might be called a bribe to get people to start saving for a house or flat. Let us remind ourselves of the details.
If you are saving to buy your first home, save money into a Help to Buy: ISA and the government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000.
Actually this both is and is not the maximum as the next bit points out.
The accounts are available to each first time buyer, not each household. This means that if you are planning to buy with your partner, for example, you could receive a government bonus of up to £6,000 towards your first home.
Many ordinary savers may well be singing along to the “It’s Not Fair” of Lilly Allen at this point. They will be singing a bit harder when they realise that higher interest-rates are paid on this type of ISA than elsewhere, sometimes much more. For example the Halifax Building Society pays 2.5% but even this is eclipsed by the Penrith and Cumberland Building Societies who pay 4%. For ordinary savers the Bank of England tells us this is the state of play.
The effective rate paid on households’ outstanding time deposits decreased by 3bps to 1.39% in April and the rate for households’ new time deposits increased by 3bps to 1.31%.
Quite a gap isn’t it?
Readers of my output will be aware that I have long argued that house prices in much of the UK have become too expensive and therefore unaffordable. This is diametrically opposed to the official view of consumer inflation which excludes owner-occupied housing on the road to telling us that for a while now there has effectively been no inflation. If so how do we get to the situation described below. From the BBC.
Would-be-homeowners in large parts of England are being priced out of a government scheme to help first-time buyers, a BBC investigation has found……..Help to Buy Isa scheme ‘helps lucky few’
The reason for this situation is that there is a cap on the property price in the scheme.
the maximum purchase cap of £250,000, or £450,000 in London.
This is broken down as follows. First let us look nationally.
Overall, outside London, two-bedroom homes exceed the cap in 28% of areas.
You will not be surprised to read that the issue is mostly a southern England one.
Average asking prices exceed the cap in 67% of areas in the South East, 65% in London, 61% in the South and 53% in the East.
We can narrow done a lot of the issue to London itself.
In London, an average two-bedroom flat exceeds the cap in two thirds of boroughs, while one-bedroom flats exceed the cap in a third of boroughs…Only 10% of average three-bedroom homes in London are below the cap.
In this respect London is a little like the Euro area with not only trouble within its boundaries but also trouble in surrounding areas.
All of this not only reinforces a main theme of this blog but also raises two main questions. Firstly what happens if while people are saving a deposit house prices move out of reach? That is hardly unexpected with house price rises of the order of 9% per annum. Also there is a way of this policy sort of working in reverse although the government would not put it like that. What I mean is that it is not working in the most expensive areas which does show some form of sense although of course that begs the question of why the cap is higher in London.
The latter point hits the problem that this is not the only “Help to Buy” available as if we put in the starter homes scheme amongst others we get to the situation described below by Joe Sarling.
all three policies (20% Starter Home discount; £3,000 government ISA bonus; 40% government loan) could be used in conjunction . When this happens, the Government effectively funds 53% of the home.
The UK government is using taxpayer money ( or more strictly off-balance sheet promises) to provide a put option for house prices at £450,000 in London and £250,000 elsewhere. This means that it will use “all its powers” to stop us getting anywhere near there as the increasingly unbalanced ponzi-like scheme continues.
This caught my eye as we know that houses and room sizes have been getting smaller something of double-barrelled effect as we get larger.
Richard Donnell, research and insight director from Hometrack, said: “In order to appeal to a wider group of buyers, builders need to start building smaller houses to offer at the lower price point to help first time buyers get on the housing ladder.
Paying more for less?
House Price Boom
City-AM are hammering home this issue today although perhaps unwittingly.
Rightmove director and housing market analyst Miles Shipside noted that property prices in London have grown by almost 55 per cent since June 2010, compared to 24 per cent in the rest of the country.
Now real wages have done what exactly? No wonder we need so much more “Help”!
Care is needed with their data because they use asking prices rather than actual trading or sold prices but let us see what they tell us.
Housing market momentum pushes price of property coming to market up by 0.8% (+£2,320) to new high of £310,471.
If there has been any Brexit refendum impact it seems to be in two areas. The first is that it seems to have put some people off putting their property up for sale. Secondly there does seem to be a regional influence and guess where?
The price of property coming to market falls by 0.2% (-£971) this month, the only region to record a fall.
Yes it is London. But do not shed a tear for sellers who have seen an extraordinary surge in prices especially as we recall the nature of these times.
Capital’s +55% rise since 2010…….the price of property coming to market is still £228,632 higher than it was six years ago.
Actually the recent minor dip does hide some wide swings. If we stay central then prices in Southwark are up 11.2% over the past year whilst Kensington and Chelsea or should that be Chelski down 16%.
There is much to consider here as we note that there are some very familiar players here. Very little real wage growth meets surging house prices especially in London and the South-East. This means that even the “Help to Buy ISA” which has many similarities with a bribe may be out of range and touch by the time people have saved up. On and on its goes with little sign of any end and whilst it is good that the BBC is at least covering some of the consequences where is the analysis. Oh and so far we seem to have a situation where even the buy-to let pre Stamp Duty rise and the Brexit referendum seem only minor inconveniences. Intriguing when for example we see a strong move in the UK Pound £ this morning to US $1.46.
Meanwhile some relativity. From Jonathan Eley of the Financial Times.
“My mansion and pool cost £9,000 to heat. What can I do?” Thanks to
@MoneyTelegraph for keeping it real…
Mind you it may be a case of the biter bit as the FT only recently informed us of this.
Aged 45, she works in IT marketing for a large consumer goods company and lives in a £700,000 house in Croydon, south London. Married with a four-year-old daughter, the combined income of Nisha and her husband nudges £200,000 a year. Life should be good, yet incredibly, Ms Sharma claims she and her family are struggling.
Of course the FT is playing to its demographic but we do get some humour as someone points out why does someone who earns £200k live in Croydon! Apologies if you do not get that but for south Londoners like me it is hard not to smile. #PrayForNisha indeed.