How many more times can the Bank of England pump up the housing market?

This morning the Monetary Policy Committee meets to make its policy decision although of course us plebs and mere mortals are not told until 12pm tomorrow. What could go wrong from this “improvement”. However what we have is an extraordinarily lax monetary policy driven by yet more forecasting errors by the Bank of England. In a post EU Leave vote panic it cut the official Bank Rate to 0.25% ( so below what Governor Mark Carney had told us was the 0.5% lower bound for it) announced £60 billion of extra UK Gilt buying QE and of course some £10 billion of Corporate Bond QE. The latter was particularly problematic as you see UK companies are often international and thereby issue in Euros and US Dollars meaning that as I pointed out at the time the Bank of England would be a big fish in a small pond. So it bent its criteria.

For example, a company headquartered outside of the UK but employing hundreds of people in the UK and generating sales of £20m in the UK would be considered to make a material contribution to the UK economy.

All of these moves were house price favourable but there was another subsidy provided for the banks that as ever was badged as being for small business lending but was in fact likely to find its way into the housing market. This is the Term Funding Scheme.

The Term Funding Scheme (TFS) is designed to reinforce the transmission of Bank Rate cuts to those interest rates actually faced by households and businesses by providing term funding to banks at rates close to Bank Rate

So far it has provided some £31.37 billion of cheap funding to UK banks, which no doubt will in a “surprise” find its way to the housing market.

Monetary Conditions

Yesterday’s money and credit report from the Bank of England kept us in touch with this.

Broad money, M4 excluding intermediate other financial corporations, increased by £10.9 billion in December (Table A) with positive flows across all sectors.

So the monetary taps remain open with the annual rate of growth of broad money or M4 at 7.2%. Although the amount for households slowed to an annual rate of 5.8% so as time goes by we seem set to see a reduction in the rate of retail sales growth and maybe funds for the housing market. However as we stand the flow continues.

Lending secured on dwellings rose by £3.8 billion in December, the highest flow since March 2016.

Also there seems to be something of a continuing pipeline.

Approvals of loans secured on dwellings for remortgaging continued to rise and at 47,721 were higher than the previous six-month average . Approvals for house purchase were 67,898, broadly in line with recent months.

I don’t blame people for taking advantage of current mortgage deals do you?

Unsecured credit

This continues to be at a high level although there was a dip in December.

Net flows of consumer credit slowed in December to £1.0 billion.

It is true that the monthly growth rate slowed to 0.5% but of course even that would have us with an annual growth rate above 6% but the annual growth rate in unsecured credit was 10.6%. Of this credit card borrowing rose at 8.7% and other unsecured credit rose at 11.6%. I posed a challenge to the Bank of England which I note has been picked up by the Best of Twitter in City-AM today.

Is Andy Haldane available to explain how his Sledgehammer QE has pushed the annual growth rate of UK unsecured credit to 10.6%?

Still I am sure that money flowed to UK businesses.

Loans to non-financial businesses decreased by £2.1 billion in December, compared to the previous six-month average increase of £1.2 billion

Oh well perhaps not then! The Bank of England has tucked away the numbers for smaller businesses after so many disappointments, excuse me “improvements” but it did rise by the grand sum of £200 million. Not a lot when you look at consumer credit is it?

Nationwide House Price Index

This morning’s update has told us this.

0.2% month-on-month rise in January……Annual house price growth broadly stable at 4.3%.

This represents a slight slowing in annual terms from the 4.5% recorded in 2016 overall which intriguingly was the same as for 2015. There was an interesting addendum to the 2016 numbers though.

Price growth in London ended the year below UK average for first time in 8 years.

Can foreign buyers rescue it one more time? I am not so sure as I have pointed out before although the fact that Bitcoin has been rallying again ( US $977 as I type this) means that money is back flowing out of China. The first time buyer house price to earnings ratio in London has dipped slightly but to a rather extraordinary 10.1. The number for the whole country at 5.3 is just below the all time high of 5.4 which came of course just before the credit crunch hit.

Stamp Duty Land Tax

As I have been pointing out regularly in my updates on the UK public finances tax revenues from the housing market have been on something of a tear. Oliver Knight puts it like this.

Residential SDLT receipts in Q4 2016 (c.£2.4bn) nearly matched the £2.8bn collected by HMRC in 2009 as a whole…

The boom continued according to the official HMRC data.

The estimated receipts from residential transactions in Quarter 4 of 2016 are 20% higher than Quarter 4 of 2015. Financial year-to-date for 2016-17, the estimated receipts are 17% higher than the same period in 2015-16.

The additional rate for second homes to capture buy to let lending has led to a revenue boomlet so far as well.

So far in 2016-17 there have been 149,400 transactions of additional properties accounting for £2,319m in total SDLT receipts, of which £1,190m is attributed to the additional 3% element.

Back in 2009 some £2.8 billion was collected from residential transactions whereas last year some £8.3 billion was collected. That is quite a windfall for HM Treasury and another reason for the UK establishment to want this to continue. Also non-residential stamp Duty has been rising too making the total last year some £11.44 billion.


The Bank of England has deployed pretty much every policy measure it could to help the UK housing market. However it is now at something of an impasse because the rise in inflation should block it for any further easing in 2017. Actually the debate should be around an exit from all the easing but of course it has too much of its thin thread of remaining credibility tied up in the “Sledgehammer” move of August 2016.

Thus it will be meeting today and trying to be positive. As to the housing market I expect the rate of house price growth to dip and soon it will be below consumer inflation. I expect it to go further and see some declines in 2017 especially as we see real wages dip. I noted this earlier which confirms my view, after all anyone who used to watch Stingray or Thunderbirds as a child knows what happens next after a description like this. From Russell Quirk.

Me on the @AskNationwide House Price Index via @ShareRadioUK : ‘A structurally sound market despite all that 2016 threw at it. Bullet proof’




22 thoughts on “How many more times can the Bank of England pump up the housing market?

  1. I don’t believe the interest rate was cut in a panic; just that the Brexit vote gave Carney the justification for the cut.

    Similarly, regardless of climb in inflation, any available straw will be clutched at, in order to delay raising rates, until there is no choice.

    • It may not have been in a panic, but it certainly suited his agenda (“I saved the UK from Brexit catastrophe” or, if it all goes wrong, “I did what I could”).
      I think that we will be seeing a lot more of the words “seeing through” this inflationary “patch” before rates rise. Maybe, just maybe, we will stagger through to MC’s retirement…then his successor can elegantly “redirect” policy.

  2. Taking your very first point about the gap between the meeting to determine policy and announcing it to the plebs, I would have thought that this is essential. Surely it is there for those in the know (eg the vampire squid) to have time to deal? How else are they supposed to “earn” their meagre crust?

  3. “The Bank of England has deployed pretty much every policy measure it could to help the UK housing market”

    I disagree

    the BoE FED and ECB have taken the view that the 1930s depression was one of assets

    therefore they have done everything to pump asset prices , these include housing but not limited to . Shares and stocks I’d posit are just as “unrealistic ” just as housing is if you look at the fundamentals.

    plus ofcourse my old “friends” , the Banks, are getting state support they dont deserve.


  4. How many more times can the Bank of England pump up the housing market?

    I’ve just ease dropped on Mark’s next communication….

    .”…..In conclusion I can say the Bank of England will bolster the UK economy by assertively dropping the Base Rate to 0.0% and even to -0.1% in proactive manner .

    This reasonable and minor move along with HMG new housing support program, the State Housing Application All Groups Granted Exceptional Discount ( SHAGGED) , will boost this vital asset investment to new sustainable and affordable levels….



    • Hi Forbin

      🙂 Actually when the Bank of England was offering Forward Guidance of a Bank Rate cut for last November they were hinting at a cut to 0.1%. Of course that turned into yet another Forward Guidance misfire.

  5. Hi Shaun,
    Lets face it the whle economy is a write-off if the housing market is not continually stoked. The value of property and debts secured against them is so enormous that all the old folk who boast that that they’ve not a got a mortage would be effectively bankrupted on any pension were it not for the wealth in bricks and mortar security to 1) pay for cruises 2) pay for care.

    What I find more interesting is that for every pump-upwards the toppling becomes easier, the market more precarious and the investors ever more blind. So MC can carry-on pumping because lower rates beget ever more ridiculously inefficient business and Govt practices to the point where the slightest waft finishes the lot.

    You can forget any Brexit boastfulness, any siding wiith Trump, any negotiation with EU, any aircraft on carriers, finishing Hinkley, starting HS2 etc. If house prices even start to fall then the smart money and property hoarders will be the quickest to exist starting a panic of such proportion we’ve never seen before. All that wealth destroyed but all the debt remaining.

    Now what could start this ball rolling?

    Article 50 in March causes foreign Property owners to sell-up
    Landlords MIRAs cut in April 2017
    Housing Benefit payout to landlords is reduced
    Rent control introduced in London
    warranted or not further GBP slump forces emergency rate rise
    Interest Rates rise to over 2%
    Polish workers decide that GBP is not worth the trouble and leave in large numbers

    If you think about it there are so many really small ways to start the stampede, and all because the Govt and Elites are greedy and power-crazed. MC keep on pumping…..tthat is what say.


    • Hi Paul

      That is the problem with blowing bubbles ( and no I do not mean West Ham in spite of their performance tonight) is that as you blow the bubble ever larger it gets closer to bursting. In the real world Physics Stack Exchange describes it like this.

      “A bubble, while it still exists, is balanced by three factors:
      1) Surface Tension of the soapy water.
      2) Internal Pressure applied by the air inside the bubble on the surface.
      3) Atmospheric Pressure.

      When any of these are imbalanced, one force is greater than the others and this causes the bubble to pop.”

  6. The optimism is usually at its highest just before the bubble bursts. A house in my road has just gone in poor condition for somewhat more than I would have expected. The buyer put in a planning application to do a big bodge-a-job extension, but even doing it on the cheap, the price would have been beyond what would be paid in this road, let alone including the transaction costs. Even Zoopla suggests that UK prices are pretty flat.
    The fear of course among the Govt and BoE is of a housing fall, because they fear the wrath of the Daily mail readers, who expect money for nothing. Where can they go – most of that supposed SME lending is actually going into property; rates cannot go any lower. The real problem now is that the vast bulk of any mortgage payment is capital, so that liability will not change as rates move and prices start to slide.
    If you watch the BBC ‘Homes under the Hammer’, you can see how it is rentals, which are supporting prices – prior to 2008, it was all about buy, do up, sell; since 08, it has been buy, do up cheaply, rent out for yield not obtainable in a savings account or shares. Thus a rate move upwards would force the required yield up in an environment of increased taxes on BtLs. So, there must be a way to go as rentals yield around 5-7% at the moment and rather than whether price rises fall below RPI, it is a question of how that yield will be affected as prices start to fall – falls of 2-3% would still make rental yields acceptable, but any more will prompt the big sell-off.

    • Hi David

      You point about confidence being highest before we hear a pop was true of 2007 and we have had one or two echoes of that recently. So we should be grateful in a way to read this about the US from Reuters.

      “The Conference Board said its consumer confidence index fell to 111.8 this month from an downwardly revised reading of 113.3 in December, which was still the highest since August 2001. The index was previously reported at 113.7 in December.”

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