What are the prospects for UK house prices?

One of the features of the UK economy is the way that its performance is so often tied to house prices. This is mostly because in response to any slow down in the economy the Bank of England eases monetary policy which reduces mortgage rates and encourages people to buy. Buying a house does have tax advantages too as the first house is free of capital gains tax and buy to let investors are able to set the cost of the mortgage interest against their rental income, although last year that was restricted to only basic rate income tax. Next comes the view that as Yazz put it “The only way is up” for house prices which in most memories seems true as lets face it even in response to the credit crunch they did not fall far overall. That does not mean that some areas did not see heavy falls as Northern Ireland did but in general there was a dip but the bank subsidy called the Funding for Lending Scheme soon got things moving again in the summer of 2013. As so often we see an economic divergence where London and the South East boomed and other areas did less well and some saw falls.

This has led to a rather troubled situation in my opinion.

The value of all the homes in the UK has reached a record £6.8tn, nearly one-and-a-half times the value of all the companies on the London Stock Exchange. ( Financial Times)

A clear danger is calling this value when we have relatively few transactions compared to the total stock and of course much fewer than before the credit crunch. We could hardly sell the lot at once! The same issues arise with this below.

As well as rising sharply in nominal terms, housing wealth has grown in relation to the size of the economy: it was equivalent to 1.6 times Britain’s gross domestic product in 2001, rising to 3.3 times in 2007 and 3.7 times in 2016. ( Financial Times )

Next is the issue of divergence or some groups and areas doing better than others.

A rapid rise in the value of the housing stock, which has increased by £1.5tn in the past three years, has created an unprecedented store of wealth for Londoners, over-50s and landlords, according to an analysis by Savills, the estate agency group. ( Financial Times).

“Store of wealth”? Again there is a problem as how could it be realised in total? Of course some do but the majority will not.

Ignored in all that is the issue of first-time buyers and those wanting to trade up who face properties which particularly in the South East are very expensive and in London are unaffordable even for high-flyers. Back on the 8th of December I offered this view.

With real wages coming under pressure from higher inflation and therefore likely to fall in 2017 we should see national house price growth slow and maybe even a fall or two. That’s the best piece of new first time buyers have seen for quite some time.

I do not wish for people to lose money but prices cannot just rise like a hot air balloon without hurting others.

Halifax data

This morning’s data release tells us this.

House prices in the three months to February were 1.7% higher than in the previous quarter; down from 2.3% in January. The annual rate of growth fell to 5.1% from January’s 5.7%, the lowest since July 2013.

So we see a fading of both quarterly and annual growth in house prices recorded by the Halifax. Here is some more perspective on that.

(This) was the lowest annual rate since July 2013 (4.6%). The annual rate is nearly half the 10.0% peak reached in March 2016.

It will be interesting to observe next month because house prices on this measure rose by 2% last March as I recall the dash to buy ahead of the changes in taxation for buy to let properties. If you want some real perspective on UK house prices over time then if 1983=100 they were 711.9 last month.

What about London?

This is an issue wider than the simple fact that I live there ( Battersea) but because it is usually the forerunner of what happens next elsewhere in the UK as effects from central London feed out to outer London and then the South-East and sometimes wider still. This caught my eye yesterday. From City AM.

Here’s an unusual move by a housebuilder: Barratt Homes has bundled together 172 flats at various developments across London and sold them off as rental homes.

The housebuilder said it had sold the units to Henderson Park for £140.5m. The portfolio includes 29 units at Aldgate Place, a joint venture with British Land, 25 in Fulham Riverside and all 118 at its Nine Elms Point tower in Vauxhall, a joint venture with L&Q.

Now if they were selling them at a regular rate they would  be unlikely to be doing such a thing so there is an ominous hint for house prices here. Also that is a lot of flats to rent out which will presumably put pressure on rents received. It would be an irony would it not if the new Rental Equivalence measure of owner occupied housing costs in CPIH registered a fall?! Oh and speaking of sales there was this in City AM in January.

The housebuilder completed on 367 homes in London in the six months to the end of December, down from 842 in the same period the year before. Barratt said it was lowering prices and offering bulk deals to shift homes in the capital.

Meanwhile there is this from Savills blog.

However, despite much higher levels of outstanding debt in London, the equity held by those with a mortgage is also greater than in any other region, reflecting the capital’s high house price growth over the past decade. Just five years ago the average outstanding loan to value for a property subject to mortgage stood at 49 per cent in the capital. It now stands at 42 per cent, the lowest of any region.

What could go wrong?

Regional Issues

Meanwhile elsewhere there are a very different set of problems. From the Savills blog.

This lack of equity is a very real constraint in some markets that have seen very weak house price growth over the past 10 years. For example, in markets such as Blackpool, Blackburn, Burnley and Middlesbrough outstanding loan to values exceed 70 per cent, making it difficult for those looking to move to take on more debt on competitive terms.

Here affordability is better but loan to values limit improvements to mortgage terms as we again wonder about the phrase some being more equal than others.


The basic trends seem locked in place. UK economic growth has been amazingly steady but the issue will come in the latter half of the year when we are hit by higher inflation levels. These days what was previously regarded as relatively low inflation ( 3%+ on CPI and 4%+ on RPI) has a larger impact because so far on the credit crunch wage growth has not risen with it so we saw a sharp fall in real wages around 2011 for example. It is not impossible that the Bank of England could cut Bank Rate again or produce other house price and bank friendly measures but even they may balk at that with inflation above target. Thus house price growth looks set to fade and the price falls will spread out from Central London. How far across the country they will go depends on the mix between economic growth that 2017 and 18 deliver to us.

Charlotte Hogg

It is a welcome development that a woman has been promoted to the higher echelons of the Bank of England. However this particular one has not had a good start as Deputy Governor due to her apparent amnesia about her brother’s job at Barclays.

Regrettably, my oversight means that my oral evidence to the Committee in this respect was not accurate. I write now to correct that evidence at the earliest opportunity and to place on record my sincere apologies to the Committee.

Here is a link to her full apology.







23 thoughts on “What are the prospects for UK house prices?

  1. When house prices start to really fall and mortgage rates start to rise and negative equity is back, what are the banks, building societies and the Bank of England going to? Have they a plan A, never mind plan B – cut interest rates ha, ha,?

    • Cut rates, more QE, more money poured into TFS.

      If that doesn’t work people who refuse debt should be branded and marched to the centre of town to be ridiculed and mocked by savvy investors!

    • frankly all they can do ( because of group think ) is throw more money into the Debt black hole , making larger and larger , until the event horizon eventually catches up with them ……


      PS: here have a seat and some popcorn, this show is promising 😉

  2. I do sometimes wonder whether Carney would not double down in idiocy and ramp up the TFS scheme, not only in size but by also reducing the interest rate, even going negative; after all building societies are eligible parties under the scheme. To me this is already an egregious, under the radar scam which is designed to keep the show on the road but things could get too much “in your face” and they wouldn’t have the chutzpah to do this; they have plenty already but they would need a huge amount to pull this off.

    That they are keen to support the housing market is clear; however the stress tests on the banks include a fall in house prices so what are they worried about? General economic confidence or the inability of the stress tests to model contagion and systemic threats in the financial system? Or could it just be that they know it’s Ponzi and has to be kept, at worse, in a stable condition?

    Maybe the problem isn’t that Carney doesn’t know anything; the problem may be that he knows too much.

    • Carney has informed us he has been keeping a vigilant eye on property prices making sure they don’t get out of hand. (what a joke) He really was only flown here by the equally incompetent and self serving Gidiot to blow the property bubble to insane levels. What a way to run an economy.

      Theresa May said QE and ZIRP were the main causes of unaffordable housing when she thought she had competition for the job last July and needed voters on side. Since then the BoE which follows her/Tory diktat has dropped rates, printed and came up with TFS.

      What an incompetent self serving career politician that one is alongside Hammond who made his millions thanks to Blair and Browns debt/property bubble, so there is no chance he will do anything to correct the bubble.

      Finally one sentence stands out in this – I do not wish for people to lose money but prices cannot just rise like a hot air balloon without hurting others.

      I think people who over borrowed deserve to lose money and they will if the BoE stops bailing out the financially illiterate. I’ve been bailing them out for a decade now, time such folk realised its not a one way bet.

      My negative equity is their 2 decades of non stop house price rises.

  3. Would be interested for a few to entertain my thought… what would be the true down-side of limiting people to owning only one home?

    • Indeed an interesting suggestion. I think there is an oversupply of homes or at least space which is masked by “hoarding”. There would be a stablising leg removed if you questioned people’s propensity to own a few homes. It would be fun to see all company owned properties taxed as those valued over £1M. In addition a national property register whereby 1 person can in name own a maximum of 1 property (and personally pay the local rates bill too) without paying the Central/National multiple homes annual charge of £5,000 per extra home per year. I only make this suggestion in case Philip Hammond reads the blog in time for tomorrow’s budget. If he is needs more funds to balance the books 😉
      Paul C

      • I doubt Phil the developer/landlord will go anywhere near taxing property.

        This govt are using residential property as their vehicle to get debt (growth) into the economy.

        If anything i’d wager he’ll go the other way.

    • Dinner parties across southern England would be held in absolute silence …. Housewives would see the 4×4 downgraded to a Corsa …. Nail salons would empty.

      Be like living in North Korea if those kind caring entrepreneurial landlords weren’t given cheap interest only mortgages that most will still be able to offset interest payments, whilst the young who repay these mortgages with wages do not have such generosity given to them by the Chancellor.

      • ” …. Housewives would see the 4×4 downgraded to a Corsa …. Nail salons would empty. ”

        oh bliss !

        if only ……


    • the Duke of Westminster will personally come after you with his fox hounds (!) for suggesting such a thing !


  4. Hi Shaun
    I’m so glad that Charlotte Hogg has put our
    minds at rest, it’s nice that everything is hunky dory
    We seem locked into a low interest, low wage
    growth, high inflation environment but we can be
    comforted in the knowledge that we are guided by
    intelligent people who couldn’t run a p### up in a
    On a different note, how much do the UK
    primary traders make from the UK government annually?
    Or is it a secret!


    • Hi JRH

      This is one of those “you couldn’t make it up” stories as Charlotte Hogg was supposed to be involved in drawing up the rules she has just broken. Or as Sky News puts it.

      “A senior figure at the Bank of England has admitted breaching the bank’s own guidelines covering potential conflicts of interest – rules she even helped put together.

      The disclosure by Charlotte Hogg, who became deputy governor for markets and banking this month, prompted one leading MP to demand her resignation.”

      As to your question I do not know, unless somebody knows better I think it gets hidden in the bond trading departments. It was simpler back in the days of the Discount Houses but they soon went in terms of my career. I did see the old era government broker walk through the Stock Exchange at 3:30pm on a Friday though. What a different world that was!

      • I’ve been fishing on the BOE website. it seems that
        “the middle room” handles the primary traders side
        of the deals and they are now known as GEMMs,
        (guilt edged money makers)
        I will e-mail them and ask where I can find their
        commission element on the BOE accounts.

    • I don’t think you need to be considered a conspiracy theorist if you concluded that the BOE were in a box and that the only way out is for the system to crash; folk would only then wear the sort of policies which are now “impossible”.

  5. Western capitalism is going to meet the same fate as Soviet communism.
    The exponential increase in US debt corresponds exacts with the rise in the Dow since 1981.
    No decent jobs and wages for the majority of the population my generation has allowed debt driven by greed to price those who come after us out of housing ,shelter is a basic human need.
    This has been caused by allowing banks to create money/debt out of thin air and then be paid interest and the principal 95% of which they never had in the first place.
    House prices are falling here a flat near the sea front went on the market for £115000 last April it has just had its price reduced for a fourth time to £85000.

  6. Great blog as always, Shaun. I just got around to reading the final speech by Minouche Shafik, the Deputy Governor that Charlotte Hogg is replacing, “In experts we trust?” She calls on experts to show more humility, but it gives an impression of almost unbelievable arrogance. The foolish South African president didn’t believe the experts on AIDS and the people of South Africa paid the price for it, she says. Maybe so, but is it customary for a senior central bank official in one G-20 country to lambast the former president of another G-20 country, a member of the same party as the current president? And what is the moral of the story, anyway? If Theresa May thinks that the Bank of England is on the wrong track, then she is no better than Mbeki?
    Shafik joined the Bank just a few months after one of its biggest climbdowns ever, when Mark Carney abandoned his copy-cat forward guidance regime based on an unemployment rate threshold in February 2014 after introducing it just six months earlier. You said from the beginning that it was a mistake and the markets obviously didn’t share Carney’s view that the unemployment rate would come down only very slowly. Here was a great example of a so-called expert who got egg all over his face, but she just ignored it.
    Charlotte Hogg didn’t think that the inflation targeting regime was introduced at the Bank of England until the later 1990s. It seems Shafik believes that just about every country made its central bank independent at about the same time or a few years after the move to an inflation targeting regime. Of course, this belief is simply laughable. The US Fed didn’t formally adopt an inflation targeting regime until 2012. These are senior people at the Bank of England but they don’t seem to have even basic knowledge about the genesis of inflation targeting regimes at the major central banks.

  7. As we know the reduction in demand of housing will mainly because of uncertainty regarding the prospects for the UK economy. However, we hope UK house prices will continue to be supported by an ongoing shortage of property for sale, low interest rates. For you who are looking for the solution for this can be found at http://www.biesterbos.nl ; They provides affordable home and eco-friendly.

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