The UK housing market looks ever more dysfunctional

Today has opened with some more news on the UK housing market so let us take a look at one perspective on it from The Express newspaper.

Britain’s property market booming as house prices hit record highs
BRITAIN’S property market is booming with house prices hitting a record high – and sales at their highest level for a decade, figures show today…..
Rightmove’s director and housing market analyst Miles Shipside said: “High buyer demand in most parts of the country has helped to propel the price of newly marketed property to record highs. There are signs of a strong spring market with the number of sales agreed achieved at this time of year being the highest since 2007.”

It is hard to know what to say about this bit.

Experts last night hailed the bricks-and-mortar bonanza as a key marker of the nation’s prosperity as we head towards the General Election.

What were the numbers?

Let us first remind ourselves that the Rightmove survey is based on asking rather than actual sale prices and then take a look via Estate Agent Today.

The price of property coming to the market has hit anoher record high, up 1.1 per cent over the past month according to Rightmove.

The increase is equivalent to £3,547 and takes the average asking price for homes new to the market to £313,655, exceeding the previous high of £310,471 set in June 2016.

The £3,547 in a month is of course much more than the average person earns although if we look back we see that it is lower than last year as Rightmove points out.

This month’s 1.1 per cent rise is also weaker than the average 1.6 per cent spring-boosted surge of the last seven years.

Why might that be?

“Strong buyer activity this month has led to 10 per cent higher numbers of sales agreed than in the same period in 2016. This large year-on-year disparity should be viewed cautiously as the comparable timespan in 2016 saw a drop in buy to let activity with the additional second home stamp duty” says Shipside ( of Rightmove)

Actually the year on year rate of increase has fallen to 2.2% although as pointed out earlier first-time buyers are facing a 6.5% rise. The idea that house price growth is fading is one of my 2017 themes and adds to this from the listings website Home earlier this month.

Overall, the website claims price rises are much more subdued this year than last. In April 2016 the annualised rate of increase of home prices was 7.5 per cent; today the same measure is just 3.0 per cent.


Here asking prices are falling according to Rightmove.

The price of property coming to market in Greater London is now an average of 1.5% cheaper than this time a year ago, a rate of fall not seen since May 2009. The fall is mainly driven by Inner London, down by 4.2% (-£35,504), while Outer London is up 1.7% (+£9,017). Since last month, asking prices in both Inner and Outer London have fallen, though again it is Inner London with a monthly fall of 3.6% that is dragging the overall average down. Outer London remains broadly flat, down 0.2% (-£1,177) on the month.

The prices of larger houses are seeing a drop.

The fall of 11.9% this month reflects volatility in one month’s figures in a smaller section of the market, but the annual rate of fall of 7.3% is a more reliable longer-term indicator of the challenges that this sector is facing.

but first-time buyers seem to be in the opposite situation.

Typical first-time buyer properties (two bedroom or fewer) are both up for the month (+1.3%) and for the year (+0.5%).

Perhaps the house price forecasts of former Chancellor George Osborne were for the sort of houses he and his friends live in.

However before I move on we do learn something from these asking prices but as Henry Pryor shows they seem to be a long way from actual sale prices.

Record lows for UK mortgage rates

There was this from Sky News on Friday.

A building society is launching Britain’s cheapest ever mortgage deal with a rate of 0.89% as competition between lenders intensifies.

The two-year deal offered by Yorkshire Building Society requires a deposit worth at least 35% of the value of the property. There is also a product fee of £1,495……Moneyfacts said the 0.89% rate was the lowest on its records going back to 1988.

This is a variable rate and a little care is needed as whilst it is an ex ante record it is not an ex post one. What I mean by that is that there were rates fixed to the Bank of England Bank Rate which ended up below this as it slashed interest-rates in response to the credit crunch. One from Cheltenham and Gloucester actually went very slightly negative.

The Mail Online seems to be expecting even more.

Experts say lenders are so desperate for business that rates could fall to as low as 0.5 per cent……..Santander’s cuts are expected to trigger an all-out price war, and deals will be slashed over the next fortnight as the big names fight for business.

Santander has not actually cut yet and we will have to wait until tomorrow. If we look back the record low for a five-year fixed rate mortgage of 1.29% from Atom Bank lasted for about a week before the supply was all taken.

These mortgage rates have been driven by the policies of the Bank of England when it decided in the summer of 2013 that a Bank Rate of 0.5% and QE bond purchases were not enough. It began the Funding for ( Mortgage) Lending Scheme which has now morphed into the £55 billion Term Funding Scheme.  Thus banks do not need to compete for savers deposits leading to ever lower savings rates and they can offer ever cheaper mortgages. This is the reality regardless of the Forward Guidance given by Michael Saunders of the Bank of England on Friday. He gave vague hints of a possible Bank Rate rise, how did that work out last time? Oh yes they ended up cutting it!

Throughout this period we have been told that this is to benefit business lending so what happened to terms for it in February?

Effective rates on SMEs new loans increased by 11 basis points to 3.22% this month.

Also there was more financial repression for savers.

Effective rates on Individuals new fixed-rate bonds fixed 1-2 years fell by 19 basis points to 0.85%


The official view on the UK house price boom is that it has led to economic growth and greater prosperity. However that is for some as those who sell tale profits and of course there is some building related work. But for many it is simply inflation as they see unaffordable house prices and also rents. So there is a particular irony in some of the media cheerleading for higher prices for first time-buyers. With real wages now stagnating and likely to dip again how can they face rises in prices which are already at all-time highs.

The dysfunctional housing market seems to have some very unpleasant consequences foe those left out as the BBC reported earlier this month.

Young, vulnerable people are being targeted with online classified adverts offering accommodation in exchange for sex, a BBC investigation has found…….Adverts seen by BBC South East included one posted by a Maidstone man asking for a woman to move in and pretend to be his girlfriend, another publicising a double room available in Rochester in exchange for “services” and one in Brighton targeting younger men.


13 thoughts on “The UK housing market looks ever more dysfunctional

  1. I noted with interest last week the govt just put up the interest rate on student loans to 6.1%, and yet I can borrow to buy a house at 0.89%,predicted to drop to 0.5%,I wonder what interest rates small businesses have to pay for new loans?
    Yet again the government of this country puts the housing market above all else in its list of priorities, the real economy and the future, well they don’y matter do they?

      • And across La Manche our neighbors are going to elect another banker who will carry on the tradition of looking after the banks and the EU elite.

    • The Duplicitous politicians with their acolytes in the media are dictating the aagenda.
      The sheeple think if their house price is rising they are doing well and that the ruling party deserve their vote.
      Apologies for the pejorative argument..but if the shoe fits.

  2. Hello Shaun,

    I disagree with the term dysfunctional . I guess its a case of what you mean by it

    The housing market here and in the rest of the Western economies has been pumped up as part of the asset inflation program of the Central Banks. To save the TBTF Banks and prop up deficit spending of the Western governments.

    Just As planned *


    * This guide will teach you how to make a “Just as planned” moment.

    1: Create a nefarious and overly-complicated plan.
    2: Successfully execute it.
    3: sit in an armchair in front of a roaring fire.
    4: Sip your martini. (Any other fancy alcoholic beverage will also do)
    5: Laugh maliciously and whisper, “Just as planned.” (see: The Joker [Batman])

  3. Hello Shaun,

    “Young, vulnerable people are being targeted with online classified adverts offering accommodation in exchange for sex, a BBC investigation has found……”

    I presume this valuable addition to GDP has been “imputed” into it already ?


    • Hi Forbin,
      I hear the govt are considerig bringin in tax breaks for landlords using sex for rent trade offs, to be known as:
      Forced prostitution

  4. The London housing market has crashed to its lowest level now since 2013. We reported in November 2015 with the turn in the ECM on 2015.75 that the London property market peaked. Landlords are joining together to challenge the Conservative’s (i.e. Tory’s) tax hike by filing a suit in the high court against their tax increase on “buy-to-let” investment properties.  In July 2015, we warned that the Conservatives were going after the non-domiciled residents in London and that would stop the real estate boom. The figures are now out and they show that the number of homes bought over the last year crashed by 40% between March 2017 and March 2016, from 173,860 to 102,810. “That was thanks to new stamp duty rules introduced at the beginning of last April, which hiked stamp duty on second homes and led to a buying frenzy just before the rules were introduced,” reported Emma Haslett. One of the greatest monetary experiments in financial history has been the global central bank buying of government debt. This has been touted as a form of “money printing” that was supposed to produce hyperinflation, which never materialized as predicted by the perpetual pessimists. Nevertheless, the total amount of Quantitative Easing (QE) adding up the balance sheets of the Federal Reserve (Fed), the European Central Bank (ECB) and Bank of Japan (BOJ) is now around $13.5 trillion dollars, which by itself is a sum greater than that of China’s economy or the entire Eurozone for that matter.
    Keep in mind that we are only human. Consequently, if you see municipal taxes rising in the USA, expect property values to also decline. It is the same worldwide. If QE failed to produce inflation, then ending QE may actually produce the inflation people previously expected. Where’s the strange logic in that one? Well you see, it really does not matter how much money you print, if it never makes it into the economy, it will not be inflationary. Additionally, even if it makes it into the economy and the people hoard for a rainy day, it still will not be inflationary. The craziest thing the Fed did was create excess reserves. The bankers complained that the Fed was buying the government debt so they would have no place to park their money. The Fed then accommodated them creating the Excess Reserves facility and paid them interest for absolutely no reason whatsoever.  Almost $3 trillion was parked at the Fed collecting interest so that $4.5 trillion of “printing” money never made it out the door. Hence, there was no inflation to speak of (outside of healthcare which always rises no matter what), and people hoarded. The pundit kept calling for a crash in the stock market but overlooked the fact that retail participation was at historic lows. Why? They were hoarding their money. So how does stopping QE actually create inflation? The withdrawal of the Fed, the ECB and the BOJ from the QE programs will lead to an increase in yields on the bond markets sending the financing costs for the states higher. This will now increase government spending & borrowing much more rapidly even if they fail to increase program spending. Governments are not looking at this at all because they always assume what worked before will resume. This is predicated upon the notion that people will continue to buy government debt.
    Governments have increased their spending sharply because interest rates were effectively zero and the central banks were buyers. Where the national debt under Ronald Reagan reached $1 trillion for the first time, Obama routinely ran $1 trillion budgets annually.
    Now comes the moment of truth. Has QE undermined the bond market to such an extent that only a blind fool will buy government debt in an atmosphere of rising rates? How can bonds survive and the system of perpetually borrowing year after year without ever paying-off the debt continue indefinitely? Such theories cannot ever see that the economy is a cycle and that just because they could sell their bonds today does not guarantee they will be able to do so tomorrow.
    Moreover, other sectors of the global financial system have been seriously disrupted. For one, European banks were shipping cash to their US branches and also parking it at the Fed, whereas the ECB was charging negative rates. Furthermore, of the $13.5 trillion on the balance sheets in the Fed, ECB & BOJ, they are now trapped and cannot sell that debt back to the marketplace. This means they are screwed and they have to wait for that debt to mature in order to reduce their balance sheets. They have no way out.
    Since the central banks cannot resell what they bought in the $13.5 trillion white elephant, they are also loaded to the gills with government paper. The ECB is the most vulnerable because it owns 40% of European government debt of member states. As the economic conditions tear the union apart, the ECB balance sheet is the most vulnerable of all and prone to default.
    Additionally, this trio of banks has exhausted their arsenal. The Fed needs to raise rates to be able to try to reduce them during a decline, but they cannot buy more government debt without ballooning themselves to the point they risk their own default. A default of a central bank, as Jackson did to the Bank of the United States, was followed by the Panic of 1837 and the State Sovereign Defaults of the 1840s creating a depression, which set the stage for the civil war. Additionally, this trio of banks has exhausted their arsenal. The Fed needs to raise rates to be able to try to reduce them during a decline, but they cannot buy more government debt without ballooning themselves to the point they risk their own default. A default of a central bank, as Jackson did to the Bank of the United States, was followed by the Panic of 1837 and the State Sovereign Defaults of the 1840s creating a depression, which set the stage for the civil war.
    The Fed had a balance sheet of about $900 billion in 2008, whereas it currently stands at about $ 4.5 trillion. The Bank of Japan recorded an increase of 107 trillion yen in the same period of time to about 490 trillion yen or also about $4.5 trillion. Then we have the ECB which has more than doubled its balance sheet from EUR 2 trillion to EUR 4.1 trillion or also about $4.5 trillion.
    The central banks bought the government bonds from the commercial banks and paid them money created out of nothing which is how the pessimist put it. In theory, that is elastic and if the government debt matures, it then evaporates from the balance sheet. Here comes the problem. The governments continue to borrow. With the central banks no longer buyers, interest rates can rise faster than anyone expects because they will have to entice fresh buyers. If that fails to materialize, then we come to the Sovereign Debt Default crisis. The Federal Reserve had recently announced that it would no longer reinvest its gains on government bonds that had matured into new US securities, resulting in a shortening of the balance sheet. Bills of $426 billion will be due at the Fed in 2018, and again about $357 billion a year later. So if the Fed will not repurchase that debt, then the amount of new debt coming to the market will DOUBLE.
    The Treasury will be forced to find ways to absorb the additional supply if the Fed wants its cash back, so the Treasury must find a lot more private buyers. The shrinking of the balance sheets represents the continued deflationary trend from a real economic expansion trend. The government will be competing for cash in an ever growing tighter economy.The balance sheet of the Japanese central bank is likely to be expanded for a while as long as the targeted inflation target of 2 percent is not reached. The ECB’s balance sheet will continue to grow at least until the end of the year, as the borrowing program has been running until then. However, the negative effects of the balance sheet shortening of several central banks will mutually reinforce each other in 2018 and help to bring the financial crisis to a head for 2018-2020.
    The withdrawal of the ECB’s purchases of securities that also included European corporate paper will lead to secondary effects even outside Europe and help to further maintain the deflationary aspects with respect to economic growth. This will serve to demonstrate the unintentional impact of this entire unorthodox monetary policy experiment. ARMSTRONG ECONOMICS

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