UK housing market policy is becoming an even bigger mess

Today has opened with a flurry of news on the UK housing market. So let us start with the latest from the Halifax Building Society.

House prices kicked off the year with a modest monthly increase, rising by 0.4% in January following the
stronger gains of 1.8% and 1.2% seen in December and November respectively. As a result, annual growth
remained relatively stable at 4.1%, up just a fraction from the end of 2019.

If we stay with the annual growth number we see that it has been falling last year as the 2.8% of March was replaced with the 0.9% of October. However it then picked up driven by the latest three months.

In the latest quarter (November to January) house prices were 2.3% higher than in the preceding
three months (August to October)

Those of you who follow this situation will see the irony here as the Halifax made some methodological improvements to its series because it was producing an annual number of 4-5% when the other house price indicators were much lower. Now it finds it is back at a similar number! However whilst it is again the highest some of the others have shown a similar pattern this time around.

A concerning part from my point of view is that such house price growth is above wage growth and we are losing ground at a rate of around 1% per annum here, after a period of gains, which now seem all too short.

The Halifax has a go at being upbeat.

A number of important market indicators continue to show signs of improvement. We have seen a pick-up
in transactions with more buyer and seller activity consistent with a reduction in uncertainty in the UK
economy. However, it’s too early to say if a corner has been turned.

Although they worry that it may just be a function of a Boris or if you prefer Brexit Bounce.

The recent positive figures may actually represent activity that would ordinarily have been expected to take place last year, but was delayed by economic uncertainty. So while housing market activity has undoubtedly increased over recent months, the extent to which this persists will be driven by housing policy, the wider political environment
and trends in the economy.

I see they perhaps continue to hold out hope for an interest-rate cut from the Bank of England.

The environment for mortgage affordability should
stay largely favourable.

Although there may be some self praise here because if we go to Moneyfacts we see this.

 Halifax also continued to top the five year fixed chart this week, offering a rate of 1.46% (3.2% APRC) fixed until 31 May 2025, reverting to 4.24% variable thereafter.

You need 40% equity for this and there is a fee of £995 so it particularly benefits larger mortgages. The best 5-year fix for first time buyers ( 5% equity ) is 2.75% from Barclays and has no fee.

There is an interesting swerve at the end of the Halifax piece.

However with the growth in rental costs accelerating, many first-time buyers will continue to face a significant challenge in raising necessary deposits.

Somebody needs to tell the UK Office for National Statistics who have picked up nothing of the sort.

Private rental prices paid by tenants in the UK rose by 1.4% in the 12 months to December 2019, unchanged since November 2019.

I have written before about concerns that it is of the order of 1% per annum too low and thus is another reason to ignore the lead indicator called CPIH. That has not deterred the Chair of the UK Statistics Authority David Norgrove who wants to replace house prices in the RPI with imputed rents in spite of this from the Economic Affairs Committee of the House of Lords.

We are not convinced by the use of rental equivalence in CPIH to impute owner-occupier housing costs.

Still if he gets this through I guess he will be in the House of Lords himself!

First Homes

According to the Financial Times the government has a new plan.

Developers would have to fund the construction of more discounted homes for first-time buyers at the expense of other forms of new-build social housing under plans floated by the government on Friday. Robert Jenrick, the housing secretary, will announce a consultation on a new programme called “First Homes” today under which first-time buyers will be able to purchase new-build properties at a discount of £100,000 on average.  Military veterans and key workers such as nurses, police officers and firefighters will get priority access to the scheme.

Huey Lewis and the News sang about something like this.

I want a new drug, one that won’t spill
One that don’t cost too much
Or come in a pill
I want a new drug, one that won’t go away
One that won’t keep me up all night
One that won’t make me sleep all day
One that won’t make me nervous
Wonderin’ what to do

It is hard not to laugh at the next bit, after all what could go wrong?

The proposed scheme would lock the discount in for perpetuity. The government said this would require the owner to get a valuation from a surveyor and sell the property at 70 per cent of that figure to another first-time buyer.

I can just see some surveyors being more popular than others. Indeed other parts of this seem rather magical.

Mr Jenrick said that the initiative would mean people could buy new homes with a lower deposit and mortgage without having to move to cheaper areas.

It is a bit like the adverts for the travel company Trivago where someone has paid £150 for a hotel room whereas the rather delightful woman from Trivago has paid £100. Except in the advert they show the original customer as being unhappy with this. I can see the equivalent happening here. Other travel companies are available.

“I know that many who are seeking to buy their own home in their local areas have been forced out due to rising prices,” he said. “A proportion of new homes will be made available at a 30 per cent market discount rate, turning the dial on the dream of home ownership.”

This area is, however, ridden with what we might call slips between cut and lip.

The National Audit Office report ‘Investigation into Starter Homes’ released in November 2019, found that — despite the Conservatives’ promise to build 200,000 starter homes for first-time buyers in 2015 — not a single starter home had yet been built.


We see a situation a bit like an old fashioned railway signal box where the signaller keeps pulling another lever. We started with interest-rate cuts, then QE, then the Funding for Lending Scheme, Help To Buy,Term Funding Scheme and now this. They have reduced the price then raised the quantity of money around and these days seem to have moved onto in effect giving out “free money”. Will it be too long before some are gifted houses?

In some ways this reply to the FT article sums it up.

How does transferring wealth to a random set of a few individuals solve the housing crisis? ( MarkCats)

Also that each move makes the position even worse overall.

The average Help to Buy first-time buyer price has risen 50% since 2013 (outside of London).   As usual Government introduces a policy, and then introduces another to counter the effects of the former.

But the plan to remove house prices from the one UK inflation measure that includes them is a clear hint at the long-term establishment plan. Inflate them and then claim it as wealth effects because with wage growth struggling rents especially using the flawed official measure will likely miss it.


31 thoughts on “UK housing market policy is becoming an even bigger mess

  1. Hello Shaun,

    is it a mess? Frankly I don’t think anyone in the BoE or HMG really cares so long as house prices are increasing….


  2. In the North West house sales are going through rather quickly in some places and I think the average selling price could be north of 4% annually. When one looks at the rates on offer here:

    “Halifax also continued to top the five year fixed chart this week, offering a rate of 1.46% (3.2% APRC) fixed until 31 May 2025, reverting to 4.24% variable thereafter.”

    It isn’t surprising that anything under £300k or possibly even more are rising at this rate as its cheaper to buy than rent.

    With low unemployment house prices could continue to rise at the current rate in the North West.

    However if employment reverses and we don’t see the growth the Chancellor is hoping for it could all end in tears which it has done many times previously.

    Most people seem to think house prices are too high but its partly low interest rates to blame imo.

    We do however live in an uncertain world and I was quite shocked to hear this morning of over 60 positive results on the cruise ship off Japan and I wouldn’t like to be on the ship myself which is a a floating nightmare at the moment and a feel for the holidaymakers plight.

      • Confined spaces and lots of people mingling together was bound to spread any infection quickly. Also a nightmare for Japan having to deal with the outbreak on their shores.

          • DD

            Never thought about that but with some cabins no windows there is bound to be air conditioning and that is a grave concern.

  3. Hi Shaun

    Good ole Halifax. The rejigging of the index has kicked -YoY down the road for another year. Crisis averted. Meanwhile in S. Manchester:

    The market is horrendous at the moment. Before xmas the amount of properties in my search criteria dropped from around 110 to 80. These are the overpriced properties which are not shifiting. At the moment there are still only 83 properties. Any decent properties are snapped up instantly, some going within 1 day of listing.

    In the town centre newbuild 1 bedders are going for 294k, and they come with horrendous service charges (for their private bars, cimemas and gyms etc) These are supposed to be accessible to FTB. Who can afford that? The state of the housing market in this country truly saddens me.

    • Indeed, it is saddening. A casino where the majority win at the expense of the minority. The higher the stakes the more that majority vote for same and Govt supports. It is a one way road to social implosion. We probably need a global pandemic disease or something like that to wake people up about what is really important agin.

  4. I can’t see the housing crisis being solved any time soon, with young people unable to buy a property, unless they move to an area where there is no work.
    The problems are;
    1. We are not building enough houses and flats.
    2. The country is overpopulated and the majority of people are mainly concentrated in few areas.
    3. Too cheap mortgages lead to high unaffordable house prices.
    4. Badly thought out Government intervention which leads to even higher prices.
    5. Over complicated and cumbersome planning system.
    6. Governments unwilling to raise interest rates and hence mortgages, because of the dire consequences to the voting public and the economy.
    I am sure you can all add your own points.

    If anyone thinks they have a solution, I would love to hear it!

    • Yes, its called bringing back capitalism.

      And levelling the tax system so landlords no longer get tax incentives owner occupiers had stripped from them a couple of decades ago.

    • Yeah, stop central banks manipulating interest rates, let the market decide the cost of money and we will see the real value of property in this country, also tax land and profit from property appreciation heavily, just these two things would be a great start.

      • I agree but clearly since TBTF submission by
        politicians to the banks and high roller multi
        nationals there is no likelihood of them
        relinquishing their hold on this corrupt system.

    • “What if vital inflation data used to justify trillions of euros worth of central bank stimulus to support Europe’s economy is flawed? ”

      flawed ? you don’t say ?

      bet they find it is isn’t despite overwhelming evidence that it is….


    • Thank you very much for the link, Bootsy, which I hadn’t seen. Since Shaun didn’t reply to you, let me try to do so; he would probably say something similar, not so verbosely. Madame Lagarde’s statements are indeed encouraging but I am not sure how seriously they should be taken. After I read the Reuters report I read her introductory statement to the European Parliament Committee. There were only tangential references to housing in it, and nothing about changing the HCIP to include housing prices. If she were really serious about doing something you would think it would be in her opening statement.
      The journo, Borasz Koranyi, suggests that a “2018 report by the European Commisson” rejected incorporating an OOH component in the HICP primarily because of the lag and because it was quarterly. These were mentioned in the report and were quite imbecilic, given that the OOH component was only quarterly and only produced with a lag because that was how Eurostat told EEA national statistical institutes to calculate it. There is no reason it couldn’t be calculated monthly and the UK ONS should probably convert its own quarterly OOHPI series, designed to Eurostat specifications, to a monthly series as soon as possible. It would be an excellent post-Brexit project.
      The real reason, as the quote from Irish economist Philip Lane indicates is whether you treat a house as being in-scope or out of scope in a target inflation measure. The 2017 Eurostat manual on the OOHPI, the latest update of many, which goes unmentioned by Koranyi, notes that one could have three different approaches to measuring OOH based on an net acquisitions approach: gross/gross, where weights are based on house purchases and prices are actual house prices, net/gross, where weights are based on house purchases excluding land values, and prices are actual house prices, net/net, where weights are based on house purchases and prices on proxied dwelling prices. I would opt for the gross/gross approach, as would Shaun, and this was in fact the net acquisitions proposal made by the English economist Ralph Turvey at least as early as 1981. Eurostat opted for the net/gross option, on practical grounds. The EU report rejected this on rigid ideological grounds: land purchases cannot be treated as consumption. However, an optimistic view of the murky bureaucratic language of the report is that it left the door open to incorporating an OOHPI series based on the net/net approach, which would require the EEA countries to impute dwelling prices for the existing housing prices in their OOHPIs. “Imputed dwelling prices” are not “housing prices” so taking Mme Lagarde at her word, she rejects the 2018 report. She wants to include an OOHPI series based on the net/gross option or, highly unlikely, but barely possible, she really does agree with Shaun completely, and favours inclusion of an OOHPI series based on a gross/gross approach. It’s a nice thought. Je garde espoir.

  5. Great blog as usual, Shaun.
    As you say, the Economic Affairs Committee of the House of Lords.was skeptical about using imputed rents to measure owner-occupied housing costs. Nevertheless, the UKSA has chosen a so-called reform of the RPI based on substituting imputed rents for the existing accounting approach to OOH. This will certainly have a substantial impact on the formula effect for the RPI, i.e. the difference between the inflation rate for the RPI as it is measured, and the RPI where all elementary aggregates that use the Carli formula use the Jevons formula instead. Dwelling insurance (item ID 410701) is subsumed in implicit rents, and so will no longer be measured in the RPI in five years or so. It is partly weighted using Carli aggregates at present. Most homeowner repairs will also be subsumed in implicit rents and they will also be partly weighted using Carli aggregates. All items relating to tradesmen’s hourly rates (e.g. plumber daytime hourly rate (410508)) are measured as Carli aggregates now. Conveyancing fees are considered a capital outlay, not a consumption outlay in a rental equivalence framework, and so house conveyancing (440249), another Carli aggregate, will be excluded from the new RPI. Of course, even if there were no formula effect within the OOH component of RPI, there would also be the not inconsiderable impact on the overall formula effect of giving the OOH a quite different impact on the annual inflation rate. We will not know how the formula effect will change if the move to imputed rents is made given the decision to stop calculating it. Even the direction of the change, a lower or a higher formula effect, is unclear. The ONS argues that not many people are interested in the RPI formula effect now, so there is no reason to keep calculating it. I am sure a lot of people would be interested in knowing how it changed if one brought in imputed rents.

    • re ” The ONS argues that not many people are interested in the RPI formula effect now”

      no , what they mean is that THEY are not interested in it as it’s an inconvenient truth…


      PS: also their pensions are calculated on it and it won’t do to remind the plebs ..

  6. You seemed to have a typo in the article, should read.

    According to the Financial Times the government has a “cunning plan”.

    But if they’re knocking 30% off the price, this 30% in effect being their profit .. to get a house down to around £200,000

    It shows how broken the market is when an oligopoly of corrupt builders can make circa £100,000 profit for building a small terrace house, with no front garden and a postage stamp size rear garden.

    No wonder they donate significant funds to the Tories to keep this scam going. Though insignificant sums in that it only costs a couple of million in donations to destroy a society.

    • Hi Arthur and I presume you mean a Blackadder style cunning plan.

      I have just checked a couple of building shares to see if they have responded but not really as whilst Galliford Try was up. Balfour Beatty was down today. Perhaps they were hoping for more.

  7. Just read the Daily Mail article on the 30% subsidy, but of course it’s all a bit short on details, I mean, builders, having had over ten years of feast and massive riskless profits courtesy of government and Bank of England policies will now have to “subsidise” a portion of their builds???, will it be like the certain percentage of “affordable” houses they have to build on new developments alongside the 4/5 bed executive detached properties and so it is all worked into the price of the other properties and therefore cross subsidised, so the other buyers will be covering the 30% subsidy on each house thereby driving up the price of the other properties-always the result of government interference and “help”.

    As Shaun points out is it wide open to abuse by getting dodgy valuers in to place whatever price is required on the dotted line.

    I’ll have to admit I didn’t see this one coming, my prediction was for a cash lump sum given to first time buyers by the government, but this looks a first step in that direction.

    • Hi Kevin

      There are also twists in the rules. As for example I have written before that a couple of my friends have used the shared appreciation system. Well they have been told that the gym is only for those who own 100%. Very harsh considering they pay rent on the rest.

      Another issue with this is that if we keep it in round numbers and the price is £300k then if enough people get it at £210k that is the new price. Who is going to rush in and pay £300k? They would end up being like the customer of another company in the Trivago advertisement.

      • Shaun, your friends’s experience seems very harsh because they’ll be paying the same service charge as everyone else and this includes the cost of providing the gym – one for the courts in my opinion.

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