UK housing policy continues to promote ever more unaffordable prices

This week has opened with a barrage of news on the UK housing market. Whilst this is of course the equivalent of a hardy perennial there are two factors bringing it into focus. The first is that it is the UK Budget next week and the second is a weekend where a strong end to the last week for the UK Pound £ has been replaced by this.

Barclays trade of the week (short EURGBP) stopped out at Monday 0857am… ( @RANSquawk )

Is that some sort of record? As Prince would say it is a Sign O’ The Times.

One issue at play is building evidence of changes in the housing market. From Estate Agency Today.

Sellers have launched “their own sale” in response to the stagnating market by slashing asking prices according to Rightmove – but some sellers have not cut enough.

So what has happened?

The portal says sellers of homes that are new to the market have trimmed asking prices over the past month by a modest 0.8 per cent; more dramatically, 37 per cent of properties already on the market have reduced their asking prices since first being listed.

The 37 per cent figure represents the highest proportion at this time of year for five years, the portal says in its latest monthly market snapshot.

It is not the fact that there are price offers at this time of year that is unusual it is the amount of them. Also the five-year timing will be noted by the Bank of England as that takes us back to developments which influenced its decision to boost house prices with its Funding for Lending Scheme.

At the moment the situation as regarding price drops is recorded thus.

Analysis of those properties that actually sold last month after having reduced their prices shows that their average reduction between initial and last advertised asking price was also 6.3 per cent.

However the state of play in London seems rather different especially as we note this in the Guardian is from an estate agent.

Lucy Pendleton, of the London estate agent James Pendleton, said sellers in the capital are facing some particularly tough decisions. She argues that one large price cut can work better than several small ones.

As to the gap between asking prices and actual selling ones Henry Pryor helps us out.

Average asking prices measured by across the country have fallen slightly. They’re now just 27% (£84k) higher than average sale prices recorded by

LSL Acadata

This body covers all transactions including those for cash and tells us this.

The slowdown in prices continued into October, with values flat over the month and up 0.8% on an annual basis. This is the slowest growth since March 2012, and at £298,438 prices are now roughly level with November 2016.

The driver of the slow down is very familiar.

London continues to weigh on the market, with the decline in prices there (now 2.4% annually) dampening growth substantially though. Prices fell more slowly in September than the previous month, down 0.3%. The average house in the capital remains at £583,598, despite a fall of £14,250 over the year.

Government Policy

We have had various suggestions and hints from ministers over the past couple of months but this morning has brought this in the Financial Times.

UK chancellor Philip Hammond is drawing up plans to help first-time buyers in his Budget later this month, in an attempt to show the government is getting to grips with the housing crisis.

Having opened this piece with a mention of hardy perennials we have one which blooms very regularly in the UK which is what the UK government will badge as help for first time buyers. I would imagine that many of you will be able to guess what form this will take before reading the details below.

The chancellor is preparing a stamp duty cut for first-time buyers as a signal that the Conservative party understands the widespread resentment felt by those locked out of the housing market because of high prices, according to government aides………The Treasury regards a stamp duty cut for first-time buyers, which might be introduced for a temporary period, as one way to address a growing feeling of inter-generational unfairness in Britain.

There are more than a few begged questions in that but let us for the moment move on whilst noting the changes at play.

This problem is exemplified by how younger people are struggling to follow in the footsteps of their parents by buying their own homes. The number of homeowners under the age of 45 in England has dropped by 904,000 since the Conservatives entered government in 2010: down from 4.46m in that year to 3.56m in 2015-2016, according to data from the Department for Communities and Local Government.

Also this is an intriguing way of looking at the likely impact which also points out the wide variation in average house prices around the UK.

Lucian Cook, head of residential research at Savills, an estate agency, said any cut in stamp duty for first-time buyers would primarily benefit those purchasing homes in London and south-east England. Stamp duty is not payable on properties worth less than £125,000, and Mr Cook highlighted how the average price for a first-time buyer in Yorkshire was just over £125,000.

So a response to house price falls in London? We have been wondering on here how long that might take….

Bring me a higher love

The hardy perennial theme continues as I note this from City-AM.

Writing to the chancellor, an influential group of housing associations urged Hammond to allow developers to extend the height of properties without having to secure planning permission.

Under the “build up not out” plan, championed by Tory MP John Penrose, developers would be able to increase a building’s height so it matched the tallest building in its neighbourhood, or the height of surrounding trees.

The supply of homes is of course an issue in the UK although of course developers have quite a vested interest in being able to build higher as I recall the Yes Prime Minister episode that referred to this. Those who live next door may not be quite so keen so care is needed.


There is a clear problem with two possible government policies which is the proposed expansion of Help To Buy we looked at back on the 2nd of October and today’s Stamp Duty cut. This is that moves which are badged as help are tactically true but strategic disasters. What I mean by this is that the person helped gains at that moment but that fades away as we note that these moves are not only associated with but cause ever higher house prices. Sometimes they are priced  straight in and people may be being helped to buy at the top of the market signified by the ever higher multiple of income required. This of course then requires even more help to stop house prices falling as the cycle repeats so far endlessly.

An irony is that a Stamp Duty cut would also damage one of the better revenue areas for the government in recent times. From the FT.

The Treasury’s receipts from stamp duty surged to a record high of £11.77bn in 2016-17, up 10 per cent per cent compared with the previous year.

There are regular debates about taxation and the apparent impossibility in more than a few areas of increasing it. Well Stamp Duty has not been one of them and has seen increasing flows to the UK Exchequer.

The issue of raising housing supply seems much better founded than raising demand. But it is problematic for the current Chancellor of the Exchequer as whilst it is welcome I think to see someone who is not just a career politician owning businesses which are in property development and construction raises a moral hazard question. Approving changes which benefit you personally is not a good look especially when the developers have benefited from the whole Help To Buy era.

Also if we look back to October 23rd there was this.

The government should borrow money to fund the building of hundreds of thousands of new homes, a cabinet minister says.

Communities Secretary Sajid Javid said taking advantage of record-low interest rates “can be the right thing if done sensibly”.

If Mr.Javid was a Chelsea footballer it would appear that he has been sent to Vitesse Arnhem on loan maybe permanently.

Meanwhile there is news from the Bank of England that house buyers have had the advantage even before it existed.





Has UK housing policy taken yet another turn?

Over the weekend we saw an announcement from a cabinet minister that may usher in a new phase of UK housing policy so let us take a look. From the BBC.

The government should borrow money to fund the building of hundreds of thousands of new homes, a cabinet minister says.

Communities Secretary Sajid Javid said taking advantage of record-low interest rates “can be the right thing if done sensibly”.

There are various begged questions there as for example I can recall us being told we were building large numbers of new homes and there was something of a confession on this front.

Mr Javid said successive governments had failed to build enough homes,

We can dispute as to the issue of “enough” but it is true that government’s have failed to build the number of homes that they claimed they would. The story of the Ebbsfleet development in Kent has been the major example of that. Back in 2006 Ruth Kelly announced this.

160,000 new homes in mixed communities, built to the highest design standards.

Much of this was to be built at Ebbsfleet and wags no doubt pointed out that the homes would have to be of the highest standard as the development was on a flood plain. An international railway station was built but in case you got the impression that lots of homes had been built a different government was on the case more recently. From the BBC.

Seven parks, 15,000 homes, a major new commercial centre and improved public transport are among plans being set out for Britain’s newest garden city.

The vision for Ebbsfleet, Kent, will be developed around the international railway station over the next 15 years.

The Javid plan

This attempt to increase the supply of housing will have the following features according to the BBC.

He said between 275,000 and 300,000 homes a year – a level of house-building not seen since the 1960s – were needed in England alone to help tackle the shortage in affordable housing.
“We are looking at new investments and there will be announcements,” he said, saying these would come in next month’s Budget.

This adds to the apparent switch in policy towards the supply side of the housing market that we have seen recently from the UK government.

Recent announcements by the government include a pledge by Theresa May at the Conservative Party conference this month of an extra £2bn to build an additional 25,000 social homes.

We also get an idea of the costs involved as if 25,000 homes cost £2billion then presumably 300,000 would cost £24 billion a year.

The public finances

I do not know if it was a coincidence on not that such an announcement came on the back of better figures for the public finances on Friday but we do seem to be getting a change of tone.

Asked about the change in tone from the Tories’ previous approach to borrowing, Mr Javid said a distinction should be drawn between “vitally important” deficit reduction and “investing for the future” in housing and infrastructure.
“So for example… you borrow more to invest in the infrastructure that leads to more housing – take advantage of some of the record-low interest rates that we have. I think we should absolutely be considering that,” he said.

Most people will be scratching their heads as to how “deficit reduction” and “investing for the future” go together. Governments love this sort of thing where they claim that a part of their spending should be excluded from the numbers! Hence developments like cyclical budget deficits which can easily be manipulated by simply changing the cycle. Of course housebuilding is a type of investment both literally ( bricks & mortar) and conceptually although I have to confess the distinction between investment and consumption has faded in recent times. I do not mean the theory I mean the practice.

Number Crunching

Are interest-rates at a “record low”? Yes in terms of Bank Rate but I do hope that the Communities Secretary realises that it is not the relevant one here. If we move to UK bond or Gilt yields then he is not literally telling the truth as they happened as the Bank of England charged into the Gilt market like a bull with £60 billion to spend in a china shop last summer. But the 50 year Gilt yield is in historical terms rather low at 1.7% albeit not as low as the 1.1% bought by Mark Carney and his ilk.

So you could build houses and assuming the numbers above apply you could set a level for rent at the low yield plus an allowance for repaying the capital as a type of mortgage. The biggest begged question is around could be issue say £25 billion of a 50 year Gilt and at the moment I think we could as investors remain thirsty for yield. Or the properties could be sold and the money repaid that way.

Why are houses unaffordable?

This is really rather awkward for the UK government and Bank of England as they have done their best to make them so. Indeed the government announced a new effort on this front as recently as this month as I pointed out on the 2nd.

The government will find an extra £10bn for the Help to Buy scheme to let another 135,000 people get on the property ladder, Theresa May has said.

So in basketball terms they pumping the ball up at the same time as letting air out of it! Also the Funding for Lending Scheme of the Bank of England reduced mortgage rates and in the words of the Bank of England led to this.

Lower mortgage rates and increased availability of credit have helped to release pent-up demand and encourage new demand for house purchase. ( August 2013 Inflation Report).

Meanwhile according to the Office for National Statistics once those policies came in effect UK house price inflation has pretty much been between 5% and 10% per annum. So job done in terms of house prices! Except of course it has made ever more of them unaffordable or created the problem this new plan is supposed to solve.


Mr Javid had a busy weekend as according to the BBC he also wants to improve the way houses are sold.

Home-buying and selling in England and Wales could be “faster and less stressful” under plans to simplify sales and tackle gazumping.

Communities Secretary Sajid Javid launched an eight-week review, saying he wanted to “hear from the industry” on how to streamline home-buying.

Ways of locking in deals and stopping sellers accepting higher offers at the last-minute will be considered.

It would be welcome so let us see if anything happens on this front. Maybe we could learn from Scotland which has less of it.


There is a fair bit to consider here especially if we note that the record of UK governments this century has been as follows. Policies to raise demand for houses ( economic policy and immigration) quite a lot and policies to increase supply of housing much fewer. As to whether building more houses will reduce prices and make housing more affordable well that does seem to have worked rather close to me. From the Telegraph on the 29th of July.

In the south London area, new-build luxury apartments continue to flood the market. Figures from LonRes reveal that there are 10,937 homes currently under construction or with planning permission there, many of which are luxury flats priced out of reach of ordinary Londoners.
With low levels of transactions and high prices, there is a dearth of buyers. The average price per sq ft of homes for sale in the area was 6.2pc lower in the second quarter of 2017 than the same period last year.

One group that has done well out of UK housing policy has been the house builders. There has not been a share price rally in response to the latest news but this may well be because the ones I looked at had seen pretty strong rallies recently anyway. Meanwhile is this a case of one bubble meeting another? From the Evening Standard.

Buyers of a Notting Hill mansion going on sale this month for £17 million will have to pay in Bitcoin, in what is believed to be a first for London.

The owners of the six-storey stucco-fronted home near Portobello Road will accept only the digital currency as payment and will not take cash.

At the current exchange rate the price is equivalent to about 5,050 bitcoin,



The stability of the UK economy is quite remarkable

Today gives us another opportunity to take a look under the engine cover of the UK economy and to do so considering the stated position of the Bank of England.

If the economy continues on the track that it’s been on… we can expect interest rates would increase somewhat.

Those were the words of Bank of England Governor Mark Carney on the BBC’s Today programme on Radio Four last week. Listeners will have been wondering if it will be third time lucky for his “Forward Guidance” as he has tried this tack before? More tucked away at the end of last week was a consequence of the actions of Governor Carney and his colleagues in August 2016 when they cut Bank Rate to 0.25% added a “Sledgehammer” to the QE ( Quantitative Easing ) programme and added a soupcon of credit easing with the Term Funding Scheme. Please remember the implications of giving banks cheap funding as you read this from the BBC about the interview with Governor Carney.

“What we’re worried about is a pocket of risk – a risk in consumer debt, credit card debt, debt for cars, personal loans,” he told BBC Radio 4’s Today Programme.
He said banks had “not been as disciplined as they should be” in their underwriting standards and pricing of this debt.

How is that going?

This is the data up to the end of August from the Bank of England.

The annual growth rate of consumer credit remained at 9.8%, with a flow of £1.6 billion in August.

As you can see this is a triumph for the “Sledgehammer QE” of Chief Economist Andy Haldane who wanted precisely this. Oh hang on sorry, it is now the result of unexpected behaviour by the banking system and is a worry for the Bank of England.

Also we see that monetary growth has picked up more generally.

Broad money increased by £16.6 billion in August (Table A), the highest flow since September 2016. Within this, flows for all sectors were positive (Tables B-D) with the largest contribution from non-intermediate other financial corporations (NIOFCs) (Table D).

The monthly numbers are very erratic but this was a surge but the overall picture remains one of strong unsecured credit growth and growth in the wider aggregates that may be picking up again. What is in doubt is the mix that this monetary growth will provide between economic growth and inflation but it suggests that if inflation is 3% economic growth will be 2%.

Remember when we were told that all of this was for smaller businesses or SMEs? Well lending to smaller businesses fell by £200 million in July and £100 million in August.

Business Surveys

Today saw the last of the PMI business surveys for the UK and it was a case of steady as she goes.

The headline seasonally adjusted IHS Markit/CIPS Services PMI® Business Activity Index posted 53.6 in September, up from an 11-month low of 53.2 in August. Looking at Q3 as a whole, growth has eased slightly since the previous quarter (the index averaged 54.3 in Q2, compared to 53.5 in Q3).

So the changes are much less that the likely error term. This was reflected in the overall picture described.

The three PMI surveys put the economy on course for another subdued 0.3% expansion in the third quarter, but the fourth quarter could see even slower growth.

Markit have a default setting of downbeat on the UK economy which is a switch of sorts as they used to treat France like that. But there is an interesting perspective in the detail of their report.

The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric and hike interest rates. However, the decision is likely to be a difficult one, as the waning of the all-sector PMI in September pushes the surveys slightly further into territory that would normally be associated with the central bank loosening rather than tightening policy.

The inflation picture

We learnt more about this at midnight from the British Retail Consortium or BRC.

In September, Shop Prices reached the shallowest deflation level in the last four years of 0.1%, with prices falling just 0.1% compared to a 0.3% year-on-year decline in August. Non-Food price deflation accelerated to 1.5% in September, from 1.3% in August, although Non-Food prices are less deflationary than in September 2016, when they had fallen 2.1% year on year. Food prices increased in September to 2.2%, up from 1.3% in August.

So food prices are rising but other prices are falling as we seem set to shift from disinflation to inflation in the retail sector although the BRC gets itself into quite a mess on this subject.

Overall shop price deflation reached an all-time low in September with prices now teetering on the edge of inflation.

The food inflation is being driven by butter prices ( a worldwide issue presumably leading to happy days in New Zealand) and on a personal level I note that the rises in the price of broccoli we looked at a while back don’t seem to have reversed much if at all.

Government policy

We should find out more later about this. We are already expecting a boost to the Help To Buy scheme which has led to this.

3,858 first time buyers earning over £100k appear to have had Help2Buy…  ( @HenryPryor )

Also the mind boggles as to what the with a household income below £20,000 per annum were able to buy! Maybe it’s because I am a Londoner………

Also the new £10 billion will be an expansion on what has gone so far ( figures to June 2017).

The total value of these equity loans was £6.72 billion, with the value of the properties sold under the scheme totalling £32.37 billion.

Perhaps we will see more emphasis on social housing later as well.


Imagine you are an “unreliable boyfriend” what is the worst scenario? It is of course the sort of stability that the UK economy seems to be providing as it seems fairly likely that the first three-quarters will each provide GDP ( Gross Domestic Product) growth of 0.3%. Of course the unreliable boyfriend in question will be hoping we forget his Forward Guidance for what 2017 would be like and instead focusing on his heroic efforts which prevented that. The same heroic efforts he now hints he will reverse. As he spins like a top we are reminded that in monetary policy of a version of  the Bananarama critique.

It ain’t what you do it’s the way that you do it
It ain’t what you do it’s the way that you do it
It ain’t what you do it’s the way that you do it
And that’s what gets results

Putting UK interest-rates back where they were clearly suggests that they should never have been cut in the first place. Even worse an unsecured credit boom has been fed. Oh and even the ratings agencies are raising the issue of credibility.

S&P troll BOE


“Help” for UK house prices makes the property ladder look more like a snake

As one recovers from an opium trip ( just for clarity 30mg of morphine from the anaesthetist at my knee operation) care is needed with the news as perception and reality may well diverge. After all things may not be what they seem to you. However as I recover I note that one of the theme’s of my economic analysis is continuing in play. That is that the UK establishment will do pretty much anything to keep house prices rising and to banish any thoughts of falls. This was confirmed yet again by Prime Minister Theresa May yesterday. From the BBC.

The government will find an extra £10bn for the Help to Buy scheme to let another 135,000 people get on the property ladder, Theresa May has said.

There is only a little detail at this point but even this makes me wonder if we will see snakes as well as ladders.

The extra cash will help buyers get a mortgage with a deposit of as little as 5% to buy newly built homes.

It was not so long ago that the UK establishment queued up to tell us that small deposits and/or low equity were one of the features which led to the credit crunch whereas now they are official government policy! The half-life of establishment memory appears to be rather short. Also it is trapping itself ever more into higher house prices as can you imagine the storm if the “Help” leads (young) people into negative equity?

A trigger?

Perhaps this from the Financial Times on Friday firmed up the government plans.

London house prices fall for the first time since 2009 Nationwide says prices declined 0.6% year-on-year in third quarter.

We have been noting declines in London for a while and the fear for the establishment was that it would prove to be a leading indicator one more time. There is a possible additional factor which is that when people have spoken about a “Westminster Bubble” there has been more than one meaning.

House prices are too high

The same FT article gives us evidence of this.


Since the financial crisis, house prices have grown faster than earnings across the country, but the gap between the two measures has been particularly large in London and the south-east. The ratio of the average house price to average earnings for people living in the capital rose from 7.8 in 2009 to 12.9 last year. While national house price growth has moderated during the past year, the latest figures from the Office for National Statistics show that average house price growth — 5.1 per cent over the year to July — has continued to outstrip earnings growth, which was 2.1 per cent over the same period.

We have seen house prices rise nationally but real wages have fallen. There are some pockets where house prices have recovered little but the general position is that house prices are too high. This is the cause of policies like Help To Buy and the Funding for (Mortgage) Lending Scheme of the Bank of England but of course by driving prices even higher they create a future problem. Even worse the rises are recorded essentially as economic growth when the truth is that for many they are inflation.

On that subject we received some updates on Friday as the “Blue Book” was published. Firstly the past was a little better than we thought.

GDP is now 9.3% above the pre-downturn peak instead of 9.0% above as previously published.

However the latter part of 2016 was revised down and the first quarter of 2017 up ( to 0.3% GDP growth) with the net effect over the past year being -0.2%. I warn regularly about the dangers of relying on 0.1% movements in GDP.

Oh and it appears that news was so grim in 2012 we were all on drugs to cope. From the trade figures update.

The largest positive revision occurs in 2012 with the inclusion of tuition fees having the greatest impact, followed by the inclusion of drugs data into the estimates of illegal activities.

Personally I would have thought giving students other bills to pay would reduce the illegal drugs data maybe this is yet another way that millennials are different.

The Bank of England

Sadly I missed the celebrations of twenty years of independence at the Bank of England last week. If I had been able to indulge in the excellence of its wine cellar then as it combined with the morphine I might for a brief period have actually believed it was independent. The “unreliable boyfriend” has given us two clear periods of Forward Guidance ( 2014 and 16) where he promised an interest-rate rise which eventually involved an interest-rate cut. Now he is at it again or at least he was on BBC Radio 4 on Friday..

If the economy continues on the track that it’s been on… we can expect interest rates would increase somewhat.

Governor Carney wants us to believe he really means it and maybe he thinks he does but it was hard not to raise a wry smile as only a few hours later UK annual economic growth was revised down from 1.7% to 1.5%.

The winners

If you look at the share price data this morning then the leaders are as I type this Barratt Developments and Persimmon both up 3.9% and out of the top ten we see six from the construction industry. The construction industry has been a winner in terms of its executives and share prices but as we note from the official figures there has not been much of a supply response. This was interesting from the FT.

One executive claimed recently that the scheme had allowed him to raise selling prices by 10 per cent, which would almost double the profit margin for most builders.

Oh and there is the issue of economic growth where we see this.

The methodological change to actual rental is showing stronger growth into 2015 than the old methodologies and data sources.

Would you like to take a stab in the dark about what this does to the Imputed Rental figures?


It would appear that we are in one of those zombie apocalypse movies where the zombies cannot be killed. Oddly the Bank of England is claiming to be heading in the opposite direction although of course it has already collapsed like a deck chair twice after giving us such Forward Guidance. But the principle remains that the UK establishment is “caught in a trap” as Elvis Presley put it. To “Help” those suffering from high house prices it pushes prices higher meaning ever more need “Help”. Whilst it is one of my favourite songs I do not think John Lennon meant this for the housing market.

Help! I need somebody
Help! Not just anybody
Help! You know I need someone

As soon as the “Help” stops then the property ladder seems set to metamorphose into a snake.




UK House Prices look ever more unaffordable

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?

The Problem

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.

Stagflation Alert

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 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.






The UK housing market is an example of junkie style economics

It is time for us to dip our toe again into the situation in the UK mortgage market as we know that via its impact on house prices it has an impact on both economic growth and inflation. Or to be more specific officially recorded economic growth but not inflation as the headline Consumer Price Index or CPI excludes owner-occupied housing costs. They were supposed to be added “soon” after its introduction back in 2003 but somehow they got forgotten for a decade and were then shuffled both by going into a subsidiary measure (CPIH) and by morphing into (usually lower) rental costs.

What is current Bank of England policy?

The headline is the Mortgage Market Review of late April 2014 which supposedly ended interest-only loans and tightened rules on the availability of high income multiples. Of course as I discussed last week interest-only loans simply metamorphosed and boomed in the buy to let sector whilst our valiant regulators myopically look elsewhere.

Meanwhile the pedal has been pushed near to the metal in many areas. After all we still have an emergency Bank Rate of 0.5% and £375 billion of QE which amongst other things was expected to reduce the cost of fixed-rate mortgages. The latter will be extended next week as some £6.3 billion of maturing Gilts gets rolled forwards in maturity some of it to the ultra longs as Operation Twist fires up again. Also we have the Funding for (mortgage) Lending Scheme or FLS which now amounts to some £61.4 billion of cheaper funding for UK banks and grew by £4.2 billion in the second quarter of 2015. Of course this is badged as being for business lending (struggling) and not mortgages (booming), but reality is rather different.

What about an interest-rate rise?

This seems to be fading into the ether in spite of the rhetoric and Open Mouth Operations of Bank of England Governor Mark Carney. Yesterday the latest member of the Monetary Policy Committee member Gertjan Vlieghe who had to be forced to give up his links to the hedge fund he previously worked for told us this. Form the Guardian.

A Bank of England policymaker has said UK economic growth must stabilise or pick up before he will be persuaded of the need to raise interest rates.

Actually it has been fairly stable but perhaps there were other priorities than checking on this when he was a hedgie. However he has spotted what since the UK Pound nadir of March 2013 has been  a theme of this blog.

“We’ve had a huge tightening from the exchange rate,” said Vlieghe, who added that he would prefer an interest rate cut to another round of quantitative easing–

Ironically a side-effect of the currency rise may have reduced pressure on the UK housing market as for example we rose in round numbers from 50 Roubles to the UK Pound to 100. So some foreign buyers may have been deterred applying a brake for London perhaps whilst of course existing ones do something of a jig.

But Gertjan continued with his message.

there had been “a little bit of disappointment” on wage growth.

Really? I guess nobody challenged him as he ploughed a furrow which headlined with interest-rate rises then moved them into an unspecified future whilst somehow finding the time to mention an interest-rate cut! Have you notice how much more frequently interest-rate cuts are being mentioned by UK policy-makers?

As to QE additions I think that he is in line with Governor Carney here as his body language is plain when the subject is mentioned. Of course Mark Carney is a “dedicated follower of fashion” but as we stand QE in the UK seems fixed at £375 billion.

A substantial interest-rate increase for a few

Ironically one of the government policies to support the housing market has led to an interest-rate rise for some.The Halifax is offering an interest-rate of 4% compared to the 0.8% available on its ordinary cash ISA. This is quite a boost and is before we allow for the 25% bonus which you can get from the government which is tax-free. So a five-year savings plan would earn the equivalent of around 9% per annum.

However the Halifax changes its rates and others are more like 2% then ordinary cash ISA holders may well feel that there much lower interest-rates are cross subsidising the mortgage market. Perhaps our government should take a look, oh hang on, they created it…..

Government schemes

There is a dizzying list of schemes now under the Help To Buy banner. As you peruse the list below you might want to remind yourself that all this “help” is only necessary because the Bank of England policy moves have pushed us to a situation where house prices are up 18% in the credit crunch era and real wages are 6% lower. Indeed the numbers are worse for younger people who are more likely to be saving up for a property purchase.

With a Help to Buy: equity loan the Government lends you up to 20% of the cost of your new-build home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.You won’t be charged loan fees on the 20% loan for the first five years of owning your home.


A mortgage supported by the Help to Buy: mortgage guarantee scheme works in exactly the same way as any other mortgage except that under the scheme the Government offers lenders the option to purchase a guarantee on mortgage loans.Because of this support, lenders taking part are able to offer home buyers more high-loan-to-value mortgages (80-95%).

I have already covered the Help To Buy ISA which subsidises a deposit so you can afford to enter a subsidised scheme! Also you may note that the government is supporting the high loan to value mortgages which were and indeed are supposed to be out of favour. But there is more.

We are seeing the return of Right To Buy in England at least.

The Right to Buy scheme helps eligible council and housing association tenants in England to buy their home with a discount of up to £103,900 (£77,900 outside London).

And we also have this.

Halifax is supporting the Governments MoD Forces Help to Buy scheme, which allows forces personnel to borrow up to £25,000 interest free (repaid over 10 years) to use as a deposit when buying a property to be used as their main home.

It is quite a list which has led to some speculation as to how many of these you could qualify for in one go? From Joe Sarling.

Q: Would I be able to use both ISA (free £3k) and London (40% Govt loan) to buy a Starter Home (20% disc) in London?!

Will we end up paying someone to buy a house? That gets ever less ridiculous as we note that the junkie culture at play here needs ever higher doses of the drug. Oh and it would appear that I missed Help To Buy for London off my list so apologies.


Just when you thought that we had used up the policy measures that could support the UK housing market our establishment finds another. On the “Road To Nowhere” that we are on this has to continue as the “Help” is required because house prices are so high relative to incomes especially if we look at the incomes of those likely to buy a property. Even in a much better year for wages which 2015 has been both nominal and real wages have lost ground to house prices.

Today has seen more evidence of credit conditions doing their bit  from the Bank of England dataset.

Lending secured on dwellings increased by £3.6 billion in October, compared to the average monthly increase of £2.8 billion over the previous six months.

The number of loan approvals for house purchase was 69,630 in October, compared to the average of 68,099 over the previous six months.

That is out of sequence with the electoral cycle which makes us wonder what “delights” will be served up as we approach 2020. Also in the past we have seen unsecured lending leak into the housing market when there are restrictions like the current MMR.

Consumer credit increased by £1.2 billion in October, in line with the average monthly increase over the previous six months. The three-month annualised and twelve-month growth rates were 8.8% and 8.2% respectively.

Meanwhile there are stirrings across the English Channel as we await to see if the European Central Bank fulfills its hints and promises to cut interest-rates even further on Thursday. Such an eventuality will have the Riksbank of Sweden, the Nationalbanken of Denmark and the Swiss National Bank on “action stations” later this week. We are already seeing markets adjust as Swiss ten-year yields fall to a record -0.41% and I wonder if the path for UK Bank Rate will be dragged lower? What about house prices then? Time for some music for prospective house buyers.

Help, I need somebody
Help, not just anybody
Help, you know I need someone, help

Should we hit even harder times and the bubble bursts then they will be joined by the UK taxpayer who is underwriting so much of this.

Help me if you can, I’m feeling down
And I do appreciate you being ’round
Help me get my feet back on the ground
Won’t you please, please help me




The Bank of England FPC is like the dog that barks but has no bite

One of the economic themes of 2015 has been disinflation as we have seen consumer inflation fall across most of the world and sometimes fall into negative territory. Another example of that has been seen this morning as consumer inflation in Tokyo fell to an annual rate of -0.1%. However there have been areas as I have been recording in recent days of asset price inflation (particularly house prices) which has been exacerbated by the loose monetary policy being deployed by the majority of central banks around the world. Of course the falling headline rates of inflation have encouraged even looser monetary policy as we saw from Norway yesterday.

Norges Bank’s Executive Board decided to lower the key policy rate by 0.25 percentage point to 0.75 percent.

This also came with a clear hint that it would not be feeling lonely.

The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the coming year.

So yet another central bank cutting interest-rates in 2015 which I think makes 40 for this year but it is hard to keep up! Meanwhile on the interest-rate rise side of the equation we seem to be getting promises via Forward Guidance instead. From Janet Yellen of the US Federal Reserve last night.

Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.

If the interest-rate rise is as small a deal as they keep telling us then why did they not do it last week? Regular readers will be aware of my view that Forward Guidance currently involves promising interest-rate rises to hopefully change expectations and markets thus making the actual rise unnecessary. So if you like she is the girl who cried wolf and Governor Carney of the Bank of England is the boy who cried wolf.

Asset Price Inflation

This provides a problem if the previous weapon of interest-rate rises is unavailable. On that note we have yet another message from the land of the rising sun as it was 20 years ago this week that the Bank of Japan cut interest-rates to 0.5% a level they have yet to exceed. In fact interest-rates there are pretty much zero or if we look at the latest estimate of average deposit rates in Japan 0.02%.

Central bank inflation

One area where there is plenty of inflation is in well paid jobs for central bankers which is a trend that is booming under the current Governor Mark Carney. However even before he arrived the UK establishment formed a Financial Planning Committee back in 2011 as an interim measure. Presumably because the bureaucratic response to a policy failure (inflation was about to go over 5%) is of course more bureaucrats! Oh and i do not know if he drove it but on Governor Carney’s watch this happened to salaries.

In February 2014, the Committee reviewed, in the light of experience, the time commitment involved for the members of each of these committees, and decided to increase the fees of an FPC external member to £90,698p.a., and of an Independent member of the PRA Board to £102,326p.a.,

That was an increase of 17% for the FPC and 32% for the PRA. Good to see the Bank of England doing its bit for real wages isn’t it?! Oh and with inflation according to the CPI measure which they tell us is best at 0% so far in 2015 then we have seen another nudge up.

For 2015/16, these fees were increased by 1.5%.

Perhaps Ben Broadbent of the Bank of England was referring to them in his speech on the changing composition of the UK workforce. We have higher wages but where is the productivity?

What does the FPC actually do?

I am afraid that the following is the written equivalent of something of a mouthful.

The Committee is charged with a primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.

What have they said today?

The opening salvo is in central banker speak.

Overall, the FPC judges that the outlook remains challenging.

Really? Anyway let us look for specific examples.

The UK current account deficit remains close to a record high.

I agree that this is a risk so what are they going to do about it?

Although the capital flows financing the deficit remain mostly long-term in nature and do not give rise to material mismatches, the Committee will continue to monitor closely risks associated with the current account.

Ah okay nothing! But they have protected their backs should it blow up in future. Note I said their backs not ours..

UK housing market

Again we get something of a warning and it comes with an expectation of worse to come.

In the United Kingdom, house prices continue to rise faster than incomes, with forward-looking indicators suggesting that house price inflation will pick up further in the near term.

This was backed up by this weeks data from the British Bankers Association.

Gross mortgage borrowing in August was £12.2 billion. This was 14% higher than a year ago and the largest increase since 2008. Net borrowing of £2.0 billion was the highest monthly rise since August 2010.

If my role was financial stability then I would be concerned that mortgage lending and house prices were surging ahead of the economy but business lending was stagnant. But apparently officially everything is fine.

The Committee judges that the insurance provided by its June 2014 housing recommendations for the owner-occupier market remains warranted.

What about buy to let?

The FPC points out that it has been on the march.

The outstanding stock of buy-to-let mortgage lending has increased by over 40% since 2008. Over the same period, the stock of owner-occupier mortgage lending rose by only 2%. The share of buy-to-let in the stock of outstanding mortgage lending has risen to 16% from 12% in 2008.

What it does not do is point out the role of the Bank of England in this. After all from July 2012 it drove house prices higher via its Funding for (Mortgage) Lending Scheme or FLS which meant that house prices became ever more unaffordable. That is plainly a challenge to future financial stability. There is no mention either of the UK becoming more of a rentier style society or of the economy being tilted towards the housing market one more time.

Help To Buy

Governor Carney and the FPC have written a formal letter this morning on this subject and the crucial sentence is below.

Under current market conditions, the Committee assesses that the scheme does not pose material risks to financial stability.

Can you see the swerve? It says that it is fine but should it go wrong they will blame “market conditions”. So it is pointless in reality. Oh and this bit is interesting.

While the share of high LTV lending has picked up slightly over the past year, it remains low relative to the level before the crisis.

“The crisis” is hardly a benchmark unless we intend to plunge over the same cliff. Also it begs the question of why high LTV (Loan To Value) mortgage loans are required? My contention would be that a major factor is that house prices are too high and in particular they are too high relative to incomes.


The FPC is worse than the dog that didn’t bark as it promises a bite but does not deliver it. It provides plenty of platitudes and words its Minutes so that should there be a future collapse it can say that it warned us but what does it actually achieve? My contention is that it is part of the central banking theme to claim that they are not “maxxed out” with policy options. As the UK has not and seems very unlikely to use the interest-rate weapon against asset price inflation then the central bank has to offer something else. Or at least appear to offer something else because macroprudential policies were abandoned in the past because they did not work.

This is a trend way beyond the UK as macroprudential polices are spreading as central banks come to a similar conclusion. The taxpayer is paying for more bureaucrats who then spend their time giving us open mouth operations.