Where next for UK house prices?

Today has brought a flurry of information on the state of play in the UK housing market as we wait to see how the slow sown in house price growth is developing. We start by noting that according to the official series things may have changed a little.

Average house prices in the UK increased by 1.3% in the year to August 2019, up from 0.8% in July 2019 (Figure 1) but remain below the increases seen this time last year. Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

As someone who welcomes the fact that UK wage growth is now well above house price growth it is a shame that house price growth picked up. But we do at least have wages growth around 2% higher than house prices. That will take quite some time to fix the imbalances bit at least they are not still growing.Indeed the place where things are worst on the affordability front is improving faster than that.

he lowest annual growth was in London, where prices fell by 1.4% over the year to August 2019, followed by the South East where prices fell by 0.6% over the year.

This weekend has seen a swing in both directions from the Financial Times. First there is a switch to Paris.

Why London’s bankers cannot resist Paris property

Then er perhaps not.

David Livingstone, the new head of Citigroup in Europe, said the City of London will remain the region’s top financial centre regardless of the outcome of Brexit.

For balance here is the other side of the coin.

House price growth in Wales increased by 4.5% in the year to August 2019, up from 3.8% in July 2019, with the average house price at £168,000.


They have joined the fray this morning via Reuters.

Asking prices for British houses put on sale in October showed the smallest seasonal increase since the financial crisis, as all but the most determined sellers waited for greater certainty over Brexit, industry figures showed on Monday.

Rightmove said that the average asking price for homes sold via its website was 0.6% higher in October than in September, well below the average 1.6% rise seen for the time of year and the smallest increase since October 2008.

Reuters seemed a little less keen on this bit.

Average asking prices in October were 0.2% lower than in October 2018, compared with an annual rise of 0.2% in September.

Views differ on the 2016 referendum but personally I welcome this consequence.

Britain’s housing market has slowed since June 2016’s referendum on leaving the European Union, and official data last week – based on completed sales – showed annual house price growth of 1.3% in the year to August, up from a near seven-year low of 0.8% in July.

LSL Acadata

LSL operate rather a different system to the asking price driven Rightmove and in fact Rightmove’s methodology seems to have taken a further downgrade according to Henry Pryor.

“..average asking price for UK homes sold..” I think it’s for homes listed, it includes the 50% of homes that don’t sell.

LSL however use this.

The LSL/Acadata house price index provides the “average of all prices paid for houses”, including those made
with cash.

As to the detail there is this.

Although average house prices in England and Wales climbed by a marginal £113 in the month of September, this was not a sufficiently large increase to avert a further decline in prices over the last twelve months, with the average annual price over this period falling by some -£1,100, or -0.4%. This was the eighth month in this calendar year in which the annual rate of growth has been negative.

In terms of a trend their accompanying chart shows that UK house price growth was of the order of 9% as 2016 began and has been heading lower ever since. So it was heading lower before the Brexit vote partly because if I recall correctly some tax changes for landlords which inflated things then deflated them.

As to the situation regarding real movements I am afraid that LSL then dig a hole for themselves. You can ( and I often do..) argue that the imputed rent driven CPIH is a woeful measure anyway but surely one should use wage growth here.

if we exclude London and the South East from our national statistics, price growth in England & Wales has remained positive over the last twelve months, albeit at a diminishing rate, such that by the end of September the rate of growth was a flat 0.0%……..It is currently only Wales where house price growth is ahead of CPIH. So we have marginal nominal gains alongside real terms falls, although of course the picture varies by type and area.

They have a go are torturing the numbers in a way that makes me wonder if they want a career at the Bank of England but they end up with all areas seeing real wage gains. Even Wales has some real wage growth relative to house prices.


As a Londoner I have to confess I am intrigued by the intra-London swings although the explanation below is a worrying one for the methodology used by LSL.

Unsurprisingly, it is East London where the largest rise in average prices in August for both the month itself and the
previous twelve months has been recorded, with Hackney up by 5.1% and 13.4% respectively. The reason for this gain
in prices is the launch of a new-build apartment block, known as the Atlas Building, comprising some 302 flats at 145 City Road, Hackney, close to Old Street Station. 67 of these apartments have been recorded by the Land Registry as having been sold in June and July to date, with prices ranging from £500k to £1.7 million. Given that this project
involves 302 new-build flats, we can anticipate that Hackney will continue to be at the top of the price-growth tables for several more months to come.

I would have hoped to have some quality measure or at least some form of allowing for the fact the new build sales are different to sales of existing houses or flats. Those selling an existing property in Hackney seem set to get a shock if they base their calculations on the LSL series.

Meanwhile on the other side of the coin.

At the other end of the scale, the borough with the largest fall in average values over the last twelve months is the
City of London, at -28.6%, but because few transactions take place there, its price movements are always quite
volatile, especially when expressed in percentage terms.

Also whilst we are looking at methodology we see that the average price overall has just dipped below £300k as opposed to the £235k of the official series.


It is easy to forget that there is much in the UK economy that is still house price growth friendly. For example mortgage rates remain very low driven by a 0.75% Bank Rate and a 0.53% five-year UK Gilt yield helping to keep fixed-rate mortgages at a low level. It seems the TSB wanted to join the party as of Friday.

TSB has made a series of changes to its mortgage range, featuring cuts of up to 1.30 per cent.

The biggest cuts can be found in the lender’s remortgage 10-year fix suite, with the 85 – 90 per cent LTV rate being chopped from 4.29 per cent to 2.99 per cent. This also asks for no fees and comes with free legals. ( Mortgage Strategy )

To this we can add the positive situation regarding real wages we noted above.

Foreign buyers may have been dipping into the market to take advantage of the lower value of the UK Pound. However things have changed there recently as 141 Yen and 1.28 versus the Swiss Franc replace the levels I noted on the 27th of August.

For example as markets opened yesterday the Yen went to higher levels than the “flash rally” ones I noted on the 3rd of January and at 130 Yen London property looks a fair bit cheaper. You could say the same about 1.20 versus the Swiss Franc.

Help To Buy shared ownership is still in play and has helped one of my friends and conveyancing delays permitting is about to help another.

The problem for house price bulls is that the measures above ( with the exception of real wage growth) were what was required to get UK house prices up to these levels, not to drive them higher. Real wage growth will take another year or two to have a significant impact. So unless we see a new move by the Bank of England or the UK government we seem set for real falls in house prices ( versus wages) and maybe nominal ones too.








Help To Buy was really help for builders and bankers

A constant theme and indeed thread of the credit crunch era has been housing markets and more specifically the behaviour of house prices. The latter are treated by the establishment along the lines of “the spice must flow” of the novel Dune. They do not always put it like this as we peruse the Bank (of England) Underground blog. This is how it reviews the 4% cut in UK Bank Rate between October 2008 and March 2009.

Those holding large debt contracts with repayments closely linked to policy rates immediately received substantial boosts to their disposable income.

What they omit are two other factors. One is that savers who had savings linked to policy rates will have seen their income cut. Those who have been with me on the full journey will recall Bank of England Deputy Governor Charlie Bean saying that savers should in effect suck it up as it would be temporary. Of course it has been anything but. The other is that this was the first move to support house prices and let me throw in the early phases of UK bond buying or QE which was to reinforce this.

However this did not do the trick so what is a policymaker to do? It took a little time to sink in but the Bank of England came sprinting out of the traps in the summer of 2012 with its Funding for Lending Scheme. This reduced mortgage rates pretty quickly by around 1% and according to the Bank of England the effect built up to a maximum of 2%. You may not be surprised to learn that after a 6 month response time lag UK house prices began to turn as monthly net mortgage lending became less negative and then positive.

Help To Buy

The UK government had a slower reaction function as it was not until April 2013 that Homes England started this.

Through the scheme, home buyers receive an equity loan of up to 20% (40% in London since February 2016) of the market value of an eligible new-build property, interest free for five years.

In terms of scale there is this.

The Department expects the scheme to support around
352,000 property purchases by March 2021, via loans totalling around £22 billion in cash terms.

National Audit Office

This has looked into Help To Buy and it has not held back. Let us start with what it did.

The Department’s independent evaluations of the Help to Buy: Equity Loan scheme show it has increased home ownership and housing supply.

Okay although it does make you think when you note that around 60% of recipients did not need it.

37% of buyers stated that they could not have bought without the support of the scheme. We estimate this to be around 78,000 additional sales of new-build properties
since the scheme started.

So was it to buy a home or the home you would like? But it did boost sales of new houses and thereby supply of them.

This did lead to a problem we have looked at on various occassions.

Five of the six developers in England that build most properties account for over half of all loans through the scheme. They sell a greater proportion of properties with the support of the scheme than other developers.
Between 36% and 48% of properties sold by these five were sold with the support of the scheme in 2018. The profits of all five developers have increased since the start of
the scheme.

That last sentence does some heavy-lifting does it not? The NAO shuffles uneasily away from being more specific so let me help out a bit from my article on the 22nd of October last year.

The boss of house building firm Persimmon has walked off in the middle of a BBC interview after being asked about his £75m bonus.

“I’d rather not talk about that,” Jeff Fairburn said, when asked if he had regrets about last year’s payout.

The £75m, which was reduced from £100m after a public outcry, is believed to be the largest by a listed UK firm.

I guess most people in the shoes of Mr. Fairburn would have been uncomfortable with the questions posed. This is because as I noted back then there are large arrows pointing at the cause.

We have looked before at how it helped them to make high profits on the sale of each house and it also boosted volumes in a double whammy effect. So it turned into help for housebuilders profits and bonuses.

So what on its own was welcome which was the rise in housing supply boosted a small number of builders or an oligopoly. How would economic theory expect an oligopoly to respond? By making excess profits, so for once economics 101 has worked which we fo not see that often. What it did not expect was the way in the modern era that this would feed into managerial and executive bonuses. In economic theory the excess profits go to shareholders and whilst as you can see below it did these days we see a fair bit siphoned off by the managerial class.

In particular we find ourselves looking at a bonus scheme set at £4 compared to a payout based on one of £24 in case you wonder how we got to such an eye watering amount.

If we look at the long-term chart for some perspective we see that there was a previous peak of around £13 in 2006 when the pre credit crunch housing boom was pumping it up. Whereas this time around it peaked over £27.

Taxpayer Risk

This was something shuffled down the list. After all what can go wrong investing in UK property? That was the impression given which of course ignores the early 1990s. But the UK taxpayer was taking on an equity risk and getting the grand sum of 0% per annum in return.

Factoring in the estimated rate of redemptions, the net amount loaned is forecast to peak at around £25 billion in 2023 in cash terms.

As to the cost of this that has varied a fair bit but back when the scheme started we were paying around 1% per annum more on the ten-year Gilt than the present 0.83%. So there has been a running cost of providing the money. Also there is this.

The Department expects to recover its investment in the medium term and make a positive return overall, although it recognises the investment is exposed to significant market risk.

Indeed the choice of 2048 seems to be an example of kicking something into the long grass.

Homes England expects total redemptions to equal the amount loaned by 2031-32, and to have made a positive
return on investment by the time all loans are repaid by 2048.

So it is punting the housing market. What could possibly go wrong?

Recent housing market data indicate that house
price growth is slowing down, and that there has been a recent fall in prices in some regions, notably London.


The NAO has covered many of the issues here but there is another one that it skirts. Let me illustrate by giving you the official number for the average house price when Help To Buy began in April 2013 which was £170.335, and the one this March which was £226,798. So quite a rise which has not been driven by real wages as they have ebbed and flowed. So the irony of the Help To Buy era is that it has seen house prices become even more unaffordable meaning that it was this version of Help.

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 Beatles )

It was not the only driver of the rise because as I pointed out earlier the Bank of England opened the credit taps with the Funding for Lending Scheme cutting mortgage rates. The combination of what was called “credit easing” by the then Chancellor George Osborne ended the couple of years of house price stagnation and replaced it with over 5 years of rises. Or even more “Help” is now required at the higher prices.

Of course it benefited existing homeowners who got higher values for their homes but at the expense of future buyers. Also the credit crunch era began with proclamations that we will not allow high loan to property value ratios which then became it is okay for the taxpayer to take the risk. That risk also helps “The Precious” which gets some protection in any downturn from the UK taxpayer.

If a home is repossessed, the mortgage lender gets their money back first because they are the first charge on the property; the equity loan is the second charge.

Me on The Investing Channel






The perils of Persimmon and how easy monetary policy helped create excess profits

One of the main themes of my work is that  the monetary easing by central banks has boosted asset prices, but the catch is that for example rises in house prices are inflation for the first-time buyer as well as those trading up. So the theme that it is all wealth effects is untrue. But we find that the effort to pump up house prices has also involved governments and in the UK much of this has been focused on the Help To Buy scheme. There are two main problems with this of which the opening one is simply that if you give people “help” in this form it is only brief because house prices rise to the new amount that can be afforded rather quickly. This creates windfall gains for existing home owners and the companies that build the houses. It is the latter we will focus on as there is a candidate in number one position for earning what in my days as a student were called “excess profits”. So one bit of economics 101 exists even if it is only good news for the shareholders and managers of in this instance Persimmon Homes.


From Reuters earlier.

Britain’s Persimmon Plc, which is under scrutiny from the government for its practices under the “Help to Buy” scheme, on Tuesday named interim Chief Executive Officer Dave Jenkinson to the role on a permanent basis.

The company, whose former CEO Jeff Fairburn stepped down last year amid backlash surrounding his bonus package, reported a 13 percent rise in full-year pretax profit to 1.09 billion pounds ($1.43 billion)

So profits are now over a billion pounds and we can remind ourselves that at Persimmon profits were at an excess level on an individual basis as we go back to the 22nd of October last year.

The boss of house building firm Persimmon has walked off in the middle of a BBC interview after being asked about his £75m bonus.

“I’d rather not talk about that,” Jeff Fairburn said, when asked if he had regrets about last year’s payout.

The £75m, which was reduced from £100m after a public outcry, is believed to be the largest by a listed UK firm.

In this instance we can spell excess profits with one word, greed. Returning to the company itself I explained back then how the excess profits were built up.

But the real problem is that Help To Buy provided what is called in economic theory excess profits for housebuilders. We have looked before at how it helped them to make high profits on the sale of each house and it also boosted volumes in a double whammy effect.

This morning we have been provided with some numbers to that effect. From the BBC.

Almost half the homes it built (7,970 out of 16,449) sold through the Help-to-Buy scheme Average selling price of all its homes: £215,563…….Mike Amey, managing director of global investment management firm Pimco, told the BBC that profit per household at Persimmon had trebled since Help To Buy was introduced.

I think he means per house built but we get the idea. So we see that Help To Buy has allowed Persimmon to build more houses at treble the previous profit. This has led to this.

The Persimmon money machine rolls on, profits past the £1bn mark and £2.2bn returned to shareholders in the past seven years, with the promise of more – much more – to come. ( BBC)

When Help To Buy started back in April 2013 the share price was around £9 as opposed to the current £24 and of course as noted above money has also been returned to shareholders. I guess that avoids the rise in the share price becoming even higher. As the current market capitalisation is £7.6 billion according to Investing.com the extra dividends have been both significant and material.

Shoddy Work

This is a section my late father would be more than happy for me to emphasise. His work as a plastering subcontractor saw him work on one estate which was built so badly it was easier in the end to knock it all down. Another was where the architect was proud of his inward sloping balconies and ignored warnings of the dangers, well until it rained anyway. So let me note that the excess profits have not been accompanied by high quality work.

Persimmon has been dogged by complaints about poor build quality among Help to Buy customers – with satisfaction rates remaining below its 4-star target of 80%. ( SkyNews )

Reuters have suggested the housing minister James Brokenshire is now on the case.

However the company – along with some others in the sector – has attracted criticism for practices such as selling houses with rising leasehold charges which make them hard or impossible to sell on, and for poor quality workmanship.

“Leasehold, build quality, their leadership seemingly not getting they’re accountable to their customers, are all points that have been raised by (the minister) privately,” the source said, echoing a report in The Times newspaper.

The issue with leasehold charges is a national disgrace. The issues concerning leasehold and freehold ownership were supposed to have been settled years and indeed decades ago. Yet the scandal goes on and nothing has been done about it.


The environment remains extremely favourable for the likes of Persimmon and it continues to receive a bit more than a helping hand from the Help To Buy scheme. This is because whilst we have seen some house price falls these are mostly around central London where prices are too high for Help To Buy anyway. We are left to observe a scheme that has enriched one group of people the shareholders and massively enriched the managers and directors. It is not as if the quality of the work has been high and in fact the reverse seems to be the case.

There is a clear issue in the way that these things have been allowed to persist as we all make mistakes but even if we give the government a free pass on the first year or two we cannot give it a free pass on the way it has allowed this to persist. I do hope that government ministers will not in the future be joining housebuilders boards of directors.

If we move to monetary policy there may be further relief for house builders if the evidence of Sir David Ramsden to Parliament earlier is any guide.

I agree with the MPC’s collective view
that the monetary policy response to Brexit, whatever form it takes, will not be automatic and could
be in either direction.

Also Governor Mark Carney points out this.

Although the principles guiding the MPC’s choice of threshold still hold, the creation of the
Term Funding Scheme had reduced the effective lower bound on Bank Rate from ½% to 0%.

Also the Governor has got himself into something of a mess with this statement.

The MPC now views that the level from which Bank Rate can be cut materially is now
around 1½%.

So the cut from 0.5% to 0.25% was not “material”? Odd because I recall him claiming that it has saved around 250,000 jobs……


The UK looks on course for some house price falls

As ever there is plenty of news about the UK housing market around but let us start with a consequence of government action which led to this reported by the BBC at the end of last week.

The boss of house building firm Persimmon has walked off in the middle of a BBC interview after being asked about his £75m bonus.

“I’d rather not talk about that,” Jeff Fairburn said, when asked if he had regrets about last year’s payout.

The £75m, which was reduced from £100m after a public outcry, is believed to be the largest by a listed UK firm.

The BBC even provides a pretty good explanation of why this is a hot topic.

A combination of rising house prices, low interest rates enabling people to borrow more cheaply and government incentive schemes have been credited with driving all housebuilder shares higher.

In particular we find ourselves looking at a bonus scheme set at £4 compared to a payout based on one of £24 in case you wonder how we got to such an eye watering amount. But the real problem is that Help To Buy provided what is called in economic theory excess profits for housebuilders. We have looked before at how it helped them to make high profits on the sale of each house and it also boosted volumes in a double whammy effect. So in turned into help for housebuilders profits and bonuses. Sadly it also showed the weakness of shareholders these days as only 48.5% of Persimmon shareholders voted against this at their annual general meeting, which begs the question of what would be enough greed to provoke a shareholder revolt.

What about now?

Here is the result of the latest Markit Household Finances survey.

UK households are generally projecting higher
house prices over the forthcoming 12 months in
October, but the degree of optimism regarding
property values dipped to the lowest since the
immediate aftermath of the EU referendum in July

Sadly for Markit recorded time seems to have started in July  2016 because if we look back we see some interesting developments. For example the reading in early 2014 at around 75 was the highest in that series. This means that those surveyed not only realised the UK economy was picking up but seemingly had figured out the determination of the Bank of England and UK government to drive house prices higher.

Also another piece of news hints at a change. From Financial Reporter.

The proportion of homes in England and Wales bought with cash fell to 29.6% in H1 2018, according to Hamptons International, the lowest figure since its records began in 2007.

In H1 2007, 33.6% of homes were purchased with cash, peaking in H2 2008 at 37.8%.

In H1 2018, 113,490 homes were cash purchases, totalling £25.3 billion in value according to Land Registry – the lowest level in five years and a drop of 21% compared to H1 2017.

You may not be heartbroken at the main reason why.

Hamptons International says the downward trend in the proportion of homes bought with cash reflects a drop off in investor and developer purchases. Countrywide data shows that in H1 2018 investors accounted for 24% of cash purchases, down from 32% in H1 2007 and a peak of 43% in H1 2008.

The same goes for developers who purchased just 2% of the homes bought with cash in H1 2018, down from 6% in H1 2007.

What about the house price indices?

The official data released last Wednesday told us this.

Average house prices in the UK have increased by 3.2% in the year to August 2018 (down from 3.4% in July 2018), remaining broadly stable at a national level since April 2018 .

So a welcome slowing from the period where annual growth remained about 5%. But the truth is that a lot of the change is represented by one place.

 The lowest annual growth was in London, where prices decreased by 0.2% over the year, down from being unchanged (0.0%) in the year to July 2018.

London has affected the area around it to some extent as well but much of the rest of the country has carried on regardless.

A somewhat different picture was provided on Friday by LSL Acadata.

At the end of September, annual house price growth stood at 0.9%, which is the lowest rate seen since April 2012, some
six and a half years ago.

They take the Land Registry data of which 35% is available now and have a model to project that as if 100% was in. They then update the numbers as for example around 80% should now be in for August. So taking what should be, model permitting, the latest data shows a much clearer turn in the market and they expect more.

Our latest outlook for the 2018 housing market suggests that the annual rate of house price growth will be in negative territory by the end of the year.

One reason for that is simply the trend is your friend.

This was the sixth month out of the last seven in which monthly rates have fallen, with the combined decline since February totalling some -2.0%. The average house price in England & Wales now stands at £302,626. This price is already some £2,240, or 0.7%, below the level of £304,866 seen last December, meaning that it will take a number of months of house price increases to make up this shortfall.

Also they point out that this has taken place in spite of the economic environment still being very house price friendly.

All this comes at a time when interest rates are at almost historic lows, mortgage supply is good, the number of people in work is higher than a year earlier, and average weekly earnings have increased by 2.4%, on a year-on-year basis. The housing market should be booming.

They would be even more bullish if they realised wage growth was 2.7% rather than 2.4%. There is also an element of “reality was once a friend of mine” below as we wonder what it would take for them to notice that this has been happening for some time?

While current initiatives (Help-to-Buy and Stamp
Duty relief) have relatively minimal overall effect on prices, as government continues to ratchet up the initiatives, the
risk is that these in turn could simply add to the affordability problem by causing prices to rise

This has particularly affected younger people which they do seem to have noted.

highlighted the falls in home ownership amongst 25-34-year-olds over the last 20 years, despite endless government initiatives to rectify the situation. As the report notes “Since 1997, the average property price in England has risen by 173% after adjusting for inflation, and by 253% in London. This compares with increases in real incomes of 25- to 34-year-olds of only 19% and in (real) rents of 38%.”

Some night think that raising prices some 173% above inflation was quite enough to cause an affordability problem!


UK house prices have proved to be very resilient and I mean that in the commonly used version of its meaning, not the central banking one. I thought that the real wage decline in 2017 would send annual growth negative but so far it has resisted that. However the LSL data set suggests it may finally be quite near.

As ever the danger is of the UK establishment panicking just like they did in 2012/3 and pumping it up, one more time. Or as LSL Acadata put it.

Announcements on Help-to-Buy, Starter Homes and possibly a Rent-to-Own programme based around giving CGT relief to landlords have all been mooted.

Personally I think we have had way too many announcements and initiatives which via windfalls to existing house owners and especially house builders have made the situation worse rather than better. For now the Bank of England at least seems stymied but of course this is the one area where they can be both inventive and innovative.




State financing of deposits would simply push UK house prices even higher

Yesterday saw a development we have been expecting for a while now. After all the weaker outlook for UK house prices with London seeing house price falls and the country as a whole seeing slower house prices growth was always going to unsettle an establishment that wants them higher. The trouble is of course that after all the credit easing from the Bank of England and the “Help” from the government there was a shortage of extra things which could be done. Well on Sunday the Housing Finance Institute and Radian shouted “Hold my beer”

The paper is instead calling for more of the £44 billion housing budget to be prioritised in favour of helping young people get on the housing ladder and in delivering a larger, more flexible social rented sector.

Okay how? The emphasis is mine.

The Government should significantly extend home ownership support schemes at the end of the current Help-To-Buy programme in 2021. There are a range of different schemes that could be implemented from providing direct deposits, to tax breaks, to mortgage  finance guarantees. These should be fully considered by the national housing delivery commission and set out in the national housing delivery plan.

That is a pretty comprehensive list of the sort even the Bank of Japan might be proud of. So more “Help” with the unwritten implication that it will in fact be permanent under such a policy operation. Also the return of tax breaks which we spent quite some years removing ( as they were a distortion on the market) followed by mortgage finance guarantees. It is only a short step from the latter to getting your mortgage from a state bank although of course the Bank of England would much prefer even more aid being funnelled to the “precious” banking sector. Indeed the banks would be delighted to see this.

A direct loan by government of up to 10%
per property could double the number of
people that can be helped.

Of course there was an ersatz version of this in the run-up to the credit crunch as banks used personal loans and the like as a way of funding deposits. Of course that was not supposed to happen and this new plan would take us into a new era of 100% mortgages. The next issue comes from wondering how would this be repaid? On this road we discover a can of worms or two. Again the emphasis is mine.

A home deposit loan could be recovered through the tax
system from deductions and could allow a
difference between repayment trigger dates
and amounts for higher and lower paid
salaries, and/or deferring final repayment
to the sale of the property.

The initial suggestion looks alone the lines of the student loan system which is not entirely reassuring as we note that many such loans may never be repaid. If we now look at the highlighted suggestion then the can is potentially being kicked a long way into the future. This offers security on the asset but of course unless house prices rise yet again will leave the individual(s) concerned yet again lacking funds for house purchase unless they move somewhere smaller. Then again the plan is simply to kick the can into the future and hope for the best.


In essence this report has been driven by this.

Over the period from 2002 over 2.5 million
extra private rented households were
formed; more than the total number
of all extra households in that period.

This is the flip-side in the boom in the buy-to let sector as the houses bought will come onto the market to be rented out. Whilst I am no fan of the buy-to-let boom I am also sure that many and maybe much of the private-rented sector provides decent homes so I think we have a fair degree of overkill here. No doubt some are poor quality but the social sector is not perfect either and the boundaries can be blurred lines as the Grenfell fire disaster showed.

Anything else?

Well just in case converting deposits from savings to loan finance is not enough there is also this.

A housing allowance tax scheme
could be introduced where young home
owners’ mortgage interest can be deducted
from tax.

We used to have something like that called MIRAS ( Mortgage Interest Relief At Source ) which was scrapped some years back. The only difference is that the tax relief is for younger buyers and some of you may be pleased to note that at one part of the document 44 seems to be regarded as an age threshold!


If we step back for a moment and imagine a situation where the policies suggested above are implemented then the first consequence would be higher house prices. This of course would start the bandwagon rolling again as the new higher house prices would be even more unaffordable and thus the cry would yet again go up for more “Help”

My independence seems to vanish in the haze
(But) but every now and then (now and then) I feel so insecure (I know that I)
I know that I just need you like I never done before ( The Beatles)

It is a bit like putting your I-Pod or MP3 player on repeat and listening to the same old song again and again on this particular road to nowhere. These higher house prices will be on the back of the ones driven higher by the previous “Help (To Buy)” and the 0.5% Bank Rate and credit easing of the Bank of England.

On this particular road we then find that a new group needs help as if we change the rules to help millennials then it will be the post millennials who will face an even bigger problem at which point there may be nothing left apart from the government buying the house for them.

The house price move could be very quick. It would not be as fast as exchange rate movements ( for newer readers we have seen those predate expected moves by ~6 months) but if history is any guide will see house prices adjust by the change so say 10% within a year or two. At which point there is a windfall for those who sell their property paid for by new buyers and increasingly financed by the state. Unless you sell the property or raise more finance it is only a paper windfall so only small numbers have a real gain. The catch is that collectively we are back where we started as the younger house buyers face higher prices and will increasingly report that they are unaffordable yet again. That issue is driven by the gap between the house price rises and the official data on real wages as we try to do more with less.

average total pay (including bonuses) for employees in Great Britain was £489 per week before tax and other deductions from pay, £33 lower than the pre-downturn peak of £522 per week recorded for February 2008

Meanwhile I note that we have seen today the numbers for unsecured credit including student loans released this morning. The annual growth rate including them was 11.3% in the year to March whereas it was 8.6% without them. Any thoughts as to why they are usually left out?


The problems of UK house building and prices are a result of government policy

This morning has brought news from the UK government on an area which is regularly reported as being in crisis ( housing supply) which brings us to a related area which has been in recession since the early part of last year ( construction). From the BBC.

Construction firms that have been slow to build new homes could be refused planning permission in future under a shake-up to be unveiled by Theresa May.

The PM will tell developers to “step up and do their bit”, warning that sitting on land as its value rises is not on at a time of chronic housing need.

There are various issues here as a fair bit of this is vague such a “slow to build” and doing your bit may be far from sufficient incentive to house builders who in some cases have been doing rather well.

Bonuses in the construction sector have been under the spotlight since Persimmon announced last year that 140 staff would share a bonus pool of £500m and that its chief executive was in line for a pay-out of £110m, a figure that has since been reduced by £25m following an outcry among investors

As an aside if £110 million is so wrong I find it fascinating that £85 million is apparently okay! Still at least something was done. As to the concept of housing need the Joseph Rowntree Foundation has crunched some numbers.

Independent analysis shows that an average of 78,000 additional affordable homes (a mix of low-cost rent and shared ownership) are required in England each year between 2011 and 2031. This level of supply is required to meet newly-arising need and demand.


Delivery has been falling short. On average 47,520 additional affordable homes have been provided in England each year since 2011, leading to a cumulative shortfall of 182,880 homes over the last six years. A step change is needed to boost supply of affordable homes by at least 30,000 more a year.

That seems a lot lower than what we are usually told which reminds us that such numbers are open to more than a little doubt and speculation. This poses a problem for a government increasingly heading down the central planning road.

Let me add another issue which is that a factor often ignored is that it matters where you build the houses as well as how many. This often seems to be ignored as for example once you think like that an arrow points at London and the South East. But you cannot just build anything as the current travails only a mile or two away from me at Nine Elms are proving.

The economic depression

There are quite a few problems for economics 101 in the current situation. Firstly you might think that higher house prices would quite quickly generate more supply but it would not appear so. Also the housing industry was supposed to respond to monetary policy and as we find ourselves after a cut and a rise back at the emergency Bank Rate of 0.5% there is much to mull and that is before we factor in the £435 billion of Bank of England QE.

Yet house building responded little to this as if we set 2015 as 100 we get some interesting numbers. The pre credit crunch peak was 2006 and 2007 which were both in the 95s. The scale of the initial hit is shown by the fact that 2009 was 55.4 showing a big hit and then crucially very little recovery as the number oscillated around 70 for the next three years. Along the way many smaller building firms went to the wall as our supply capacity fell and I wonder if that was a much larger factor than often realised. It is hard not to wonder if some support for smaller house builders might have protected us from the need for much larger support measures later. This meant that this sector clearly had an economic depression.

The official response

This provides quite a lot of food for thought for the central planners in Downing Street and Threadneedle Street because in response to the numbers above we saw a two-pronged strategy. In the summer of 2012 the Bank of England deployed the Funding for Lending Scheme which reduced mortgage rates quite quickly by around 1% ( and later by up to 2% according to its research) and made sure the banks had plenty of cash to lend. Then in March 2013 the Guardian reported on this.

In his budget speech, George Osbornelaunched Help to Buy…………This £3.5bn scheme will run for three years from 1 April and help up to 74,000 buyers, as well as providing a boost to the construction sector, said the Treasury.

This saw the UK establishment put the pedal to the metal in this area but the most recommended reply was already on this case.

Another tax-payer funded scheme to prop up house prices. Has it never crossed Osborne’s mind that if people are not able to afford a house on the basis of prudent lending criteria, house prices might be too high and should come down? ( ReaderCmt ).

There was a clear side effect to this as the tweet below highlights.

As you can see the clear effect here was on profits for house builders which surged and financed the payment of extraordinary bonuses for those at the top. This leaves us wondering if the house builders were happy counting their cash and in no great rush to expand supply as they were doing nicely anyway. How much of the effort simply went straight to the bonuses we looked at above?

House Prices

We know that these measures boosted house prices as according to the official series the price of the average house rose from £167,682 in February of 2013 to £226,756 last December. This provided its own problem however because real wages have in fact failed to recover to pre credit crunch peaks so houses became much more expensive relative to them. Yes the wheels of affordability were oiled by ever lower mortgage rates but at these prices demand for house purchase was always likely to dip which puts a brake on supply.

It is however nice to see the Joseph Rowntree Foundation implictly agreeing with my argument that house prices should be in the main measure of inflation.

Real income growth among the bottom fifth of the population in recent years is mostly wiped out once housing costs are considered, with consequences for the living standards of those on low incomes.


If we look at recent years we see that economic policy in the UK was based on the housing market. It was a type of credit easing and the consequences were higher house prices with large and what can only be called excess profits for the main house builders. No doubt some economic activity was generated but those looking to get a foothold in the market have been hit by high inflation when real wages have fallen. On that basis this is pretty much breathtaking.  The quotes below are from the BBC.

Young people without family wealth are “right to be angry” at not being able to buy a home, Theresa May has said.

Announcing reforms to planning rules, the PM said home ownership was largely unaffordable to those without the support of “the bank of mum and dad”.

This disparity was entrenching social inequality and “exacerbating divisions between generations”, she said.

It is of course true but it is a clear consequence of the policies pursued by what is now her government but before one in which she was Home Secretary. It came on top of house price friendly policies from preceding governments also.  Anyway the speech shows a complete lack of grasp of how the private-sector operates.

Mrs May criticised bonuses which are “based not on the number of homes they build but on their profits or share price”.

Another way of writing the quotes below would say you can only afford the new higher prices if someone who has already benefited helps you.

“The result is a vicious circle from which most people can only escape with help from the bank of mum and dad.

“If you’re not lucky enough to have such support, the door to home ownership is all too often locked and barred.”

That in essence the problem in the central planning approach as the initial problem is the apparent failure to grasp not only reality but their own role in the problem. I fear more central planning is unlikely to help as so far what has been called help has in fact mostly hindered.

Perhaps the biggest irony of all is that house building had responded in 2017 as according to the official numbers it was 20% higher than in 2015.



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.