Are UK house prices rising again?

Today we get to look at the money supply and credit situation in the UK  But before we get there yesterday brought news to warm a central banker’s heart. From Zoopla.

The annual rate of growth edged up to 2.7% in June, after rising 0.2% on the month. Price growth is highly localised, but there is little evidence of material declines at regional or city levels, although a small proportion of local areas are seeing price declines of up to -0.2%.

If the Bank of England had any bells they would be ringing right now with Governor Bailey stroking a cat whilst smiling. As to why? We are told this.

Buyer demand has risen strongly since housing markets reopened, as shown on the purple bar in the chart below. Although the number of new homes being listed for sale has also risen, it hasn’t increased by the same margin. This creates an imbalance of low supply and high demand – and contributes to house price growth.

So simply more buyers than sellers then. To be specific the purple bar in their chart shows a 25.3% imbalance.

This imbalance is most stark in cities in the North of England, including Manchester, Liverpool and Sheffield, and it is notable that these are in the top six cities for levels of annual house price growth.

I note a mention of Gloucestershire seeing a mini boom. The 20 cities sampled show the nearest ( Bristol) being one of the weaker areas albeit having more demand than 2019 unlike Belfast and Edinburgh. Interestingly London looks quite strong and is fifth on the list. Another house price rally in London would be a turn up for the books and here is Zoopla’s explanation.

The biggest change in the market spurred by the Chancellor’s announcement of a stamp duty holiday for England and Northern Ireland has been seen in London. Sales jumped by 27% in the weeks after the change. Given the higher average house prices in London and the South East, these are where the largest benefits from the stamp duty holiday will be felt. The stamp duty holiday will continue to support demand in these higher value markets.

Have they managed to bail it out again? Well it would appear that they intend to keep trying. From the Financial Reporter.

The Government is reportedly drawing up plans to extend the Help to Buy scheme due to Covid-19 delays.

According to the FT, ministers have been asked to extend the Scheme beyond its planned December deadline to support buyers whose purchases have been delayed by the pandemic.

The scheme is due to end in April 2021 and a new version of the scheme will run from April 2021 to March 2023, for first-time buyers only. If the original scheme ends when planned, sales transactions will need to be agreed by December 2020.

Help to Buy seems to be covered by The Eagles in Hotel California.

“Relax”, said the night man
“We are programmed to receive
You can check out any time you like
But you can never leave”

There is another route funded by the Bank of England and Nicola Duke or @NicTrades has kindly highlighted it.

I got my first mortgage in 1997 and the 2 yr fixed rate was 7.7% Today I got a fixed rate at 1.13% Amazing………..2yrs – the 5 yr is 1.3 and 10yr 1.44

As the band Middle of the Road put it.

Ooh wee chirpy chirpy cheep cheep
Chirpy chirpy cheep cheep chirp

Mortgages

This morning’s Bank of England release would also have cheered Governor Andrew Bailey.

On net, households borrowed an additional £1.9 billion secured on their homes. This was higher than the £1.3 billion in May but weak compared to an average of £4.1 billion in the six months to February 2020. The increase on the month reflected both more new borrowing by households, and lower repayments. Gross new borrowing was £15.8 billion in June, below the pre-Covid February level of £23.4 billion.

Since the introduction of the Funding for Lending Scheme in the summer of 2012 they have been targeting net mortgage lending in my opinion. This time around they have kept is positive and as you can see it appears to be rising again. It is much less than earlier this year but after the credit crunch we saw negative net lending for some time. Even when the FLS was introduce it took until 2013 for there to be a return to positive net mortgage lending.

Approvals still look weak.

The number of mortgages approved also increased in June. The number of mortgage approvals for house purchase increased strongly, to 40,000, up from 9,300 in May. Nevertheless, approvals were 46% below the February level of 73,700 (Chart 3). Approvals for remortgage (which capture remortgaging with a different lender) have also increased, to 36,900; but they remain 30% lower than in February.

At these levels remortgage if you can is my suggestion, although not advice as that has a specific meaning in law.

Consumer Credit

The Governor will be chipper about these numbers as well and presenting them at the monthly morning meeting will not have been potentially career ending unlike the last few.

Household’s consumer credit borrowing recovered a little in June, following three particularly weak months (Chart 2). But it remains significantly weaker than pre-Covid. On net, people repaid £86 million of consumer credit in June following repayments totalling £15.6 billion over the previous three months. The small net repayment contrasts with an average of £1.1 billion of additional borrowing per month in the 18 months to February 2020. The weakness in consumer credit net flows in recent months meant that the annual growth rate was -3.6%, the weakest since the series began in 1994.

We have discovered ( via large revisions) that these numbers are not accurate to £86 million so substantial repayments have been replaced by flatlining and the junior at the meeting would do well to emphasise this.

The smaller net repayment compared to May reflected an increase in gross borrowing. Gross borrowing was £17.7 billion, up from £13.6 billion in May, but this was still below the average £25.5 billion a month in the six months to February 2020. Repayments on consumer borrowing were broadly stable in June, at £18.1 billion, below their pre-Covid February level of £24.6 billion.

So gross borrowing is picking up.

As a point of note it is the credit card sector which really felt the squeeze.

Within total consumer credit, on net there was a further small repayment of credit card debt (£248 million) and a small amount of additional other borrowing (£162 million). The annual growth rate for both credit cards and other borrowing fell back a little further, to -11.6% and 0.2% respectively.

Maybe it is because in a world of official ZIRP (a Bank Rate of 0.1%) the reality is this.

The cost of credit card borrowing fell from 18.36% in May to 17.94% in June, also the lowest rate since the series began in 2016.

By the way if we switch to the quoted series the overdraft rate is 31,53%. Mentioning that at the Bank of England will be career ending as it was an enquiry at the FCA ( boss one Andrew Bailey) that was so poor it drove them higher as opposed to lower.

Comment

Can the UK housing market leap Lazarus style from its grave one more time? Well the UK establishment are doing everything that they can to prop it up. Meanwhile the business lending that the policies are supposed to boost is doing this.

Overall, PNFCs borrowed an additional £0.4 billion of loans in June. Strong borrowing by small and medium sized businesses (SMEs) was offset by repayment by large businesses.

The borrowing by smaller businesses would ordinarily be really good except we know a lot of it will be out of desperation and of course as the bit I have highlighted shows is nothing to do with the Bank of England.

Small and medium sized businesses continued borrowing a significant amount from banks. In June, they drew down an extra £10.2 billion in loans, on net, as gross borrowing remained strong. This was weaker than in May (£18.0 billion), but very strong compared to the past. Before May, the largest amount of net borrowing by SMEs was £0.6 billion, in September 2016. The strong flow in June meant that the annual growth rate rose further, to 17.4%, the strongest on record (Chart 5). This strength is likely to reflect businesses drawing down loans arranged through government-supported schemes such as the Bounce Back Loan Scheme.

This bit is really curious.

Large non-financial businesses, in contrast, repaid a significant amount of loans in June. The net repayment, of £16.7 billion, was the largest since the series began in 2011 and followed a net repayment of £13.0 billion in May.

So we see a complex picture in an economy which is now awash with cash. If we switch to the money supply then it ( M4 or Broad Money) has risen by 11.9% over the past year. Of this around £174 billion has come in the last four months.

Me on The Investing Channel

Negative Interest-Rates cannot stop negative household credit growth in the UK

This morning has opened with something which feels like it is becoming a regular feature. This is the advent of negative bond yields in the UK as we become one of those countries where many said it could not happen here and well I am sure you have guessed it! The two-year bond or Gilt yield is -0.07% and the five-year is -0.03%. As well as the general significance there are particular ones. For example I use the five-year bond yield as a signal for the direction of travel for mortgage rates especially fixed-rate ones. If we look at Moneyfacts we see this.

Lloyds Bank had the lowest rate in the five year remortgage chart for those looking for a 60% LTV. Its deal offers 1.35% (2.8% APRC) fixed until 31 August 2025, which then reverts to 3.59% variable. It charges £999 in product fees and comes with the incentives of free valuation, no legal fees and £200 cashback.

A 1.35% mortgage rate for five-years is extraordinarily low for the UK and reminds me I was assured they would not go below 2%. I am sure some of you are more expert than me in deciding whether what is effectively a £799 fee is good value for free legal fees and valuation?
If we switch to the two-year yield it is particularly significant as it is an implicit effect of all the Bank of England bond or Gilt buying because it does not buy bonds which have less than three years to go. So it is a knock-on effect rather than a direct result.

QE

The total of conventional QE undertaken by the Bank of England is £616.3 billion as of the end of last week. The rate of purchases was £13.5 billion which is relevant for the May money supply numbers we will be looking at today. Looking ahead to June there has been a reduction in weekly purchases to £6.9 billion so a near halving. So as you can see there has been quite a push provided to the money supply figures. It is now slower but would previously have been considered strong itself.

Also the buying of corporate bonds which now is just below £16 billion has added to the money supply and I have something to add to this element.

NEW: The Fed has posted the 794 companies whose bonds it began purchasing earlier this month as part of its “broad market index” Six companies were 10% of the index: Toyota, Volkswagen, Daimler, AT&T, Apple and Verizon  ( @NickTimiraos )

You may recall that the Bank of England is also buying Apple corporate bonds and I pointed out it will be competing with the US Federal Reserve to support what is on some counts the richest company in the world. Make of that what you will……

Engage Reverse Gear

This morning we have been updated on how much the UK plans to borrow.

To facilitate the government’s financing needs in the period until the end of August 2020, the UK Debt Management Office (DMO) is announcing that it is planning to raise a
minimum of £275 billion overall in the period April to August 2020.

Each sale reduces the money supply and I can recall a time when this was explicit policy and it was called Overfunding. Right now it would be a sub category of QT or Quantitative Tightening, should that ever happen.

Money Supply

We see that in a similar pattern to what we noted in the Euro area on Friday there is plenty being produced.

The amount of additional money deposited in banks and building societies by private sector companies and households rose strongly again in May (Chart 1). These additional sterling deposit ‘flows’ by households, private non-financial businesses (PNFCs) and financial businesses (NIOFCs), known as M4ex, rose by £52.0 billion in May. This followed large increases in March and April, of £67.3 billion and £37.8 billion respectively. The increase was driven by households and PNFCs, and continued to be strong relative to recent history: in the six months to February 2020, the average monthly increase was £9.3 billion.

The use of PNFCs is to try to take out the impact of money flows within the financial sector. Returning to the numbers we are seeing the consequences of the interest-rate cuts and the flip side ( the bonds are bought with newly produced money/liquidity) of the Bank of England QE I looked at earlier.

Last time around I pointed out we had seen 5% growth in short order and the pedal has continued to be pressed to the metal with a growth rate of 6.7% over the past three months. Or monthly growth rates which are higher than the annual one in May last year. All this has produced an annual growth rate of 11.3%.

Household Credit

This cratered again or to be more specific consumer credit.

Households repaid more loans from banks than they took out. A £4.6 billion net repayment of consumer credit more than offset a small increase in mortgage borrowing. Approvals for mortgages for house purchase fell further in May to 9,300.

I would not want to be the official at the Bank of England morning meeting who presented those numbers to the Governor. A period in a cake trolley free basement awaits. Indeed they may be grateful it does not have any salt mines when they got to this bit.

The extremely weak net flows of consumer credit meant that the annual growth rate was -3.0%, the weakest since the series began in 1994. Within this, the annual growth rate of credit card lending was negative for the third month running, falling to -10.7%, compared with 3.5% in February. Growth in other loans and advances remained positive, at 0.7%. But this was also weak relative to the recent past: in February, the growth rate was 6.8%.

Regular readers will recall when the Bank of England called an annual growth rate of 8.2% “weak” so I guess they will be echoing Ariane Grande.

I have no words

It seems like the air of desperation has impacted the banks too.

Effective rates on new personal loans to individuals fell 34 basis points to 5.10% in May. This was the lowest since the series began in 2016, and compares to a rate of around 7% at the start of 2020.

Mortgages

A small flicker.

On net, households borrowed an additional £1.2 billion secured on their homes. This was slightly higher than the £0.0 billion in April but weak compared to an average of £4.1 billion in the six months to February 2020. The increase on the month reflected more new borrowing by households, rather than lower repayments.

Looking ahead the picture was even worse.

The number of mortgage approvals for house purchase fell to a new series low in May, of 9,300 (Chart 5). This was, almost 90% below the February level (Chart 5) and around a third of their trough during the financial crisis in 2008.

We wait to see if the advent of lower mortgage rates and the re-opening of the economy will help here.

Comment

I am sure that many reading about the UK money supply surge will be singing along with The Beatles.

You never give me your money
You only give me your funny paper
And in the middle of negotiations
You break down

Some will go further.

Out of college, money spent
See no future, pay no rent
All the money’s gone, nowhere to go
Any jobber got the sack
Monday morning, turning back
Yellow lorry slow, nowhere to go

Do I spot a QE reference?

But oh, that magic feeling, nowhere to go
Oh, that magic feeling
Nowhere to go, nowhere to go

There will have been some sunshine at the Bank of England morning meeting.

Small and medium sized businesses drew down an extra £18.2 billion in loans from banks, on net, as their new borrowing increased sharply. Before May, the largest amount of net borrowing by SMEs was £589 million, in September 2016. The strong flow in May led to a sharp increase in the annual growth rate, to 11.8%.

Of course it was nothing to do with them but that seldom bothers a central bankers these days. This next bit might need hiding in the smallest print they can find though.

Podcast

 

Where next for UK house prices?

This week has opened in what by recent standards is a relatively calm fashion. Well unless you are involved in the crude oil market as prices have taken another dive. That does link to the chaos in the airline industry where Easyjet has just grounded all its fleet. Although that is partly symbolic as the lack of aircraft noise over South West London in the morning now gives a clear handle on how many were probably flying anyway. So let us take a dip in the Bank of England’s favourite swimming pool which is UK house prices.

Bank of England

It has acted in emergency fashion twice this month and the state of play is as shown below.

Over recent weeks, the MPC has reduced Bank Rate by 65 basis points, from 0.75% to 0.1%, and introduced a Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME). It has also announced an increase in the stock of asset purchases, financed by the issuance of central bank reserves, by £200 billion to a total of £645 billion.

If we look for potential effects then the opening salvo of an interest-rate cut has much less impact than it used to as whilst there are of course variable-rate mortgages out there the new mortgage market has been dominated by fixed-rates for a while now. The next item the TFSME is more significant as both its fore-runners did lead to lower mortgage-rates. Also the original TFS and its predecessor the Funding for Lending Scheme or FLS lead to more money being made available to the mortgage market. This helped net UK mortgage lending to go from being negative to being of the order of £4 billion a month in recent times. The details are below.

When interest rates are low, it is likely to be difficult for some banks and building societies to reduce deposit rates much further, which in turn could limit their ability to cut their lending rates.  In order to mitigate these pressures and maximise the effectiveness of monetary policy, the TFSME will, over the next 12 months, offer four-year funding of at least 10% of participants’ stock of real economy lending at interest rates at, or very close to, Bank Rate. Additional funding will be available for banks that increase lending, especially to small and medium-sized enterprises (SMEs).

We have seen this sort of hype about lending to smaller businesses before so let me give you this morning;s numbers.

In net terms, UK businesses borrowed no extra funds from banks in February, and the annual growth rate of bank lending to UK businesses remained at 0.8%. Within this, the growth rate of borrowing from SMEs picked up to 0.7%, whilst borrowing from large businesses remained at 0.9%.

It is quite unusual for it to be that good and has often been in the other direction.

In theory the extra bond purchases (QE) should boost the market although it is not that simple because if the original ones had worked as intended we would not have seen the FLS in the summer of 2012.

Today’s Data

It is hard not to have a wry smile at this.

Mortgage approvals for house purchase (an indicator for future lending) had continued to rise in February, reaching 73,500 . This took the series to its highest since January 2014, significantly stronger than in recent years. Approvals for remortgage also rose on the month to 53,400. Net mortgage borrowing by households – which lags approvals – was £4.0 billion in February, close to the £4.1 billion average seen over the past six months. The annual growth rate for mortgage borrowing picked up to 3.5%.

As you can see the previous measures to boost smaller business lending have had far more effect on mortgage approvals and lending. Also there is another perspective as we note the market apparently picking up into where we are now.

In terms of mortgage rates in February the Bank of England told us this.

Effective rates on new secured loans to individuals decreased 4bps to 1.81%.

So mortgages were getting slightly cheaper and the effective rate for the whole stock is now 2.36%.

The Banks

There is a two-way swing here. Help was offered in terms of a three-month payment holiday which buys time for those unable to pay although in the end they will still have to pay but for new loans we have quite a different situation. From The Guardian on Thursday.

Halifax, the UK’s biggest mortgage lender, has withdrawn the majority of the mortgages it sells through brokers, including all first-time buyer loans, citing a lack of “processing resource”.

In a message sent to mortgage brokers this morning, Halifax said it would no longer offer any mortgages with a “loan-to-value” (LTV) of more than 60%. In other words, only buyers able to put down a 40% deposit will qualify for a loan.

Other lenders have followed and as Mortgage Strategy points out below there are other issues for them and prospective buyers.

Mortgage lenders are in talks with ministers over putting the housing market in lockdown and transactions on hold, according to reports.

Lenders have been withdrawing products and restricting loan-to-values as they are unable to get valuers to do face-to-face inspections.

Property transactions are failing because some home owners in the chain are in isolation and unable to move house or complete on purchases.

Removals firms have been advised by their trade body not to operate, leaving movers in limbo.

So in fact even if the banks were keen to lend there are plenty of issues with the practicalities.

Comment

The next issue for the market is that frankly a lot of people are now short of this.

Money talks, mmm-hmm-hmm, money talks
Dirty cash I want you, dirty cash I need you, woh-oh
Money talks, money talks
Dirty cash I want you, dirty cash I need you, woh-oh ( The Adventures of Stevie V )

I have been contacted by various people over the past few days with different stories but a common theme which is that previously viable and successful businesses are either over or in a lot of trouble. They will hardly be buying. Even more so are those who rent a property as I have been told about rent reductions too if the tenant has been reliable just to keep a stream of income. Now this is personal experience and to some extent anecdote but it paints a picture I think. Those doing well making medical equipment for example are unlikely to have any time to themselves let alone think about property.

Thus we are looking at a deep freeze.

Ice ice baby
Ice ice baby
All right stop ( Vanilla Ice)

Whereas for house prices I can only see this for now.

Oh, baby
I, I, I, I’m fallin’
I, I, I, I’m fallin’
Fall

Podcast

What policy action can we expect from the Bank of England?

As to world faces up to the economic effects of the Corona Virus pandemic there is a lot to think about for the Bank of England. Yesterday it put out an emergency statement in an attempt to calm markets and today it will already have noted that other central banks have pulled the interest-rate trigger.

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.50 per cent. The Board took this decision to support the economy as it responds to the global coronavirus outbreak. ( Reserve Bank of Australia).

There are various perspectives on this of which the first is that it has been quite some time since the official interest-rate that has been lower than in the UK. Next comes the fact that the RBA has been cutting interest-rates on something of a tear as there were 3 others last year. As we see so often, the attempt at a pause or delay did not last long, and we end up with yet another record low for interest-rates. Indeed the monetary policy pedal is being pressed ever closer to the metal.

Long-term government bond yields have fallen to record lows in many countries, including Australia. The Australian dollar has also depreciated further recently and is at its lowest level for many years.

Also in the queue was a neighbour of Australia.

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) by 25 basis points to 2.50 percent. The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.75 percent and 2.25 percent, respectively.

So there were two interest-rate cuts overnight meaning that there have now been 744 in the credit crunch era and I have to add so far as we could see more later today. The problem of course is that in the current situation the words of Newt in the film Aliens come to mind.

It wont make any difference

It seems that those two central banks were unwilling to wait for the G7 statement later and frankly looking at it I can see why.

– G7 Now Drafting Statement On Coronavirus Response For Finance Leaders To Issue Tuesday Or Wednesday – Statement As Of Now Does Not Include Specific Language Calling For Fresh Fiscal Spending Or Coordinated Interest Rate Cuts By Central Banks – RTRS Citing G7 Source ( @LiveSquawk )

The truth is G7 are no doubt flying a cut to see how little they can get away with as monetary ammunition is low and fiscal policy takes quite some time to work. A point many seem to have forgotten in the melee.

The UK Economy

The irony of the present situation is that the UK economy was recovering before this phase.

Manufacturing output increased at the fastest pace since
April 2019, as growth strengthened in both the consumer
and intermediate goods sectors. In contrast, the downturn
at investment goods producers continued. The main factor
underlying output growth was improved intakes of new
work. Business optimism also strengthened, hitting a nine month high, reflecting planned new investment, product
launches, improved market conditions and a more settled
political outlook. ( IHS Markit )

This morning that was added to by this.

UK construction companies signalled a return to business
activity growth during February, following a nine-month
period of declining workloads. The latest survey also pointed to the sharpest rise in new orders since December 2015. Anecdotal evidence mainly linked the recovery to a postelection improvement in business confidence and pent-up demand for new projects. ( IHS Markit)

If there is a catch it is that we have seen the Markit PMI methodology hit trouble recently in the German manufacturing sector so the importance of these numbers needs to be downgraded again.

Monetary Conditions

As you can see the situation looks strong here too as this from the Bank of England yesterday shows.

Mortgage approvals for house purchase rose to 70,900, the highest since February 2016.

The annual growth rate of consumer credit remained at 6.1% in January, stabilising after the downward trend seen over past three years.

UK businesses made net repayments of £0.4 billion of finance in January, driven by net repayments of loans.

Please make note of that as I will return to it later. Now let us take a look starting with the central banking priority.

Mortgage approvals for house purchase (an indicator for future lending) rose to 70,900 in January, 4.4% higher than in December, and the highest since February 2016. This takes the series above the very narrow range seen over past few years.

Actual net mortgage lending at £4 billion is a lagging indicator so the Bank of England will be expecting this to pick up especially if we note current conditions. This is because the five-year Gilt yield has fallen to 0.3%. Now conditions are volatile right now but if it stays down here we can expect even lower mortgage rates providing yet another boost for the housing market.

Next we move to the fastest growing area of the economy.

The annual growth rate of consumer credit (credit used by consumers to buy goods and services) remained at 6.1% in January. The growth rate has been around this level since May 2019, having fallen steadily from a peak of 10.9% in late 2016.

As you can see the slowing has stopped and been replaced by this.

These growth rates represent a £1.2 billion flow of consumer credit in January, in line with the £1.1 billion average seen since July 2018.

Broad money growth has been picking up too since later last spring and is now at 4.3%.

Total money holdings in January rose by £9.4 billion, primarily driven by a £4.2 billion increase in NIOFC’s money holding.

The amount of money held by households rose by £2.8 billion in January, compared to £3.3 billion in December. The amount of money held by PNFCs also rose by £2.3 billion.

Comment

The numbers above link with this new plan from the ECB.

Measures being considered by the ECB include a targeted longer-term refinancing operation directed at small and medium-sized firms, which could be hardest hit by a virus-related downturn, sources familiar with the discussion told Reuters. ( City-AM)

You see when the Bank of England did this back in 2012 with the Funding for Lending Scheme it boosted mortgage lending and house prices. Where business lending did this.

UK businesses repaid £4.1 billion of bank loans in January. This predominantly reflected higher repayments. These weaker flows resulted in a fall in the annual growth rate of bank lending to 0.8%, the weakest since July 2018. Within this, the growth rate of borrowing from large businesses and SMEs fell to 0.9% and 0.5% respectively.

I think that over 7 years is enough time to judge a policy and we can see that like elsewhere ( Japan) such schemes end up boosting the housing market.

It also true that the Bank of England has a Governor Mark Carney with a fortnight left. But he has been speaking in Parliament today.

BANK OF ENGLAND’S CARNEY SAYS SHOULD EXPECT A RESPONSE THAT HAS A MIX OF FISCAL AND CENTRAL BANK ELEMENTS

BANK OF ENGLAND’S CARNEY SAYS EXPECT POWERFUL AND TIMELY GLOBAL ECONOMIC RESPONSE TO CORONAVIRUS ( @PrispusIQ)

That sounds like a lot of hot air which of course is an irony as he moves onto the climate change issue. I would imagine that he cannot wait to get away and leave his successor to face the problems created by him and his central planning cohorts and colleagues.

His successor is no doubt hoping to reward those who appointed him with an interest-rate cut just like in Yes Prime Minister.

 

 

UK house price growth continues to slow

Yesterday we looked at a house price bubble which is still being inflated whereas today we have a chance to look at one where much of the air has been taken out of the ball. Can a market return to some sort of stability or will it be a slower version of the rise and fall in one football match demonstrated by Maradona last night? Here is the view from the Nationwide Building Society.

Annual house price growth fell to its slowest pace for five
years in June. However, at 2% this was only modestly below the 2.4% recorded the previous month.

As you can see the air continues to seep out of the ball as we see another measure decline to around 2% reaching one of out thresholds on here. Or to put it another way finally house price growth is below wage growth. Of course that means that there is a long way to go to regain the lost ground but at least we are no longer losing it.

The Nationwide at first suggests it is expecting more of the same.

Indeed, annual house price growth has been confined to a
fairly narrow range of c2-3% over the past 12 months,
suggesting little change in the balance between demand and supply in the market over that period.
“There are few signs of an imminent change. Surveyors
continue to report subdued levels of new buyer enquiries,
while the supply of properties on the market remains more of a trickle than a torrent.

Although I note that later 1% is the new 2%

Overall, we continue to expect house prices to rise by
around 1% over the course of 2018.

Every measure of house prices has its strengths and weaknesses and the Nationwide one is limited to its customers and tends to have a bias towards the south but it is reasonably timely. Also there is always the issue of how you calculate an average price which varies considerably so really the best we can hope for is that the methodology is consistent. According to the Nationwide it was £215,444 in June.

The Land Registry is much more complete but is much further behind the times as what is put as April was probably from the turn of the year..

As of April 2018 the average house price in the UK is £226,906, and the index stands at 119.01. Property prices have risen by 1.2% compared to the previous month, and risen by 3.9% compared to the previous year.

As you can see the average price is rather different too.

Bank of England

It will be mulling this bit this morning.

Annual house price growth slows to a five-year low in June

This is because that covers the period in which its Funding for Lending Scheme ( replaced by the even more friendly Term Funding Scheme) was fully operative. When it started it reduced mortgage rates by around 1% and according to the Bank of England some mortgage rates fell by 2%. I think you can all figure out what impact that had on UK house prices!

Or to put it another way the house price falls of 2012 and early 2013 were quickly replaced by an annual rate of house price growth of 11.8% in June 2014 according to the Nationwide. So panic at the Bank of England changed to singing along with Jeff Lynne and ELO.

Sun is shinin’ in the sky
There ain’t a cloud in sight
It’s stopped rainin’ everybody’s in a play
And don’t you know
It’s a beautiful new day, hey hey

Some of them even stopped voting for more QE as it has mostly been forgotten that nearly a quorum wanted more of it as the economy was kicking through the gears.

Although some at the Bank of England will no doubt have their minds on other matters.

Simon Clarke MP said the figures had “disturbing echoes” of the MPs’ expenses scandal. “One of the most important aspects of the culture of any public institution is of course that it provides value for money to the taxpayer,” he added.

“In the last two-and-a-half years two members of the FPC, Mr Kohn and Mr Kashyap, have incurred £390,000 in travel expenses, which is simply a staggering sum.”  ( The Guardian).

Regular readers will recall I did question a similar situation regarding Kristin Forbes on the Monetary Policy Committee who commuted back and forth from the US. I do not know if she benefitted from the sort of largesse and excess demonstrated below though.

The pair are based in the US and Clarke said the £11,084.89 flight for Kashyap from Chicago to London would leave his constituents “gobsmacked”.

Kohn spent £8,000 on a flight from Washington to London and £469 on taxis as part of expenses for a single meeting.

As ever a sort of Sir Frank ( h/t Yes Prime Minister ) was brought forward to play a forward defensive stroke.

“Having seen these committees in action, and seen the contributions they’ve made, as high as their expenses have been, also staggering has been their contribution,”

I was hoping for some enlightenment as the their “staggering contribution” as I do not recall ever hearing of them. The man who thinks this also submitted this about his role as a bank CEO so I guess he might also believe in fairies and the earth being flat.

The key, I always found, was to begin the process by
considering life from the customer’s perspective and then to build products and services that responded to real needs – whilst taking utmost care to build the TCF principles into every operational step in the firm’s business model.

Oh and I have promoted Bradley Fried the chair of the Court to a knighthood although of course those of you reading this in a couple of years or so are likely to be observing his K.

Looking ahead

Yesterday’s mortgage data from UK Finance had a two-way swing. Let us start with the positive.

Estimated gross mortgage lending for the total market in May is £22.2bn, 8.8 per cent higher than a year earlier. The number of mortgage approvals by the main high street banks in May has also risen, increasing by 3 per cent compared to the same month a year earlier.

Except that the latter sentence was not so positive when broken down.

 As in April, increased approval numbers were driven by remortgaging, some 18 per cent more than a year earlier.  In contrast, approvals for house purchase were 3.8 per cent lower than the same period a year earlier.

In case you are wondering about who or what UK Finance represents it is the new name for the BBA. The title of British Bankers Association became so toxic that they decided to move on.

Comment

So the winds of change are blowing and not only at the O2 where the Scorpions played the weekend before last. The era of Bank of England policy moves to push asset price higher is over at least for now although of course the stock as opposed to the flow remains. If it stays like that we could see house prices for once grow at a similar rate to rents and wages but I doubt it because the Bank of England is a serial offender on this front.

And when the electricity
Starts to flow
The fuse that’s on my sanity
Got to blow
System addict
I never can get enough
System addict
Never can give it up ( Five Star and I mean the pop combo not Beppe Grillo)
In the shorter-term will Mark Carney fire things up again or spend his last year here thinking about his legacy and some Queen?
Because I’m easy come, easy go
A little high, little low
Anyway the wind blows, doesn’t really matter to me, to me