The UK joins France and Germany with falling production in April

Today brings us a raft of new detail on the UK economy and as it is for April we get the beginnings of some insight as to whether the UK economy picked up after the malaise of only 0.1% GDP ( Gross Domestic Product) growth in the first quarter of this year. According to Markit PMI business survey we have in the first two months of this quarter but of course surveys are one thing and official data is another.

So far, the three PMI surveys indicate that GDP looks set to rise by 0.3-0.4% in the second quarter.

As for the manufacturing sector the same set of surveys has told us this.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®
) rose to 54.4, up slightly from April’s
17-month low of 53.9, to signal growth for the
twenty-second straight month.

So we see that April can be looked at almost any way you like. Manufacturing has been in a better phase for a while now partly in response to the post EU leave vote fall in the UK Pound £. According to the survey we are still growing but April was the weakest month in this phase although some caution is required as I doubt whether a survey that can be in the wrong direction is accurate to anything like 0.5.

Of course the attention of Mark Carney and the Bank of England will be on a sector that it considers as and maybe more vital. From the Local Government Association.

Councils’ ability to replace homes sold under Right to Buy (RTB) will be all but eliminated within five years without major reform of the scheme, new analysis from the Local Government association reveals today.

The detail of the numbers is below.

The LGA said that, in the last six years, more than 60,000 homes have been sold off under the scheme at a price which is, on average, half the market rate, leaving councils with enough funding to build or buy just 14,000 new homes to replace them.

We sometimes discuss on here that the ultimate end of the house price friendly policies of the UK establishment will be to give people money to buy houses. Well in many ways Right To Buy does just that as those who have qualified buy on average at half-price. Also we see that one of the other supposed aims of the scheme which was to replace the property sold with new builds is failing. I guess we should not be surprised as pretty much every government plan for new builds fails.

Production and Manufacturing

These were poor numbers as you can see below.

In April 2018, total production was estimated to have decreased by 0.8% compared with March 2018, led by a fall of 1.4% in manufacturing and supported by falls in energy supply (2.0%), and water and waste (1.8%).

The fall in energy supply is predictable after the cold weather of March but the manufacturing drop much less so. If we review the Markit survey it was right about a decline but in predicting growth had the direction wrong. On a monthly basis the manufacturing fall was highest in metal products and machinery which both fell by more than 3% but the falls were widespread.

with 9 of the 13 sub-sectors falling;

If we step back to the quarterly data we see that it has seen better times as well.

In the three months to April 2018, the Index of Production increased by 0.3% compared with the three months to January 2018, due primarily to a rise of 3.2% in energy supply; this was supported by a rise in mining and quarrying of 4.3%………..The three-monthly fall to April 2018 in manufacturing of 0.5% is the largest fall since May 2017, due mainly to decreases in electrical equipment (9.4%), and basic metals and metal products (1.8%).

So on a quarterly basis we have some production growth but not much whereas manufacturing which was recently a star of our economy has lost its shine and declined. There has been a drop in trade which has impacted here.

The fall in manufacturing is supported by widespread weakness throughout the sector due to a reduction in the growth rate of both export and domestic turnover.

Actually for once the production and trade figures seem to be in concert.

Goods exports fell £3.1 billion, due mainly to falls in exports of machinery, pharmaceuticals and aircraft, while services exports also fell £2.5 billion in the three months to April 2018…….Falling volumes was the main reason for the declines in exports of machinery, pharmaceuticals and aircraft in the three months to April 2018 as price movements were relatively small.

That is welcome although the cause is not! But we see a signs of a slowing from the better trend which still looks good on an annual comparison.

In the three months to April 2018, the Index of Production increased by 2.3% compared with the same three months to April 2017, due mainly to a rise of 2.3% in manufacturing.

If we compare ourselves to France we see that it’s manufacturing production rose by 1.9% over the same period. However whilst we are ahead it is clear that our trajectory is worsening and we look set to be behind unless there is quite a swing in May. As to the Markit manufacturing PMI then its performance in the latest quarter has been so poor it has been in the wrong direction.

As we move on let me leave you with this as a possible factor at play in April.

 It should also be noted that survey response was comparatively high this month and notable weakness was due mainly to the cumulative impact of large businesses reporting decreased turnover.


We have already looked at the decline in good exports but in a way this was even more troubling.

 services exports also fell £2.5 billion in the three months to April 2018.

Regular readers will be aware that I have a theme that considering how important the services sector is to the UK economy we have very little detail about its impact on trade. As an example a 28 page statistical bulletin I read had only one page on services. I am reminded of this as this latest fall comes after our statisticians had upgraded the numbers as you see the numbers are mostly estimates.

So not a good April but the annual picture remains better.

The UK total trade deficit (goods and services) narrowed £6.7 billion to £30.8 billion in the 12 months to April 2018. An improvement to the trade in services balance was the main factor, as the trade surplus the UK has in services widened £9.9 billion to £108.7 billion. The trade in goods deficit worsened, widening £3.2 billion to £139.5 billion over the same period.


This was yet again a wild card if consistency can be that.

Construction output continued its recent decline in the three-month on three-month series, falling by 3.4% in April 2018; the biggest fall seen in this series since August 2012.

The consistency comes from yet another fall whereas the wild card element is that it got worse on this measure in spite of a small increase in April


There is a lot to consider here today but let us start with manufacturing where there are three factors at play. The money supply numbers have suggested a slow down and it would seem that they have been accurate. Next we have the issue that exports are weak and of course this is into a Euro area economy which is also slowing as for example industrial production fell by 0.5% in France and 1% in Germany in April on a monthly basis. Some are suggesting it is an early example of the UK being dropped out of European supply chains but I suspect it is a bit early for that.

Moving to construction we see that it is locked in the grip of an icy recession even in the spring. It seems hard to square with the 32 cranes between Battersea Dogs Home and Vauxhall but there you have it. I guess the failure of Carillion has had quite an effect and linking today’s stories we could of course build more social housing.

Looking forwards the UK seems as so often is the case heavily reliant on its services sector to do the economic heavy lifting, so fingers crossed.




The UK housing market is an example of junkie style economics

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

What is current Bank of England policy?

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

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

What about an interest-rate rise?

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

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

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

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

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

But Gertjan continued with his message.

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

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

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

A substantial interest-rate increase for a few

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

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

Government schemes

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

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


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

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

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

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

And we also have this.

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

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

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

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


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

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

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

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

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

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

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

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

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

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




UK rents are surging to all-time highs making them much higher than in Europe

Yesterday I analysed the way that yet more austerity is likely to squeeze the life out of the Greek economy one more time. Today I return to a very British problem and crisis which is the cost of housing which for many people squeezes the life out of the family budget. Of course the conventional and mainstream view is that the price of housing boosts wealth and hooray we are all richer. But of course much of the increase is in fact inflationary and it reduces the wealth and indeed financial position of those looking to buy a house. As I regularly point out “Help To Buy” for first time buyers is an opportunity to buy an overpriced house with real wages which have been falling. What could go wrong? Back on the 16th of March I pointed out (via BBC Womans Hour) that women do fear what might happen next.

I look around at the children who are 19 and 20 and I don’t know how they will ever be able to afford a mortgage?


I would prefer the housing market to halve in all honesty and let people get in on the market even though I would lose money. But I don’t see it as losing money…..


Young people won’t get a chance with landlords snapping up every available property….


However there is another factor in the situation which is to look at the implications of the current situation for those who rent rather than buy. If we look at the last quote above we are reminded of the Buy to Let boom and the fact that more people are either choosing or being forced to rent. They also are having a hard time of it as I pointed out on the 27th of March. From Your Move

Rents across England and Wales are now 15.2% higher than at the time of the last General Election in May 2010……This is faster than inflation. Over the same period since
May 2010, consumer price inflation (CPI) has amounted to
11.6%. This leaves a 3.6% increase in rents after the
effects of inflation – or the equivalent of a 0.7% real terms
increase each year over the last Parliament.

I compared that increase to an 8% increase in average wages over the same period or a 7.2% decline. So yet another form of real wage squeeze has been in process for those who rent. Or as Gwen Guthrie so aptly put it.

Cause ain’t nothin’ goin’ on but the rent
You got to have a J-O-B if you wanna be with me
Ain’t nothin’ goin’ on but the rent
You got to have a J-O-B if you wanna be with me

Friday saw more bad news for both actual and prospective renters from Your Move research.

Rents driven to new all-time record by

divergent south-eastern regions….. Residential rents up 4.5% year-on-year across England and Wales, powered by three southeast regions.

In case you are wondering how much..

As of May 2015, the average residential rent across England and Wales now stands at £778 per month.

As ever London leads with £1207 per month. But it does not lead the annual increases as the leader is the East of England at 13%. Does anybody have any detail or insight to this?

exceptional economic expansion in the Cambridge area,

A rentier society?

The Your Move report goes on to measure returns for landlords.

Total annual returns, on the other hand, have continued to cool. Across England and Wales, returns came to 9.5% in May 2015 – down from 9.8% in April and 11.8% in January.

If you compare that to a Bank Rate of 0.5% or a ten-year Gilt yield of 2% that looks hot hot hot to me rather than cool. There are of course costs (maintenance etc.) but in these times 9% + looks like nectar does it not?

An international perspective

Renters who note that rents are rising at a solid lick when you consider that we are supposed not to have any inflation will not be cheered up by the fact that they are still rising faster than wage growth. Even its recent spurt falls short. But adding to their pain is the fact that the UK is very expensive when compared to its peers as the UK Housing Federation points out.

In fact, private renters in the UK pay the highest price for housing in the entire European Union. With an average monthly rent of 902 Euros per month (the equivalent of around £730), private renters in the UK pay almost double the amount of the European average, which is 481 Euros.

If we look to compare with our peers then we are in fact still considerably more expensive.

Even when compared to other Western European countries with similar income levels, the PRS in the UK remains expensive. For example, private rents in the UK are around 50% higher than in Germany (600 Euros) or the Netherlands (625 Euros), both countries with a large share of privately rented households.

There will have been an effect here from the rise in the UK Pound £ against the Euro especially at the 1.41 it has reached this morning. However that still leaves a fair-sized gap to explain as we mull concepts such as “rip-off Britain” and the fact that our whole economy has been tilted towards the housing sector.

Existing mortgage holders have their problems too

I have written in the past about how big a deal credit rating is on an individual basis and we got a hint of this yesterday from the RBS announcements. From its chairman (h/t Investis)

Around half of all mortgage customers in the UK are still on Standard Variable Rates.

You see that is at 4% which is rather different to the headline rates for new customers.

Martin Weale

Dr.Weale has been quoted in the Financial Times today.

The FT reported that Weale, a member of the BoE’s  Monetary Policy Committee who voted for rate rises last year, believed the central bank should be ready to raise rates as soon as August.

Perhaps rather than speaking to newspapers he should actually vote for such a thing. We know he did not in June as the vote was 9-0 against. Of course Dr.Weale was voting for a Bank Rate increase up until January. Actually he now has two sequences of voting for a rise then changing his mind.


It is increasingly pointed out that the UK has strong elements of a rentier society. Today we see that rents are not only on the rise to record levels but are very high in international terms. We also know that as fewer people can afford to buy and the stock of housing for public-sector renting falls – especially under the new Right To Buy plans – then more will find themselves privately renting. They find themselves doing so just as the terms and costs move against them. How very credit crunch! We live in a world where official claims that there is no inflation clash with the fact that quite a few things are more expensive.

So renters are likely to be mulling the thoughts of Dido.

If my life is for rent and I don’t learn to buy
Well I deserve nothing more than I get
Cos nothing I have is truly mine

What will happen next to the UK housing market and house prices?

The latter stages of the UK coalition government involved various attempts to fire up the UK economy via the housing market. Or if you prefer economic plan A for the UK establishment as we wonder if plan B has ever existed! The political and media emphasis was on the Right To Buy policy but in fact the major driver was the action of the “independent” Bank of England in using its Funding for Lending Scheme to drive mortgage rates lower. This was something of a dream ticket for the Bank of England as it was able to give a further subsidy to UK banks via the provision of cheap liquidity and pump up the value of their balance sheets via house prices all in one go. Overall mortgage rates were pushed around 1% lower on average by this although as I discussed yesterday fixed rates often fell by more. Accordingly we are seeing record lows for mortgage rates as this from yesterday’s Mortgage Introducer indicates.

Offset rates have fallen to record lows with the average offset fixed rate now priced at 2.65%, over one percentage point lower than two years ago, research from Moneyfacts has revealed.

This has happened recently in areas that you might not expect because we were told that high Loan To Value mortgages were a cause of the credit crunch and were to become a thing of the past. More latterly the MMR (Mortgage Market Review) of the Bank of England was supposed to tighten things up. Let us look at what high LTV (90%+) mortgage rates have been doing.

average best-buy fixed and variable mortgage rates fell by up to 0.88% between 11 November 2014 and 30 March 2015. On a mortgage of £150,000 this would save around £1,300 a year in interest payments..

Up is the new down one more time.

Where next?

The incoming Conservative administration faces a problem which is at least partially of its own making which is that house prices are now so high and mortgage rates so low there is not much room left. An idea of the scale of UK house price rises was given by a BBC 4 documentary on Reverdy Road in Bermondsey which I watched with my mother because she grew up in Bermondsey. A whole estate of 791 properties and 20+ shops was sold in 1960 for less than a refurbished house on the road would sell for now. Extraordinary isn’t it!? I guess the word exponential was developed for situations like this.

Back to the future

We are seeing the past being raided for ideas as the Right To Buy policy of the 1980s gets revived. From the BBC.

Plans to support home ownership and extend the right-to-buy scheme  to 1.3 million social housing tenants in England feature in a new Housing Bill. Under the plans, housing association tenants will be able to buy the homes they rent at a discount.

Also we get a continuation of the Starter homes policy.

There will also be help for first-time buyers, with 200,000 starter homes made available to under-40s at a 20% discount.

The fact that both plans are for people to buy at a “discount” is as near to a confession that we will ever get that house prices are too high and unaffordable for the majority. Also these plans have the issue of whether the government can legally force housing associations to do this and whether the latter is a form of age discrimination.

The Bank of England

I discussed only yesterday the way that at least part of the economics establishment was attempting to pressurize the Bank of England into an interest-rate cut. It however has been feeling the pressure and has decided it has been working too hard. From the Financial Times.

The MPC will continue to meet 12 times a year, but this will be reduced to eight if new legislation is passed.

It is quite a strain having to meet 12 times a year apparently! Also as MPC (Monetary Policy Committee) external members are paid some £133,091 per annum (2013/14) I await the Bank of England review of productivity in this area as by my maths we have gone from £11,090 per meeting to £16,636 which also provides quite an inflationary surge! Is this how the Bank of England plans to end deflation?

Also there is another example of inflation at the Bank of England.

This Bill would formalise changes to the Bank’s top team, by legislating to put the new Deputy Governor, Minouche Shafik, on the Court and the FPC.

This inflation of roles has been quite evident in the current Governorship and it particularly applies to what you might call “Carney’s cronies”. If we consider the issue of productivity this inflationary development poses its own questions as the performance of Ms. Shafik has been poor. Let me be clear that I welcome the appointment of women to the MPC but feel it is a shame we scoured the international organisations of the world for “Carney’s cronies” rather than appointing British women.

As the Bank of England has not actually changed Bank Rate for over 6 years it is rather a moot point as to whether 12 meetings of “masterly inactivity” provide more productivity than 8 as dividing by 0 has its problems. But in theory it should do. This issue is a counterpoint to the fact that today’s confirmation of UK GDP growth being 0.3% in the first quarter of 2015 implies yet more productivity issues for the UK economy as the labour market remains strong.

Today’s mortgage numbers

There was indeed something of a pre-election push. From the British Bankers Association.

There was a significant rise in the number of mortgage approvals in April……..which we would expect to continue in the coming months. House purchase approvals were higher than last month and 3% higher than in April 2014.

Whilst the BBA and the Bank of England would deny it there has been an easing in credit conditions overall in the UK.

Unsecured borrowing is growing at its highest annual rate, of 4.9%, since autumn 2010, reflecting strong consumer confidence.

A pre-election splurge? Well there do seem to have been some elements of that if we look at the retail sales and trade figures as well.

Although the actual mortgage lending figures were not as strong, were individuals willing to plan but less willing to actually trade pre-election?

Gross mortgage borrowing in April was £10.5 billion – 13% lower than in the same month last year but 2% higher than in March.


There is much to consider about the UK housing market and its interrelation with the UK economy. It was not long after the beginning of the Bank of England FLS in July 2012 that the UK economy picked-up. Whilst it was not the only cause of it the new government and the Bank of England will be nervous about the implications of turning the tap off especially as it would appear that the UK services-sector has been having a growth hic-cup.

The service industries grew by 0.4% in Quarter 1 2015 (Figure 3), revised down 0.1 percentage points from the previous estimate, marking the ninth consecutive quarter of positive growth. This follows a 0.9% increase in Quarter 4 2014.

That is its weakest effort in this new growth spurt. The problem for the UK is that so much has already been ploughed into the housing market what can they think of next? The moves are getting increasingly expensive as this estimate of Right To Buy costs from the National Housing Federation indicates. The emphasis is theirs.

This means that across the country there are 221,000 households that are eligible for the new proposal and able to afford the mortgage. And if all of these households decide to take up the scheme, it would cost £11.6 billion.

Is that £11.6 billion a type of helicopter drop of money?Then we have the issue that what will they do in say 3/4 years time to get us ready for the next election?  I am reminded of this from Alice In Wonderland.

My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.

I am open to suggestions….

Is the true crisis in the UK housing market a rental one?

Analysis of the UK housing market often begins and ends with a consideration of house prices. There has been plenty to discuss in that area since the Bank of England pushed the start button for rises back in July 2012 with its Funding for (Mortgage) Lending Scheme which conveniently for the UK establishment provided a subsidy for the banking-sector too. Indeed the coalition government joined in with various policies under the Help To Buy banner which claimed to help first time buyers. This morning has seen another part of the UK political establishment join this particular party as Labour have announced this. From the BBC.

First-time buyers would be exempt from stamp duty when buying homes for less than £300,000 under a Labour government, Ed Miliband will say.

This concept of “helping” first time buyers has troubled me all along because we are “helping” them to buy what are in my opinion over-priced houses. What other area would regard paying too much as helping someone?Should there be a future housing bust these first time buyers will be dreadfully exposed in financial terms. One impact of such policies can be seen in the house price data where prices for first time buyers have risen even faster than for others. If we take the start date for Help To Buy as April 2013 then (mix-adjusted) house prices have risen by 16.6% since then. Accordingly “help” makes its way into my financial lexicon for these times as we wonder if first time buyers will be singing along to Lennon-McCartney.

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, help me, help me, ooh

What about rental sector then?

If we step back for a moment and consider the broad trends sweeping the UK economy then it is hard to escape the thought that it is growing. If we look at the other side of the balance sheet so to speak we see that buy-to- let lending is seeing something of a boom again. If MoneyFacts are correct then that looks likely to be encouraged by the data below.

Average buy-to-let fixed rates have fallen by up to 50 basis points over the past year, according to

Data shows the average buy-to-let two-year fixed rate has fallen from 3.94 per cent a year ago to 3.45 per cent now. Two years ago the average was 4.44 per cent.

Apparently it is not only price (via lower mortgage rates) which has improved.

Buy-to-let mortgages are experiencing a renaissance, becoming not only more widely available but cheaper, too.

Oh and ahem, UK pension reform……

With more five-year fixed rate deals charging below 5 per cent than ever before, it is little wonder that the newly emancipated pensioners are genuinely considering buy-to-let as a retirement option.

Indeed a MoneyFacts review back in March pointed out how good that last couple of years has been for this sector.

Buy-to-let lending has grown by 32 per cent in each of the last two years, rising from £15.7bn to £20.7bn between 2012 and 2013 and to £27.4bn last year.

They expect £30 billion this year and if we move back to the other side of the balance sheet here is the forecast impact.

The panel were unanimous that the private rented sector will account for one in four properties by 2020, up from 19.4 per cent now.

The mainstream media has caught onto this and this from the Guardian from Saturday reads rather like cheerleading.

Buy-to-let looks tempting as rates tumble

Should you be thinking about putting your pension savings into property?

For now I will move on except to point out a social consequence pointed out by MoneyFacts.

Whereas in the 1970s as a lower-income family you were likely to find social housing – those people now are being forced into private renting.

What about rents?

If we go back to the last election then last weeks data release from Your Move and Reeds Rains was eye-catching.

Rents across England and Wales are now 15.2% higher than at the time of the last General Election in May 2010……This is faster than inflation. Over the same period since
May 2010, consumer price inflation (CPI) has amounted to
11.6%. This leaves a 3.6% increase in rents after the
effects of inflation – or the equivalent of a 0.7% real terms
increase each year over the last Parliament.

Now we know that wages have grown more slowly than inflation in the UK since the last General Election. So the consequence is that renters have been increasingly squeezed.

If we do the number crunching then the official data for average wages tells us that they have risen by 8% over the course of this Parliament from £449 a week in May 2010 to £485 a week in February this year. So we have a familiar decline compared to official inflation of 3.6% but one of double that or 7.2% if we look at rents alone. The real wage squeeze has seen another turn of the screw for those who rent.

These trends do seem to be continuing as the official inflation measure is conveniently at 0% but on Friday we were told this about rents.

Private rental prices paid by tenants in Great Britain rose by 2.1% in the 12 months to March 2015.

Total wages in the year to February rose by 1.3% so it would appear that even the current economic boom has done little or nothing about this relationship.

Comparing the UK to the Euro area

The total numbers hide quite a bit of variation as Wales saw rises of 0.8% and London of 3.2%. For a true comparison we would need to investigate wage growth numbers we do not have but imagine this was the Euro area and the debate which would ensue…..

Existing renters and home owners

We find today that the credit crunch era has seen another exchange of wealth and indeed income. Those who rent have found themselves paying not only higher nominal rents but ones higher than inflation adjusted ones and indeed higher than wage growth. Accordingly in real terms they have seen a drain on their finances.

Whereas home owners have seen their finances boosted in two separate respects. Firstly we saw a succession of Base Rate cuts followed by further attempts to reduce mortgage rates such as £375 billion of QE (Quantitative Easing) and the FLS scheme I described above. This means that for a mortgage with a 25% deposit the typical mortgage rate according to the Bank of England has fallen from 3.05% at the last General Election to 1.56% now so nearly halved. There are caveats of course around criteria but monthly payments for many have fallen. Since the summer of 2012 the pedal was pushed too on house price rises so in general there are lower funding costs and higher house prices.

Renters must be reading that paragraph between gritted teeth because there has been both an income and a wealth transfer here.

New buyers and renters

Here there is a difference because whilst the monthly or annual cost of renting has risen relative to mortgage costs that is only one aspect. The capital aspect is much tougher for new buyers as lower real wages try to finance higher house prices. Anyway you do not need to take my word for it as otherwise our political establishment would not be promising so much “help” for first time buyers would they?!


The situation in the UK housing market achieved joke status a long time ago and is now well past that! However reviewing the period since the last General Election gives us a clear set of winners and that is the landlord or rentier sector. They have seen their costs fall as mortgage rates have dropped, they have seen their income rise as rents rise faster than both inflation and wages. They must wonder why work for a living when rents rise faster?! Also they have seen substantial rises in the value of their housing stock since the summer of 2012. No wonder it is seen as a good investment and (perhaps) we are seeing another rush into it via pension freedoms rising. The clear and present danger is that this relies on the UK establishment continuing to regard this sector as being “the precious” which of course it shares in an interrelated way with the banking-sector.

Next come home owners as a group as obviously some individuals did lose out. Lower mortgage costs for many and higher house prices since late 2012.

The losers are a clearly defined group. I have long argued that first time buyers were likely to be in this group and today I add those who rent. Of course some have rented whilst saving up to buy in something of a double-whammy. Who could save enough to merely stand still?! As these are generally younger than house owners we are observing also yet another example of the generation game taking place where the young lose out every time. They must think they live on the planet Giedi Prime from the novel Dune.In such a world it would not be a coincidence that a growing group (renters) found itself being punished economically.

As to our political class well they want to return to the 1980s (Right To Buy) or the 1970s (Rent Controls) it would appear. But as ever they appear to find themselves in a “Westminster Bubble” which has burst before it even travels the 2.6 miles to where I am typing this.

Jobs For Life

Today saw the release of the latest quarterly report on the Bank of England Asset Purchase Facility and it made me wonder if we have found a modern-day example of a job for life?