UK News
Insights from the UK and beyond
from James Saft:
Britain eats (leverages) its young
James Saft is a Reuters columnist. The opinions expressed are his own.
Four years, several failed banks and at least one global recession later, Britain has finally discovered what its young people need: 19-1 leverage.
Britain has announced a new housing initiative, the centerpiece of which is a plan to entice first-time buyers into buying newly-built properties with as little as 5 percent down.
Under the plan both builders and the government would contribute funds to partially indemnify lenders against what I am betting are the inevitable losses. Borrowers, who are almost by definition younger and less well off, will still bear all losses, but will be rewarded with the chance to take out the kind of loan which has proven time and again to be a bad idea.
This is utterly wrongheaded -- the best possible thing that can happen for first-time buyers, and arguably for most Britons, is for housing prices to fall to a level commensurate with earnings.
Why are houses in Britain so difficult to afford? Partly because of problems with supply, issues that the housing plan takes some steps, almost certainly insufficient ones, to address. And also because Britons, first out of necessity and then in the fever of greed, borrowed so much money in order to wedge themselves into what little housing was available that they drove prices up to unaffordable levels.
Again, as in Europe and the U.S., we have governments which, when confronted with problems that are fundamentally about debt, decide that piling yet more debt on top is the answer. Like the European Financial Stability Facility, which has proved utterly ineffective in supporting Italian debt, this plan too will fail, but not before many people will be tempted into taking on houses and debts they ought not to risk.
from MacroScope:
Darkening outlook for UK housing
The outlook for the UK housing market has darkened again. The usually optimistic bunch of property market watchers polled by Reuters, who have tended to predict ever-rising property prices no matter what the season or financial climate, now say the market will move sideways for the next two years.
They say that in the next few months, the small double-dip in prices that has begun will continue. Modest gains predicted less than three months ago for this year and next essentially have been wiped away.
No one should be surprised by this. It smacks of an awakening to reality more than a slight change to a few variables in the statistical model. What’s perhaps most striking about these new poll results is that economists think houses are even more overvalued now than they were in July even after a few straight months of falls.
The poll found the proportion of property market watchers who expect a double-dip in prices has swung to a three-quarters majority from about one in four minority in July. As polls go, that is a big shift in sentiment in a very short period of time. The consensus points to a 5 percent fall from here on top of the 1.4 percent fall over the last two months, but the forecast range goes as far down as 22.5 percent from here.
That tallies with anecdotal evidence. A friend who is heavily invested in London property says he's having trouble selling and says a 15-20 percent fall in the market is likely.
Transaction volumes in Britain’s property market have slowed to a trickle, mortgage approvals are low, and banks are now asking for huge deposits and making rigorous income and credit checks before lending huge sums of money.
Rents are rising again after years of stagnation because people either can’t afford to buy or are scared to buy ahead of another potential fall in prices.
please help- bought a flat as investment- now want to sell- been told that morgage companies will not give morgages on our flat to anyone as it is made from concrete, however our orgingal survery, 2yrs previous was incorrect and did not say that and we were given a morgage on incorrect details, bank wont do anything about it, and surveyors company says we can sue but still wont be able to sell.
what can we do?
Lindsey
What if it’s not the economy, stupid?
Gordon Brown is counting on a swift economic turnaround. It’s probably his Labour Party’s only hope of avoiding a humiliating electoral defeat to the Conservatives next year.
The latest news on the economy has certainly got people in Downing Street smiling. The housing market is stabilising and some commentators are even talking about Britain becoming the first major country to pull out of the recession.
Treasury forecasts of reasonable growth that were derided just two months ago suddenly don’t look so bad.
The Number 10 dream scenario is that the economy recovers strongly, Brown takes the credit and the polls turn in time for a May election.
But what happens if the economy does turn around by the end of the year and the polls don’t get any better?
If that happens, some party strategists are wondering whether that might be a good time for Brown to step down, say in January.
He could say he did what he set out to do — get Britain through the recession — and it was now time for a new face.
I have to agree with the view posted by Matthew, with regard to people in No 10 “smiling” at the latest news on the economy.
Things are being talked up by politicians, their supporters in the press and fund managers who want to make money from the recent bounce in the markets. But anyone who knows anything about the economy knows wery well that it’s all smoke and mirrors. All that has happened over the past 6 months is that the rate of decline has slowed, as it had to because nothing can fall at breakneck speed forever. But a slowing rate of decline is very far from the beginning of a recovery.
There is a long painful road ahead. We can expect a bounce in the markets next Spring, but that will be in anticipation of a change of government, not a continuation of the tired policies we already have.
The problem for Brown and his party is that they are faced with an unarguable historical fact. Labour governments ALWAYS promise money for everyone and drive the economy into the ground. Tory governments GENERALLY promise nothing but “kitchen sink economics” and get the economy up and running again. Regardless of their politics and the spin generated by the media, people know very well that the only way to recovery is to change the government.
Green shoots in the housing market?
House prices have dropped, interest rates are low and plenty of people are straining at the leash to get on the housing ladder.
Now the Nationwide Building Society says house prices have risen for the first time since October 2007.
The Nationwide cautioned about jumping to conclusions on the basis of one month’s figures but the news was enough to send the pound up against the dollar and some analysts said it was more evidence that the battered housing market may be recovering.
On the other hand mortgages have become much harder to get and rising unemployment is working against any recovery.
What do you think? Is it premature to start talking of green shoots in housing?
Incomes are not rising and getting a mortgage seems to be harder than ever. Add this to the fact that whilst house prices may have come off 20%+ (depending on which survey you use) and that 3 to 4 years ago when house prices were around 20%+ cheaper than at their peak commentators were saying then that houses were out of reach of many people.
Green shoots? Greenshoots my backside.
Web round-up: More gloom and doom on house prices
There was more gloomy news for the housing market today as property website Rightmove announced that asking prices for houses in England and Wales were 9 percent lower than a year ago. New listings meanwhile were 57 percent lower than March 2008. The average asking price actually increased by 0.9 percent between February and March this year, but Rightmove warned that this was caused by new sellers being unrealistic about how much their homes are worth.
So what can be done to revive the stagnant housing market? Citywire has one radical suggestion: make sellers pay stamp duty rather than the buyers. Every year there are calls to abolish or reform this “flawed tax”, but Citywire’s Lorna Bourke says that making this switch would be an incentive to first-time buyers and would cost the government nothing. What sellers would say about this, however, is another story.
Citywire also comments on the recent report by Numis Securities in which they said that house prices could have another 40-55 percent to fall before bottoming out. Ouch. David Smith, writing in this weekend’s The Sunday Times, dismissed this report as “unconvincing.” Smith writes that the chances of the average house price in the UK slipping to £66,000 from the current £150,000 are slim, especially as interest in the market and new buyer inquiries are rising.
The Numis report predicting the rather frightening fall in house prices has sparked a great deal of debate on the web; it is the most commented on article on thisismoney.co.uk.
Even if you did want to buy, what are your chances of securing a mortgage? Not good, according to Rupert Jones writing in the Observer. Fewer than 9,000 first-time buyers were able to take out a home loan during January and the average first-timer’s deposit was a new high of 24 percent of the value of the property. So while buyer inquiries may indeed be on the up, raising the finance to actually buy a property is becoming harder and harder.
And it could be about to get even more difficult. Telegraph.co.uk reports that home buyers could be prevented from borrowing more than three times their annual salaries under new mortgage rules to be announced by the Financial Services Authority.
All of which raises a number of important questions about you and your home. Is it a good time to sell or buy? Would you be better off renting? What sort of mortgage should you apply for? Thankfully, there are a number of great tools on the web to help you decide.
Housing market: what is your prediction?
One thing looks to be sure this year – the housing market has further to fall. Some of the gloomiest predictions are for a further 20 percent slump before a recovery may set in.
Our own Reuters poll of 37 analysts at UK banks, published today, predicts that prices are likely to drop by about 11 percent this year and that it will take until 2010 before it gets better.
How much do you think house prices will fall in 2009?
I wouldn’t be listening to the “experts”. It’s actually astounding that they were so far off the mark, compared to some of the more informed blogs out there.
As for property prices, they need to get back down to a sensible and sustainable multiple of average earnings. Someone needs to be able to buy a home, for their family to live in, for three times their salary of, say £24 000.00.
No, I didn’t say “investment”, I said “for their family to live in”, that’s what houses are for.
from The Great Debate UK:
Britain faces recession without housing ATM
James Saft is a Reuters columnist. The opinions expressed are his own.
Even in the good times, many British consumers were borrowing against their houses just to fund routine consumption, indicating a big hit to come for retail sales and for the banks who hold the loans.
With house prices falling rapidly and mortgage debt tougher to get, it is no surprise that homeowners are less able and inclined to borrow against their houses in order to spend.
That will be hitting the High Street now - analysts are expecting a 0.6 percent fall on the month in retail sales for November when data are released later this week. But a rise in unemployment next year could expose a really serious weakness in household finances, as consumers who counted on being able to extract wealth from their houses to smooth consumption in bad times find that, when bad times come, the wealth isn't there and the banks don't want to lend anyway.
Researchers at Durham University looking at survey data found that 37 percent of homeowners borrowed against their house between 2002 and 2005, typically realising about 6,000 pounds. That's a lot people borrowing a lot of money against very illiquid and now hard to realise assets.
Even more interesting is the pattern of what householders were doing with the money and what was happening to them when they decided to borrow. Over time the proportion of people borrowing to re-invest in their houses through improvements fell, while more was finding its way into day-to-day costs, according to Susan J. Smith, a professor at Durham and one of the authors of the study.
This was borne out by a high percentage of equity borrowers who had lost their jobs, become pregnant or had a child in the year they borrowed.
So while we were all releasing equity from our homes in order to pay off credit cards, pay for annual holidays etc., our employers were benefiting from the fact that we weren’t asking for pay rises, as we “felt” wealthy. Hence the gap between the rich business owners and the poor employees has grown, and no one even noticed…
Pain not over yet after Bank of England rate cut
This is a guest blog by Melanie Bien, director of independent mortgage broker Savills Private Finance. The opinions expressed are her own:
The Bank of England’s decision to cut rates by 1.5 percentage points to 3 per cent – the lowest level in 54 years – is a huge surprise and everyone was caught on the hop by this drastic reduction.
While on one level it is welcome news, particularly for those on base-rate trackers who will feel the full benefit straightaway, it is worrying on another: how bad have things got to necessitate this dramatic reduction?
The next inflation report from the Bank of England will be interesting reading. The reduction will not be an overnight solution to the problems in the mortgage market. But it will start to have a positive effect on the interbank rate – the rate banks pay to borrow money.
These rates have been much higher than base rate: three-month Libor is around 5.7 per cent, for example, explaining why new mortgage rates have been slow to fall. It is unlikely that lenders will reduce their standard variable rates (SVRs) by the full amount but with such a big rate reduction there will be pressure on them to pass on at least some of it, particularly those who passed on nothing after October’s half-point cut.
Those coming up to remortgage will be in for a shock if they think new rates will be much cheaper. A number of lenders – Lloyds TSB, Northern Rock and Woolwich – have pulled their trackers and are set to launch more expensive replacements. Abbey has already priced its trackers 50 basis points higher in anticipation of this reduction in base rate.
The problem is the FED and the Bank of England. THEY have created this mirage of assets which are really enslavement of people. Money credit bubbles are nothing new and have never fostered true wealth. True wealth is a stable money system and a creative workforce with low taxation. This is what the U.S. originally started out to be.We need to make REAL products and be able to use stable currency to trade assets.
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The Wall
I particulary like this line:
“While the Bank of England is mulling yet another round of quantitative easing, the current high rate of UK inflation should fall rapidly, and shows little sign of spreading to housing”
Read it a couple of times and understand. There will be high inflation in the UK for years.