The weekend brought some familiar economic news from the UK which has had a familiar effect.
UK homebuilders (Persimmon, Taylor Wimpey, Barratt) at top of FTSE 100 today +5% ahead of #UKBudget and reports of a new mortgage grtee scheme ( @CNBCJou )
The Financial Times took a slightly different tack and left us wondering if it was long property in Chiswick?
The average property price in London’s Chiswick passed £1m last year – An amalgamation of four ancient villages by the Thames, Chiswick is an affluent suburb whose Victorian and Edwardian houses attract those looking for green spaces and a laid-back feel:
Although in Twitter things were not going so well as the only reply so far was “Time to move out!” Oh well.
If we switch to the BBC then there is a distinct feeling of Deja Vu.
A mortgage guarantee scheme to help people with small deposits get on the property ladder is set to be announced at next week’s Budget.
The government will offer incentives to lenders, bringing back 95% mortgages which have “virtually disappeared” during the pandemic, the Treasury says.
There is a curiosity here because they “virtually disappeared” for a couple of reasons. One of them was the rhetoric of politicians after the credit crunch when they assured us that low deposit mortgages would not be allowed to happen again. Also remember this?
The BoE’s Financial Policy Committee said that from October, it would only allow 15 percent of new mortgages to be at multiples higher than 4.5 times a borrower’s income, and that all lending would be subject to extra affordability checks. ( Reuters )
I recall a period a few years ago when there were plenty on social media trumpeting the way that such macroprudential policies could be used to control the housing market. In some cases victory was apparently at the tops of their fingers. Whereas the reality is that with house prices increasing at an annual rate of 8.5% they are doing this.
The coronavirus pandemic has meant there are now few low-deposit mortgages available, the Treasury said, with just eight on the market in January.
They are often seen as riskier by banks as they are more vulnerable to negative changes in property prices – meaning people hold more debt than their home is worth.
Under the scheme, which will launch across the UK in April, the government will offer to take on some of this risk. ( BBC)
So the way we will reduce risk is by taking it ourselves! It is hard not to laugh as the very concept of what was trumpeted as a new policy for house price control is shown to be a sham. The Financial Policy Committee was a PR exercise which simply increases the control of the state as it can hand out more sinecures. Just to rub it in some will claim it is independent. Maybe they are hoping for a job.
If we now move onto this morning’s release one might reasonably wonder why the market needs more support?
The mortgage market remained relatively strong in January. Individuals borrowed an additional £5.2 billion secured on their homes, compared to the monthly average of £4.0 billion in the six months to February 2020.
Elsewhere in the release it is called “robust” and in contrast to a recent trend mortgage rates dipped too.
The effective interest rates on newly drawn mortgages fell 5 basis points to 1.85%. That is in line with the rate in January 2020, and compares with a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages fell to 2.09%, a new series low.
If we look further up the chain things appear to be in rude health.
The strength in mortgage borrowing follows a large number of approvals for house purchase. In January, the number of these approvals – an indicator for future lending – was 99,000. While this was a little lower than in December (102,800) it was well above the monthly average in the six months to February 2020 (67,900). Approvals for remortgage (which only capture remortgaging with a different lender) fell slightly to 32,400.
Also there is this floating in the air.
Over the last few months, there has been a growing pressure on the Government to extend the stamp duty holiday and some have even called for the tax to be abolished altogether. ( MoneyFacts)
This was also going to be an issue as it is always much easier to give money away than it is to take it away or stop it. The economic concept here is under the label of Pareto efficiency and estimates are that a “taking away or withdrawal” needs to be about thee times as good as a “give away” . However you look at it there is a lot of pressure to create another cliff edge which is pure can kicking. Putting it another way a clear sign of addiction is fear of withdrawal symptoms.
The release also gives us an insight into savings.
Households’ flows into deposit-like accounts remained strong in January. The net flow of deposits remained strong at £18.5 billion, compared to the monthly average of £4.8 billion in the six months to February 2020.
I will look at the money supply issues later but the point here is that in the UK flows of money have quite a tendency to end up in the housing market.
If the mortgage market is on fire then this area is as cold as ice.
Households’ consumer credit weakened in January with net repayments of £2.4 billion. This compares to an average net repayment of £1.0 billion between September and December 2020 (Chart 1), and was the largest net repayment since May 2020. The decline reflects less new borrowing. As a result, the annual growth rate fell further to -8.9%, a new series low since it began in 1994.
Care is needed as it is an erratic series but on a monthly basis the fall has accelerated here.
In essence it is credit card borrowing which has taken a dive.
Within consumer credit, the weakness on the month primarily reflected net repayments on credit cards (£2.2 billion) with some repayments of other forms of consumer credit (£0.2 billion).
It is expensive.
The cost of credit card borrowing rose by 27 basis points to 18.03% in January.
Some years ago The Whispers summed up the view of the UK establishment regarding house prices.
And the beat goes on
Just like my love everlasting
And the beat goes on
Still moving strong on and on
It seems that even in the recovery phase we need more 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? ( Beatles)
The trouble is that we always need more help in a type of everlasting circle and the reason for that is usually the previous burst of “help”. Although to be fair to The Whispers they had been doing a lot more thinking than central bankers.
Do you ever wonder
That to win, somebody’s got to lose
Let me now link this back to the money supply figures.
Sterling money (known as M4ex) increased by £30.6 billion in January, up from £12.2 billion in December. PNFCs’ holdings of money (on a seasonally adjusted basis) increased by £13.3 billion, up from £1.5 billion in December whilst households’ holdings remained strong with net flow of £18.5 billion.
As I regularly point out this is quite a surge at an annual growth rate which has risen again to 15%. But my purpose today is from another perspective which is that cash in the UK system ( even from some businesses) tends to flow into the housing market and there is a lot of cash about.
In the round it was summed up by Britney.
It’s getting late to give you up
I took a sip from my devil’s cup
Slowly, it’s taking over me
Too high, can’t come down
It’s in the air and it’s all around
Can you feel me now?
With a taste of your lips, I’m on a ride
You’re toxic, I’m slippin’ under