We can continue with an element of yesterday’s theme except we can spin it around because you see whichever research student at the Bank of England is presenting the morning meeting will have heaved a sigh of relief when they saw this on the wires.
Annual house price growth accelerated to 11.2% in January, the strongest pace since June last year, and the strongest start to the year for 17 years. Prices rose by 0.8% month-on-month, after taking account of seasonal effects, the sixth consecutive monthly increase.
As they speak they will be anticipating a satisfied smile from Governor Andrew Bailey as he thinks of all the wealth effects from this. Plus how he can explain that all the monetary easing has oiled the wheels of what has been quite a house price boom.
Housing demand has remained robust. Mortgage approvals for house purchase have continued to run slightly above pre-pandemic levels, despite the surge in activity in 2021 as a result of the stamp duty holiday, which encouraged buyers to bring forward their transactions to avoid additional tax.
Indeed, the total number of property transactions in 2021 was the highest since 2007 and around 25% higher than in 2019, before the pandemic struck.
At the same time, the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued robust pace of house price growth.
The problem is that for all the central banking cheerleading this is inflation for those trying to buy a house or flat and there has been a lot of it.
For example, a 10% deposit on a typical first-time buyer home is now equivalent to 56% of total gross annual earnings, a record high. Similarly, a typical mortgage payment as a share of take-home pay is now above the long run average, despite mortgage rates remaining close to all-time lows.
There is an interesting hint at the end their that the Bank Rate rise has not impacted mortgage rates much which will also please Governor Bailey. But the theme is that things are getting even more unaffordable both in terms of deposits and also monthly mortgage payments. Looking at UK bond yields ( the 5 year is 1.12% as I type this) then it seems likely that a rise in fixed-rate mortgages has only been delayed and is on its way. So more pressure will arrive here as 2022 progresses.
There was a hint of the move from this morning’s Bank of England release although it only brings us to the end of December.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages rose 8 basis point to 1.58% in December. The rate on the outstanding stock of mortgages ticked down 2 basis point to a new series low of 2.00%.
The ship is turning but takes its time in terms of affecting the rate on the outstanding stock.
December Numbers
The situation here seemed to have been unaffected by the mid-month Bank Rate rise.
Net borrowing of mortgage debt by individuals decreased slightly to £3.6 billion in December, from £3.8 billion in November. This is below the pre-pandemic average of £4.2 billion in the 12 months up to February 2020. Gross lending fell to £21.7 billion in December, from £22.4 billion in November. Gross repayments fell to £18.1 billion from £19.4 billion in November
So maybe a slight decline but approvals on the other hand were stronger.
Approvals for house purchases, an indicator of future borrowing, increased slightly to 71,000 in December, above the 12-month average up to February 2020 of 66,700.
As there have been so many opportunities to remortgage cheaply in recent times I am not surprised by this. Maybe a few dived in ahead of the Bank of England interest-rate rise.
Approvals for remortgaging (which only capture remortgaging with a different lender) rose slightly to 44,900 in December. This remains low compared to the 12-month average up to February 2020 of 49,500, but is the highest since February 2020 (52,500).
Consumer Credit
This used to be called unsecured credit as we see an example of using language to alter how something looks rather than reality. Returning to the Bank of England morning meeting there will have been another smile from Governor Bailey at this.
Individuals borrowed £0.8 billion in consumer credit in December, on net. This was split between £0.4 billion of additional borrowing on credit cards, and £0.4 billion in borrowing in other forms of consumer credit (such as car dealership finance and personal loans).
So there was some growth and there does seem to have been growth in car finance as dealers have been reporting this and it must have come from the second-hand car sector. This means that the annual comparisons are a little more positive.
The annual growth rate for all consumer credit increased to 1.4% in December from 0.8% in November. The annual growth rates of credit cards and other forms of consumer credit were 2.0% and 1.1% respectively.
Those thinking of the Bank Rate rise may well have been surprised by this.
The effective interest rate on interest-charging overdrafts in December fell 41 basis points to 20.53% after reaching a series high in November. Rates on new personal loans to individuals fell by 16 basis points, to 6.27% in December, 76 basis points below the January 2020 level.
But having noted in past blogs the expansion of the Term Funding Scheme towards its end it looks as though it is appearing in the numbers where it usually pops up.
The Savings Rise Seems To Be Over
Pandemic economic policy ( furlough schemes plus all the monetary easing) led to some surges in savings but that looks to now be over.
The combined net flow into both deposits and NS&I accounts in December (£3.2 billion) compares to an average monthly net flow of £10.6 billion in the twelve months to November 2021. The combined December net flow was lower than pre-pandemic flows; in the year to February 2020, the average net flow was £5.5 billion.
For those of you who believe that banks are tardy in raising interest-rates here is another example for you.
The effective interest rate paid on individuals’ new time deposits with banks and building societies and outstanding stock of time deposits were broadly unchanged at 0.36% and 0.33% respectively. The effective rates on stock sight deposits remained at a series low of 0.09%.
Money Supply
The push for growth ended in December.
Sterling money (known as M4ex) was unchanged in December, compared to a £14.1 billion increase in November.
That is convenient for the new tack of the Bank of England although these numbers are erratic so the precision is likely to be a fluke. But broad money growth is now 6.4% in annual terms so perhaps a brake has been applied which will help as time passes with the inflation issue.
Comment
Let me continue with the theme as the Bank of England which will start with a party and maybe even some cake via its house journal.
UK homeowners notched up more than £800bn in additional value to their properties last year on a combined basis, taking the total worth of housing stock to a record £8.4tn, according to new analysis.
Strong demand from buyers amid the coronavirus pandemic and government stimulus meant average prices rose more than 10 per cent in 2021, estate agency Savills estimated.
The problem is the hangover as we now reverse course. Presumably the Bank of England will raise interest-rates again this week and the drip-drip ( Bank Rate will ony be 0.4%) on mortgage rates should burst the bubble. Especially if we add in the rises in the cost of living and National Insurance. I am already wondering how long it can hold its nerve and so far it has only acted once?!
The cost of living issue has been reinforced by the higher house prices and even by rents where private-sector companies suggest much higher rises than officially reported. It is going to be quite a 2022 I think. So let me give you an example of how life changes from a former employer of mine as I do not recall anything like this.