Today has opened with a flurry of news on the UK housing market. So let us start with the latest from the Halifax Building Society.
House prices kicked off the year with a modest monthly increase, rising by 0.4% in January following the
stronger gains of 1.8% and 1.2% seen in December and November respectively. As a result, annual growth
remained relatively stable at 4.1%, up just a fraction from the end of 2019.
If we stay with the annual growth number we see that it has been falling last year as the 2.8% of March was replaced with the 0.9% of October. However it then picked up driven by the latest three months.
In the latest quarter (November to January) house prices were 2.3% higher than in the preceding
three months (August to October)
Those of you who follow this situation will see the irony here as the Halifax made some methodological improvements to its series because it was producing an annual number of 4-5% when the other house price indicators were much lower. Now it finds it is back at a similar number! However whilst it is again the highest some of the others have shown a similar pattern this time around.
A concerning part from my point of view is that such house price growth is above wage growth and we are losing ground at a rate of around 1% per annum here, after a period of gains, which now seem all too short.
The Halifax has a go at being upbeat.
A number of important market indicators continue to show signs of improvement. We have seen a pick-up
in transactions with more buyer and seller activity consistent with a reduction in uncertainty in the UK
economy. However, it’s too early to say if a corner has been turned.
Although they worry that it may just be a function of a Boris or if you prefer Brexit Bounce.
The recent positive figures may actually represent activity that would ordinarily have been expected to take place last year, but was delayed by economic uncertainty. So while housing market activity has undoubtedly increased over recent months, the extent to which this persists will be driven by housing policy, the wider political environment
and trends in the economy.
I see they perhaps continue to hold out hope for an interest-rate cut from the Bank of England.
The environment for mortgage affordability should
stay largely favourable.
Although there may be some self praise here because if we go to Moneyfacts we see this.
Halifax also continued to top the five year fixed chart this week, offering a rate of 1.46% (3.2% APRC) fixed until 31 May 2025, reverting to 4.24% variable thereafter.
You need 40% equity for this and there is a fee of £995 so it particularly benefits larger mortgages. The best 5-year fix for first time buyers ( 5% equity ) is 2.75% from Barclays and has no fee.
There is an interesting swerve at the end of the Halifax piece.
However with the growth in rental costs accelerating, many first-time buyers will continue to face a significant challenge in raising necessary deposits.
Somebody needs to tell the UK Office for National Statistics who have picked up nothing of the sort.
Private rental prices paid by tenants in the UK rose by 1.4% in the 12 months to December 2019, unchanged since November 2019.
I have written before about concerns that it is of the order of 1% per annum too low and thus is another reason to ignore the lead indicator called CPIH. That has not deterred the Chair of the UK Statistics Authority David Norgrove who wants to replace house prices in the RPI with imputed rents in spite of this from the Economic Affairs Committee of the House of Lords.
We are not convinced by the use of rental equivalence in CPIH to impute owner-occupier housing costs.
Still if he gets this through I guess he will be in the House of Lords himself!
According to the Financial Times the government has a new plan.
Developers would have to fund the construction of more discounted homes for first-time buyers at the expense of other forms of new-build social housing under plans floated by the government on Friday. Robert Jenrick, the housing secretary, will announce a consultation on a new programme called “First Homes” today under which first-time buyers will be able to purchase new-build properties at a discount of £100,000 on average. Military veterans and key workers such as nurses, police officers and firefighters will get priority access to the scheme.
Huey Lewis and the News sang about something like this.
I want a new drug, one that won’t spill
One that don’t cost too much
Or come in a pill
I want a new drug, one that won’t go away
One that won’t keep me up all night
One that won’t make me sleep all day
One that won’t make me nervous
Wonderin’ what to do
It is hard not to laugh at the next bit, after all what could go wrong?
The proposed scheme would lock the discount in for perpetuity. The government said this would require the owner to get a valuation from a surveyor and sell the property at 70 per cent of that figure to another first-time buyer.
I can just see some surveyors being more popular than others. Indeed other parts of this seem rather magical.
Mr Jenrick said that the initiative would mean people could buy new homes with a lower deposit and mortgage without having to move to cheaper areas.
It is a bit like the adverts for the travel company Trivago where someone has paid £150 for a hotel room whereas the rather delightful woman from Trivago has paid £100. Except in the advert they show the original customer as being unhappy with this. I can see the equivalent happening here. Other travel companies are available.
“I know that many who are seeking to buy their own home in their local areas have been forced out due to rising prices,” he said. “A proportion of new homes will be made available at a 30 per cent market discount rate, turning the dial on the dream of home ownership.”
This area is, however, ridden with what we might call slips between cut and lip.
The National Audit Office report ‘Investigation into Starter Homes’ released in November 2019, found that — despite the Conservatives’ promise to build 200,000 starter homes for first-time buyers in 2015 — not a single starter home had yet been built.
We see a situation a bit like an old fashioned railway signal box where the signaller keeps pulling another lever. We started with interest-rate cuts, then QE, then the Funding for Lending Scheme, Help To Buy,Term Funding Scheme and now this. They have reduced the price then raised the quantity of money around and these days seem to have moved onto in effect giving out “free money”. Will it be too long before some are gifted houses?
In some ways this reply to the FT article sums it up.
How does transferring wealth to a random set of a few individuals solve the housing crisis? ( MarkCats)
Also that each move makes the position even worse overall.
The average Help to Buy first-time buyer price has risen 50% since 2013 (outside of London). As usual Government introduces a policy, and then introduces another to counter the effects of the former.
But the plan to remove house prices from the one UK inflation measure that includes them is a clear hint at the long-term establishment plan. Inflate them and then claim it as wealth effects because with wage growth struggling rents especially using the flawed official measure will likely miss it.