Home—Blog—The only thing that can drive up house prices
Jan 12, 2010, 11:18
Posted byMerryn Somerset Webb
Comments (16)
How desperate are you for house prices in your area to rise? Probably not as desperate as some of the property developers and residents of Poole.
In the last six months, says the Times, Poole Borough Council has recorded at least eight attacks on mature trees supposedly protected by preservation orders. Why? Because they block the view of the sea from flats set back from the coast. And a view of the sea is worth more than a view of a tree to a house seller – often tens of thousands of pounds more.
Still, if Poole wants to see real long-term house price appreciation, it is going to have to hope for a lot more than a few dead trees. They'll have to hope for a recovery in the banking sector. Not a share price recovery, but a real recovery in the sector's balance-sheet health. And that doesn't look like it will happen at any great speed, if at all.
As Graham Turner of GFC Economics points out, there are "huge funding and capital risks yet to be resolved", while the Bank of England "is clearly concerned at the risk of a double dip exposing an undercapitalised banking system while the fiscal purse remains so stretched."
The fact is that our big banks are not much more secure than they were a few years ago – something that isn't going to be helped by them paying the bonus tax for their employees this year – and that means they aren't going to be making much in the way of no-money-down, 100% loans any time soon.
They're also clearly not planning on making house buying as cheap as much of the population would like it to be. The Bank of England has kept interest rates on hold since April 2009 (at 0.5%) but the mortgage lenders haven't been having any of it.
Instead, eight of them have increased their standard variable rates. Most now charge over 3% and many over 5% (a rate which suggests they would like their borrowers to just go away altogether).
Property markets are driven by the supply of credit and the price of credit. And right now, while things have eased since last year, that supply is tight.
Remember the peak of the bubble? Back in 2007, over £100bn worth of mortgages were issued in the UK. Last year up to November, that number was less than £10bn. The top of the market has been kept up by a large number of cash buyers and a shortage of supply, but that shouldn't last much longer.
At some point the cash buyers will have all bought, and sellers who have been holding back for fear of not getting a bubble price will capitulate, possibly in the face of the sudden realisation that the UK economy and its banks are in as much of a mess as ever. Then the odds are that prices will start falling again – regardless of the views in Poole.
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(14 January 2010, 01:46AM) Complain about this comment
So - what you're really saying is it's back to the same old ways - i.e. Liar Loans/Mortgage Fraud. Because that is the ONLY way 95% of people can "afford" to buy a property in which to live here in the UK.
(14 January 2010, 10:35AM) Complain about this comment
Please explain to me, how I can afford a house, when I earn £18k per year, [pretty average wage in my area] and the average house price in my area is still £180k? Should I borrow 10x my salary?From 1987 to 1997 the average house price rose from £40k to £55k.A £15k increase over ten years. In line with the average wage. From 1997, to 2007, house prices doubled, trebled, then rose some more. I have been forced to waste over £100k in renting over the last ten years.
(14 January 2010, 10:36AM) Complain about this comment
House prices should have crashed in 2007. Instead, the Labour governmnet, who bought and sold many houses with taxpayers money, making hundreds of thousands of pounds in profits, in a secret expenses system created by Gordon BrownHave engineered the market, making sure I stay in debt bondage.The truth is their was never any political will for the average person earning average wage to be able to afford an average house under Labour. Not one MP represented the average wage earner.I truly hate the Labour Party, and their corrupt, thieving ideologies. This is not Capitalism, this is Cartelism. Our Government are the worst, most incompetent governmnet in the history of the UKHouse prices need to come back down to 3x salary. No FTB will buy a house until that happens. And the housing market cannot survive without FTBers. All this QE and stealing savers interest rates, is another Labour lie, to make the apperance of a recovery.
(14 January 2010, 01:47PM) Complain about this comment
Here Here! Jamestotally agreeIm a firm believer in capitalism, the banks should have gone under we should have suffered a major financial collapse due to our greed (government included). We should have all reaped the whirlwind a-la 1930's instead of this bailed out limited correction. Humanity learns from its mistakes and at the moment the greedy ones that gave credit and mortgages to those that couldnt afford them and those greedy ones that accepted them have not learnt anything. The former were bailed out and continue to be rewarded for incompetence and the latter have LOW interest rates to ensure that they arent kicked out of the house they will take years to pay off.... if you cant afford it.... dont buy it.... problem now is there arent a lot of homes that FTBers and low wage earners can actually afford.... and thats after a major housing crash, in my mind theres got to be further to fall!
(14 January 2010, 01:50PM) Complain about this comment
James your analysis is spot on. Labour are the must hypocritical, destructive and rotten administration in living memory.Unfortunately as the majority of voters own at least one property the 'getting rich on paper by doing nothing' effect has been a real vote winner.Of course for the most part the bill for this mess will be picked up by those who never benefited from the boom.
(14 January 2010, 01:53PM) Complain about this comment
I've been renting for the past ten years or so, waiting for the crash... I've viewed 60+ houses, and made lots of offers around what the properties are worth to me but nobody is interested.The houses I view stay on the market for 12 months or so, then they appear for rent at idiotic prices...I am sure that a big reduction in property prices would only affect a small percentage of the population overall. Only those who have bought a house in the past ten years will suffer. Labour will go, David Cameron will come in. Everyone will be happy for about six months or so, then it'll start to go down-hill. Either the banks lose the money, or the people lose the money. I don't want an investment, I want a house. But I don't want to have to work until I'm 101 to pay for it. Anyway, Merryn speaks the truth. If she ever wants to set up her own party, and run for PM, then she'd get my vote. With Clarkson as foreign secretary!
(14 January 2010, 03:38PM) Complain about this comment
I voted Labour. I am ashamed of my choice.War in Iraq ( against the wishes of the British Public), War in Afghanistan, Crazy house prices, Bankers, Expenses scandals ... Anti Terrorism laws that are regularly used against the general public e.g. HM Revenue ( I didn't know terrorists pay tax?! )The Govt. steals more of our money than ever before ( income tax, NI etc. ) ... Manufacturing in the UK is dead, Gordon's idea of Economic recovery is retail spending ( this is usually a symptom of recovery it doesn't actually create recovery ) ... we MUST export more than we import ( simple - please take note Mr. Brown ).We must have affordable housing, food and fuel.Under Labour the basics have been lost by a false idiology of greed, relentless house price inflation ( yea right!) and higher taxation.I'd love to buy a house but now it seems like the biggest mistake i could make.The captain is drunk at the wheel ! How do we stop this ?
(14 January 2010, 08:36PM) Complain about this comment
Oh Merryn you always talk so much sense. How have you not been proven right so far?House prices should have absolutely tanked by now. Look at the falls in the US, Ireland and Spain. Are we in the UK any different? Why no major crash here? I earn well above the average wage for my area, but can't get close to affording an average house. If there is no improvement soon I am leaving the country.P
(15 January 2010, 01:49PM) Complain about this comment
"Remember the peak of the bubble? Back in 2007, over £100bn worth of mortgages were issued in the UK. Last year up to November, that number was less than £10bn."I think someone needs to check these figures...
(15 January 2010, 06:34PM) Complain about this comment
"over £100bn worth of mortgages were issued in the UK. Last year up to November, that number was less than £10bn"What exactly do these figures refer to?I'm guessing FTB mortgages. Remortgages would be itrrelevant. But the numbers don't appear to tally up with the CLM figures. Gross mortgage lending in 2007 was £362bn. An updated article would be worthwhile.
(18 January 2010, 12:02AM) Complain about this comment
Well the soft brown matter won't hit the rotating mechanical cooling device until interest rates rise significantly. Most home-owners can still afford to hold on to houses because the price of doing so has been kept low. Luckily with the state of public finances a sharpish rise in rates is quite possible, but even then it will take time to filter through.But really this also exposes how broken the UK housing market is in some ways - property seems to be a preferred investment because there are few financial downsides to owning multiple homes, which distorts the market for owner-occupiers and creates eg holiday ghost villages. But this is not something that the government seems interested in tackling...
(18 January 2010, 02:48PM) Complain about this comment
Sense yet again from Merryn; why are you not making high level financial decisions for us instead of some of the current crowd?! Sense too from many commentators. Part of the issue is that the banks and mortgage lenders priced in two salaries for mortgage affordability over the past 20 years and the house price boom is the result. 3x one salary makes sense to get away from the obsession with house price rises; our memories are short and the UK public has not been as obsessed with property since the year dot. It is a recent phenomenen that needs to be eradicated.
(18 January 2010, 06:11PM) Complain about this comment
I'm with McRingRing - it's time to leave the country ... and head for South America. With the latest round of banker bonuses, surely all these Poole properties will be snapped up? And I don't want their sort for neighbours anyway. Hasta la vista!
(01 February 2010, 01:33PM) Complain about this comment
Don't forget that the vast majority of people who leave the country end up coming back. Here may be rubbish but at least it has a language you can understand, a solid rule of law and - possibly most importantly - expenses in the same currency as your income... Some people can overcome all these things but the statistics keep showing that moving abroad just isn't as easy as it sounds. If it was we'd surely all have left by now..
(09 February 2010, 01:10PM) Complain about this comment
I believe when banks start to lend again, we stand a chance of recovery bit in my opinion, the banks are still being too greedy!The home buyer also needs transparency with solicitors fees and other costs involved when purchasing a house, I can recommend this site for a referral free legal quote www.onlineconveyancingquote.co.uk
(13 March 2010, 04:15AM) Complain about this comment
Hell, fire, and brimstone... these are the symbols of pain, for those that are unvirtuous. It seems old fashion to promise these "rewards" to the reckless. But the reality is that UK house prices are only sustained by ultra-low rates, and by unfounded hopes. Remove either of these props, and prices will come thundering down. That action will cause big problems for those reckless enough to take on a big mortgage to buy property that they really cannot afford.Come t0 Bubbs Cafe to learn more about the real state of the market. No link, you will have to do a google search.
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