The government is inflating a disastrous property bubble

Imagine, if you can bear it, that you are a first-time buyer in the UK. You go to look at a 500-square-foot box masquerading as a two-bedroom flat in an average sort of area masquerading as an up-and-coming part of London. It’s a new build — one you can just about imagine downgrading your lifestyle expectations enough to live in.

The problem is that you can’t quite afford it. The good news is that your chancellor is behind you on this one. With you all the way. George Osborne really wants you to be able to buy a house.

So here’s the question. Would you like him to help you do that by interfering with the market to ensure that you are offered a long-term loan you wouldn’t normally have been able to get? Or would you prefer that he didn’t interfere with the market at all, but prices fell to a level, relative to your income, that you could actually afford, and you got yourself a mortgage you could also actually afford on your own merits?

I’d go for the latter and I rather imagine most first-time buyers would too. Sadly it isn’t an offer Osborne is planning to make — for the next couple of years at least.

Look at a long-term chart of UK house prices and you will see immediately what I mean. Houses have long cost, on average, just over 3.5 times the average salary. In previous booms, the multiple has risen to well over four times earnings, before reverting. Booms would be followed by busts and prices would crash before calming. Not this time. The graph shows houses soaring to six times earnings in 2007. Then there is an initial sharp fall in the ratio to just over five times followed by… nothing. Instead of continuing to fall, average national house prices have stayed at just over five times the average annual salary. Firmly within bubble territory.

Most people will tell you that this is down to the huge demand in the UK for houses. We have a small island and a growing population, they will say, so house prices can’t ever really fall much. This is nonsense. The reason, and the only reason, that house prices have not collapsed in Britain as they have in, say, the US and Ireland is because the government has not allowed them to. Our base bank rate is the lowest it has been since 1694. This has brought mortgage rates down substantially.

On top of that, just to be sure, pressure has been put on the banks to hold off on repossessions. So while default rates look lower than usual in this rather deformed cycle, James Ferguson of MacroStrategy Partners calculates that in the first part of the crisis alone some 700,000 people were moved from repayment mortgages to interest-only mortgages. This is strange, given that interest-only mortgages were being pulled from the wider market. The Financial Conduct Authority also estimates that around 8% of households were some kind of forbearance. In a normal world all these people would have been defaulters.

Next up was Funding for Lending, another Osborne scheme that was supposed to pump money into the banks in exchange for encouraging them to lend across the economy. That hasn’t done much for small companies, but it has so far done wonders for mortgage rates (banks have to hold much less capital against securitised loans such as mortgages than they do against loans to businesses). When the scheme kicked off, the cost of a two-year fixed mortgage at 90% of the value plunged from 6% to more like 4.5%. It’s impressive stuff — assuming you think that keeping house prices up is the most important economic policy a country can have. But it doesn’t end there. Just in case there was anyone in the country who felt they might be deprived of the opportunity to spend their life in hock to a house, the state has introduced a variety of schemes to encourage them to overpay for property while simultaneously subsidising the housebuilders (win win!).

The latest is the one that worries even the king of stimulus himself, Sir Mervyn King. It’s called Help To Buy, Osborne’s latest market-distorting scheme that effectively forces the already overcommitted taxpayer to underwrite £12 billion of mortgage lending to people who haven’t got an adequate deposit of their own, or who lack the income to have a go at producing one and who therefore shouldn’t really qualify for a mortgage at all.

Still, however Sir Mervyn feels about it, most people think the scheme will work as long as borrowers are persuaded that it is possible for house prices to keep rising — as they usually do. The Centre for Economics and Business Research predicts that prices will surpass their pre-crisis peak next year, while Knight Frank has just put out a survey noting that Londoners’ expectations of the value of their houses have hit a record high. Even this is unlikely to be the end of it: as one enthusiastic building society chief keen on ‘even more initiatives’ wrote last week, ‘There’s no shortage of ways government could step in.’


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It all sounds so stupid, doesn’t it? Why would you want to obstruct so completely the free operation of a vital market? It comes down to what Sir Mervyn calls the paradox of policy, whereby ‘policy measures that are desirable in the short term appear diametrically opposite to those needed in the long term.’ We need to move away from attempting to create an economic recovery out of consumption, and work on increasing investment in productive areas. Ideally, by cutting our debt and pushing up exports. But until that happens we must work to avoid total misery by supporting the bits of the economy we used to rely on — hence the low interest rates designed to save our banks (which couldn’t cope with a property crash and need to rebuild their balance sheets) and stop consumption collapsing (would you be able to afford to go out to dinner if your mortgage rate was 8%?).

But it isn’t as easy as it sounds. The UK economy is showing almost no signs of rebalancing. Given our huge debt and ageing population, it seems highly unlikely that the economy will return to what we once perceived as ‘normal’ growth levels in the near future.

How does it all end for our ongoing house-price bubble? There are three possibilities. The first is a semi-miracle whereby, somehow, wages rise to the extent that house prices no longer look crazy. Unlikely, but not impossible. The second is OK too — we carry on as we are, and house prices freeze until the rest of the economy has caught up with them. The third is that prices go up for a few years as the state throws every policy instrument it can at housing, but that the market eventually reasserts itself. You can argue that house prices are fair, in that mortgage payments as a percentage of average incomes aren’t out of line with historical norms. This is entirely true. But it is also an argument devoid of common sense, for the simple reason that interest rates (and hence mortgage rates) are out of line with historical norms.

Since 1950, the Bank of England base rate — against which most mortgages are set — has been 6.9% on average. But when it rises, it tends to go up very quickly. It is usually connected to inflation, but above it. It climbed from 5% in late 1977 to 14% in early 1979, a near-tripling in not much more than a year. Now think about the bank rate today: it is well below the rate of inflation. If the base rate tripled, it would still be only 1.5%. But if it were normal relative to inflation, it would be around 5%. Then mortgage rates would be at least 7%. Could you pay your bills then? Could your neighbour? And what about all those people who had to be shifted to interest-only mortgages because they couldn’t afford normal ones, even with the bank rate at its lowest level for over 300 years? Quite.

The idea that the UK housing market should in any way be driven by market forces was abandoned long ago — anyone who has bought a house in the last five years, or indeed who is paying a mortgage, has already in effect been helped to buy. If anyone other than the government manipulated a market to this extent, it would be illegal. And anyone scammed into buying a house at today’s prices — and in particular a fast-depreciating new build with a locked-in mortgage lender — would one day be able to sue for hundreds of thousands of pounds.

They’d probably want to sue in about five years — once they had started paying ‘loan fees’ linked to RPI inflation on the bit of the mortgage the government guaranteed. Also standing in the queue for compensation would be the many thousands who, regardless of the endless help offered, have stayed locked out of the housing market thanks to stupidly high state-manipulated prices. But because it is the government messing with the market, it doesn’t fall into the same camp as, say, Libor or oil-price fiddling. And all those people stuck and soon-to-be stuck with unnecessary debt have no comeback.

They aren’t, of course, the only losers from the ongoing policy of overstimulus. Savers, annuity purchasers and anyone on any kind of fixed income are hurting too. But homeowners are the only ones whom Osborne, in his apparent conviction that the answer to every problem is higher house prices, is quite so directly herding towards disaster.

• This article was first published The Spectator magazine in May 2013

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56 Responses

  1. 09/10/2013, Boris MacDonut wrote

    I’m not sure why MW puts these articles out every month or so, other than to justify the wrong stance it took on housing back in 2008.The fact is for most FTB’s the mortgage rate is not much lower now than it was in 2006 ,despite the very low base rate.
    More importantly they keep trotting out this 3.5 times salary long term house price. Even Evan Davis on Radio 4 used this ratio as being the “norm”. But it never really existed other than as a lending multiple for the banks.
    For houses to be at 3.5 times salary now they’d be only £102,000. For that to happen interest rates would need to breach 16%, something it has never done since 1692.
    The fact is house prices do not reflect salary, but income. Only 65% of income is salaries, but all income is available to buy houses. The current price to income level is 6 times and it has averaged 4.8 times since 1970. However, since the massive downward shift in interest rates in 1992 they have averaged 5.5 times so are close to their average of the past 21 years.
    I maintain however that it is not price but the cost of buying a house outright over 25 years using a typical mortgage that is the important indicator. That has averaged 7.3 times income since 1992 and is currently at 8. So I agree houses are above the long term trend but by only about 10%. That is not a bubble nor is it disastrous especially as the typical house buyer is much richer now than they were in 1970 or 1992.

    • 10/10/2013, Borderer wrote

      Boris

      64% of income in the UK is from salaries according to the DWP Family Resources Survey 2005-2006. This does not mean that the rest of a person’s income is made up from other sources. The ‘rest’ is self employment (11%), State Pension (6%), occupational pension (7%) etc. etc.

      I rather think that 100% of FTB income IS salaries – unless they have wealthy parents to subsidise them.

      It follows that a comparison of Salary to house price may be a valid statistic after all.

      • 10/10/2013, Boris MacDonut wrote

        Borderer. The point is fewer than half of houses are bought on a mortgage.So they have a muted impact on overall prices and any so called bubble. Income also comprises dividends and windfalls such as legacies and capital gains and even lottery wins. All money is avaialable to buy a house.
        In the 1980′s Thatcher was giving away £15 billion a year in MIRAS tax breaks at the then prices. £12 billion in todays money for just underwriting loans ( not paying them) is peanuts by comparison.
        I do not believe Salary is as relevant as Income and I do not believe price is as significant as the long term cost.

    • 10/10/2013, Tin wrote

      Boris, I am intrigued by your persistent defence of a seemingly obvious bubble, repeatedly citing the 5.5x salary average since 1992 – the very period of deregulated lending. Almost everyone I know over 40 who bought a house at the start of this (or before) could not afford to live in that same house today doing the jobs they do. You seem like the type of chap who believes in free market capitalism – and yet you are an advocate of massive government intervention..? What of building an economic recovery entirely on the ponzi-esque idea of everyone simply paying more to each other for stuff they already own?

      It is this blinkered attitude of people who desperately want their housing wealth to increase that allows George Osborne and co. to get away with what MW quite rightly likens to an illegal scam. The sad things is that regurgitated versions of your pseudo mathematical strawman arguments are repeated by sympathising press outlets to an increasingly scared audience of first time buyers who ultimately will be the ones who will suffer when the debt pyramid collapses.

  2. 09/10/2013, James Loudham wrote

    Merryn, you state “house prices have stayed at just over five times the average annual salary”.

    I think you are drastically understating this. You probably got this figure from one of the charts published by the Halifax or the Nationwide.

    The problem is that they are quoting the P/E for those ‘lucky’ few who have taken out mortgages with them. Their figures do not reflect at all the huge slice of would be homebuyers who no longer have any prospect of affording a house.

    • 10/10/2013, Boris MacDonut wrote

      Yes James. House price to income ratio is about 6 to 1 and to salary would be 7.5 to 1. Halifax and nationwide figures only reflect house sbught with mortgages. Of the UK’s 21.4 million private homes only 10 million are mortgaged.
      One need sto go to the Land regh or ONS for accuracy. They have typical house price at £228k as compared to the Halifax’s £180k.
      As we get richer it is much harder to say that historic “norms” should apply. In 1965 only half of households owned a car. Now half own two cars. That however does not make the historic norm one car. It means things have changed.

  3. 10/10/2013, charlesdb wrote

    I remember that when I bought my house, we were offered tax relief, which Margaret Thatcher abolished – quite rightly. So Governments have historically, interfered with the market.

    I feel sorry for those who are now purchasing under the “help to buy” scheme” particularly those who are buying new flats – typically with the kitchen integrated with the sitting room and having to pay high service charges.

    How they are going to cope in future years, goodness knows. For these first time buyers buying into these rabbit hutches, the dream of a house with a proper garden, is simply that. They will find themselves trapped, as “proper” houses will sell at a higher premium, even at today’s prices.

  4. 10/10/2013, charlesdb wrote

    What I meant to say is that the traditional house with a decent sized garden, will become completely out of reach, when ordinary couples with children want to trade up; because they will be at a bigger premium than today, because of the density of new build housing and flats that are being built and offered under the Govt scheme.

    Whilst writing, I’m really getting fed up with the pop up that appears even when I log in, which I am unable to block. And I’m fed up with Tim Price and Fleet Street Publications’ sales pitch on his behalf. I realise that fear of the future is a potent sales technique in Direct Response; but now, after all these months, please give it a rest.

    • 16/10/2013, Carrick wrote

      Yes!

      I agree with the pop up point!!!

      Also with the house with gardens one.

  5. 10/10/2013, Pindar wrote

    Merryn

    I agree with much, if not all, of what you say.

    I live in a fairly average suburb in London and frankly the property prices in my area are difficult to reconcile with the surroundings.

    The fact that the government is meddling with the property market is indisputable. Governments always have, at least on the supply side, through planning restrictions and now are increasingly attempting to influence the demand-side too (e.g. Help 2 Buy etc.).

    That said, government policies and the amount of equity washing around in the London market could ensure that this state of affairs continues for years.

    In that context, isn’t it rational as a FTB to buy and hope things slowly normalise later than risk being shut out of the market for good?

    Pindar

  6. 10/10/2013, burstingbubble wrote

    Some friends of mine have a whopping interest-only mortgage (paying 0.75% above base rate), enabling them (2+ 2 children) to live in a nice 4 bed house in suburbia. The original plan back in 2006 was for them to sell the house several years later after it had appreciated by a significant amount, pay off a good chunk of the mortgage and buy a smaller house. They are now beginning to realize that they have no hope of repaying most of the mortgage, even with today’s ultra-low interest rates), but are planning to downsize when the kids fly the nest. Surely this is not ‘buying’ the nice house, but simply renting it via the interest only mortgage until they are able to move to a house they can actually afford to buy.

  7. 10/10/2013, Rajah Brookes wrote

    I’m married with a one year old daughter and substantial savings from selling a house ten years back. I sympathise very much with what charlesdb says. We’ve just been forced (last place we rented was sold) into renting a three bed house with barely enough room to swing a cat. Upstairs one can touch all the doors from the same spot in the landing. As for the garden you can cross that in three steps. It’s only 15 years old and represents the UK’s new housing reality. I checked recently and on the open market a house such as this would fetch £300K even in Devon. In order to buy it I would need to be earning over 50K a year. I don’t. The annual salary of an MP is only 66K.

    If I were to take out a mortgage now my monthly outgoings would be half of the rent that I am currently paying (on current interest rates). But I would probably have to move into a house smaller than this one. Talk about feeling herded to the edge of the cliff. Small wonder that the depression and anxiety rate is roughly 1 in 10 people at any one time. In most other countries I could go mortgage free in a decent house with my savings. We are giving serious consideration to leaving for a country that offers a better standard of living. I don’t want my daughter to live like this.

  8. 10/10/2013, Jonathan Tedd wrote

    it is quite clear the govt will stop at nothing to maintain asset values (to save their mates – the banks).

    If you can’t beat them, join them?

    I ask what event will cause a catastrophic rise in borrowing, it will happen but as to the nature I have no clue. The UK is a credit card economy I presume our creditors trust us to pay up? Or rather the maintain the minimum monthly repayment!

    • 10/10/2013, Boris MacDonut wrote

      Jonathan. One thing the UK is not is a credit card economy. Total outstanding credit card debt is only £56 billion, £1180 per adult.
      In 2007 when the N Rock collapsed the British turned away from credit cards/loans in droves.
      At that time we owed £220 billion in consumer (non-mortgage) debt according to Credit Action. That was 15% of then GDP. We now owe £157 billion or 10% of GDP. A remarkable fall of 34% in relative debt in just 6 years.

      • 10/10/2013, Realist wrote

        Boris, credit card debt might have fallen, but that £1180 per adult has got a whole lot harder to pay back, due to 6 years of high inflation and hardly any pay rises. This is why payday loans have become so popular, people are getting desperate.

        • 10/10/2013, Realist wrote

          There is a reason why interest rates form a historic norm, so for the government to keep the rates this low, it is just storing up trouble for the future.
          The only reason why house price costs over 25 years looks reasonable, is because of low interest rates. When rates do rise (when they realise that low rates have wrecked the economy), house prices then will be deemed extortionate and they will come down.

        • 11/10/2013, Boris MacDonut wrote

          I think not Realist. Average credit card rate in 2007 was 19.3% now it is 15.7%.

          • 12/10/2013, Realist wrote

            It doesn’t matter what the average rate is, people have less money to pay the loan back, let alone the interest

    • 10/10/2013, Tin wrote

      I am also interested in what event will trigger the unravelling.

      Merryn – _there is a bubble_ – can we move on to consider what the needle will be and when it will puncture?
      Baby boomers are unable to provide deposits to their children forever; Interest rates must rise (or can they stay at 0.5% forever?); Rent (and therefore yields for buy-to-letters) at some point reaches an income-saturating wall; 2nd time buyers cannot buy if their income stretching 35 year mortgage is an anchor not a ladder; QE will have to end (or again, can it?) Let’s discuss these!

      • 11/10/2013, Boris MacDonut wrote

        Tin is wrong. Baby boomers in the UK are aged 39 to 55. How many have kids of FTB age? The typical 47 year old (average babyboomer age) has two kids aged 16 and 19. Such people would not be expected to buy a house until aged 30 like every decade since 1945. That is 11 years away.

        • 18/10/2013, RobHK wrote

          The Baby Boom was 1946-64.

      • 14/10/2013, Changing Man wrote

        Apart from a rise in loan interest rates, I would imagine that the simple withdrawal of the Help to Buy scheme in time would be a sharp enough needle? A small rise in interest rates might make loan repayments unaffordable for those who borrowed big time. The absence of the Help to Buy scheme would result in fewer buyers being around to pay the inflated prices. Trying to sell with little net positive equity in their assisted-purchase homes would offer little scope for price reduction to attract any remaining buyers.
        Negative equity causes a lot of distress to home owners but unfortunately in realising the dream of buying the home they want, few buyers will adequately weigh up the potential risks.
        “There may be trouble ahead…..”

  9. 10/10/2013, Alec wrote

    Cheap credit and the BOE has created the absurd house prices over the past ten years and it continues. That’s what got us into the mess in the first place. The banks know this and that’s why they now call for a 40% to 50% deposit for a mortgage. This time the buyer will take the hit when the market truly crashes and not the banks. Cameron and Osborne know this so apart from record low interest rates and Funding for Lending, they introduce a gigantic ponzi scheme known as Help to Buy and when the crash comes the taxpayer will be on the hook.

    • 11/10/2013, Boris MacDonut wrote

      No Alec. Very high interest rates subdued house prices from 1973 to 1998.

  10. 11/10/2013, Texas Pete wrote

    I do find it depressing the present government is persisting in intervening in the housing market – if house prices are close to reasonable value as Boris implies, why are low interest rates, Funding for Lending and Help to Buy necessary? Like many others I can only conclude Boy George is fiddling with the housing market to boost house prices and therefore his and his mates’ re-election chances. That said I can’t see prices falling soon as it’s pretty obvious that politicians of all hues will do everything in their power to avoid a crash on their watch regardless of any long-term damage being inflicted.

    • 17/10/2013, Tin wrote

      Texas Pete +1

  11. 11/10/2013, IJ1 wrote

    To me it’s about as clear as night following day that London property is a classic bubble and will crash like every other. George Soros has commented in the past on the reflexive nature of the UK housing boom, with rising prices driving cheaper mortgages driving further gains in prices and so on. There’s a London-specific reflexive bubble too, exacerbated by globalisation: prices rise for 30 years, luring emerging market billionaires and others to park money here as an “investment”. This adds to the perception that London is the place to be, that prices can’t fall, luring more buyers. Meanwhile local residents fear missing out so they panic buy, throwing everything they have (and don’t have) at their home, and on it goes. But anecdotally, I am starting to see cracks appear in this chain. Friends (ones with well-paid jobs too) are increasingly following Merryn’s lead and bailing out of London, as it’s just not affordable. Anyone read that FT article? At the high end there are cracks too. When Lakshmi Mittal’s paper worth declines by £10 bn, or Eike Batista -$30 bn(!), it has an impact. Prices at the top end have stalled. Imagine if (God forbid) they decline. The crucial point, and what will really bring about the crash, is a change in perception: a collective realisation that no, prices don’t always rise, you don’t HAVE to live in London, maybe there are better alternatives. Once this happens, globalisation can work in reverse, ensuring the massive London premium is arbitraged away very quickly. Note also the deflationary pressure this same globalisation exerts on wages in the UK, and it basically rules out Merryn’s semi-miracle solution where wages catch up with house prices.

  12. 11/10/2013, Justin wrote

    I’m aware of more and more highly qualified people who simply cannot afford to live in the South East, let alone London with its crazy, pumped up prices. I know of many who have decided to leave the UK for sunnier climes where they don’t have to take on huge mortgage debt to buy a house at artificially inflated prices.

    The problem is that it is precisely these sort of qualified people that the UK needs to develop an economy that is not so heavily dependent on debt and housing. These are people who are engineers, doctors, scientists, technologists. Many go to places like Germany, USA, Australia, Canada, where they are appreciated and can support a family.

    Its a great pity, but this coalition government simply does not have the imagination and vision needed if Britain is to diversify away from these old discredited economic models.

  13. 11/10/2013, Diogenes wrote

    If it looks like a duck etc etc. Pop, bang. I bought a new house for £62,000 in early 1981 with a starting mortgage rate of 17% against a deposit of 60% (yes 60%). Of course this time it’s different. Naturally. God bless us all.

    • 12/10/2013, Boris MacDonut wrote

      Diogenes. You were quite lucky then, as in 1981 the average house was £22,000. You bought one for three times that and put down a deposit that was more than four times the then average income.

      • 12/10/2013, Realist wrote

        Boris, all the time you say that times have changed and things don’t keep to the long term average, then on the other hand you say that you can’t expect to buy a house until you are 30, because this is the average. You can’t have it both ways and there should be no reason why people under 30 can’t buy a house. If we weren’t in a ‘bubble’, they could do.

        • 14/10/2013, Boris MacDonut wrote

          It is to do with modern lives being longer and childhood extended. 30 years ago people left school at 15 or 16 and by 25 had spent 9 years saving for a deposit. Now most leave school at 18 and many not until 21 or 22. They simply won’t be established in a job and able to save much until 30. Equally people have their kids at close to 30 and not 23 or 24 like in our mum’s day.
          Historically (500 years ago)people did not marry until 27 or have kids until 28 even when life expectancy was just 45. It was the disruption of the indutrial revolution that changed things. You mistake what was a massive change, for the norm. The relaity is house prices were hugely suppressed between 1973 and 1998 by abnormally high interest rates.

  14. 13/10/2013, Justin wrote

    Would you trust Osborne and his banker friends or, indeed any politician? Do you believe that Cameron really cares about getting more people on the ‘property ladder’? What is so great about this ‘property ladder’ anyway? It’s actually a debt trap for millions of people. Or, is there another more self-serving reason that he is encouraging more people to take on huge levels of debt? To be doing it at a time of record low interest rates and record property prices is actually a cynical fraudulent con on the electorate. As a tax payer, I resent my money being used in this scandalous, irresponsible way (£130 billiion!). Certainly, it is recklessness that shows his true contempt for ordinary people.

    • 14/10/2013, Boris MacDonut wrote

      Justin. The taxpayer is not on the line for £130billion. We are merely risking a maximum of £12 billion to gaurantee mortgages of £130 billion. At the moment not even half this maximum is likely to be taken up.
      In a worst case scenario like the credit crunch and meltdown of 2007/08 up to 10% ,but probably only 5% of such mortgages will default invoking the need to use just £3 to £6 billion of taxpayers money to allow young folk to buy a house.
      Compared to the annual wholesale give away of MIRAS and Council house sales under Thatcher ,the Tories are restraining themselves this time round.

  15. 14/10/2013, Baxter Basics wrote

    The only rational explanation is that the current government are pursuing a scorched-earth policy of inflating a monstrous bubble that pops early on in the next government’s tenure. Expect David Cameron to start calling little old ladies “bigots” and renovating a massive duck pond at Chequers.

  16. 15/10/2013, Boris MacDonut wrote

    As of today property is at its highest level ever. According to the ONS and the Land Reg. £247,000 for the typical ,house…..7 times income.

    • 16/10/2013, Rglos wrote

      Boris. Why do you say Land Registry showing highest average price. I see the ONS is but the land registry is well below their previous peak.

      • 16/10/2013, Boris MacDonut wrote

        Land Registry per the BBC business pages is at £239,000.

        • 17/10/2013, Rglos wrote

          True but if you look on the Land Registry site itself it says the average price of a property has gone down from 181902 at peak to 164654 now. I’m sure you know why the difference is there as they are working on different averages. So you could say the Land Registry is saying that the price of the average house has gone up (due to huge increases in a ‘relatively’ few houses around London) but that the price an average person will sell their typical house for is still down about 10%.

  17. 15/10/2013, charlesdb wrote

    Boris, you cite a 5-10% default, based on the credit crunch figures; but isn’t it true that a large proportion of home owners with a mortgage are under water but are still living in their properties because the banks are too scared to foreclose, because of what it would do to their balance sheets? I think the risk to the Government is higher than you calculate.

    • 16/10/2013, Boris MacDonut wrote

      charledb.You think!. I disagree. The CML figures have 150,000 mortgages in arrears out of 10.4 million, that is less than 1.4%. With 7,700 repossessions per quarter, or 0.3%. The latter is only one in every 330. That FYI is not a “large proportion”.

  18. 16/10/2013, Justin wrote

    As I said above, “Certainly, it is recklessness that shows this governments true contempt for ordinary people.”

    They have created a country of haves and have not’s. If you have property, you get richer without actually doing anything to deserve it. If not, you are supposed to take on huge levels of debt to buy an over-valued house. This at a time of record low interest rates and record property prices. What happens to these suckers when interest rates start rising? This is already starting to happen and it could be needed to protect the pound (a weak fiat currency) from collapse.

    I think it is time for the undeserving haves to be taxed on their undeserved property proceeds. Who knows what ideas the government has in the wings.

    • 16/10/2013, Critic Al Rick wrote

      Wouldn’t you agree it’s not the per se homeowners the Govt is attempting to favour by manipulating house values, but the f’ing Banksters et al; the chief manipulators of whichever set of puppets the ‘ordinary people’ elect into power…?

  19. 16/10/2013, Boris MacDonut wrote

    There is nothing undeserving about capital gains on PPR’s. Folk who take the plunge to buy a home of their own make many sacrifices, commit to years of diligent careful behaviour, show patience and persistence above and beyond. There is NO easy way to accrue housing wealth and those who own a home of their own are totally deserving of what they have. People need to learn to accept their own mistakes.

  20. 16/10/2013, Justin wrote

    Over dinner, I was talking to two French business men friends recently. The conversation moved to the system of government in the UK. One of them told me that the French do not understand why, even in the 21st Century, still only a handful of people own most of the land in the UK. Yes, even in the 21st Century, this country is mostly owned by just a few very wealthy people, much like it was in medieval times!

    So, yes I agree about the bankers, but don’t forget about the main landowners who control most of the land. Who are they? Have a look at this article.

    http://www.dailymail.co.uk/news/article-1328270/A-Britain-STILL-belongs-aristocracy.html

    It explains that a third of the country STILL belongs to the aristocracy. A group of 36,000 individuals – only 0.6 per cent of the population – own 50 per cent of rural land. The top ten individual biggest owners control a staggering total of more than a million acres between them.

    • 16/10/2013, Critic Al Rick wrote

      They, the ‘main landowners’ are part of the ‘et al’.

      So, you agree about the ‘bankers (et al)’, do you not see homeowners per se as incidental, as opposed to deliberate, beneficiaries (if, indeed, they are/will be overall net beneficiaries) of so-called Govt policy?

      • 17/10/2013, Justin wrote

        When I hear Cameron saying he is trying to ‘help’ more people get onto the property ladder, it makes me sick. In reality, he is only interested in his banker friends making more money and staying solvent.

        The banks would be unable to sustain a full-blown property crash and that is why the government has introduced this desperate policy to boost mortgage lending. They are aware that interest rates are starting to tick up and are fully aware that this could trigger a collapse in house prices.

        It also is believed to be a popular measure that may get them more votes in the short term (they are significantly behind in the opinion polls). So, yes, homeowners are incidental – just pawns in the game!

        For house prices at these levels to keep on increasing is unsustainable, especially in an increasing interest rate environment. Eventually the bubble will burst. It is only a matter of time, but timing is a major consideration of this desperate government policy.

    • 17/10/2013, Boris MacDonut wrote

      Justin. 36,000 is 0.055% of UK population. But your point is good. About 35,000 people own 35,000 sq miles of land. One square mile each!.

      • 17/10/2013, Justin wrote

        Excuse me, I was only quoting from the Daily Mail article. Seems the Daily Mail are not very good at maths! You are right, 36,000 people is 0.06% of the UK population. An even smaller percentage of toffs own half of the land. So, it’s actually a lot worse than stated in the Daily Mail!

        It says that their assets account for 20 million out of Britain’s 60 million acres of land, and the researchers estimate that the vast majority is actually owned by a wealthy core of just 1,200 aristocrats and their relatives. The top ten individual biggest owners control a staggering total of more than a million acres between them.

        The total area of the UK is 94,060 sq mi. These 36,000 people own half of the rural land. You are probably correct, they each own about 1.0 sq mi on average. But, the Top 10 landowners own a million acres in total. That’s 100,000 acres each on average = 156 square miles.

        Considering that the UK is only a small country, with a relatively high population density, that is an amazing statistic! It is clear that the same families still control huge areas of the country. I thought this country was supposed to be a democracy!

  21. 17/10/2013, Cross Country wrote

    I don’t doubt the influence that banks may have in encouraging policies that sustain the housing market. But more than that, we as a nation are completely obsessed with home ownership, amateur property development, buy to let and the like, at any cost. I really doubt there is much between the main political parties on this. It will be political suicide for any government to not employ policies that sustain the housing market, let alone talking candidly about allowing prices to fall. We as a nation should take responsibility for this damaging infatuation with property. Real wealth in a society should come from people starting actual businesses, not from people playing the property game.

    • 18/10/2013, Justin wrote

      Yes I know and it is very sad. What exactly is this country well-known for these days? Houses and the Royal Family? We have to compete in this global economy and we need a lot more than that. Worse than that, we have too much money (and debt servicing) tied up in unproductive housing. We are being strangled by it.

      This money needs to be put to use in more productive areas, such as innovative businesses and industries of the future that will create real jobs and careers for people, not these part-time, low paid jobs that we are seeing. But, this government has no imagination at all and is not providing the leadership required to do it.

    • 18/10/2013, Critic Al Rick wrote

      Ah, but who has initiated, nurtured and encouraged this damaging perceived infatuation with property. It’s not so much the Govts’ pandering to the electorate as it’s reactions to the string-pulling of it’s puppeteers.

      Democracy has degenerated into govt. by Parasites for Parasites. The main puppeteers (very wealthy Parasites), in effect, are gaining wealth partly at the expense of the country’s ‘real wealth’ creation tools, and partly at the expense of those with any wealth whom the puppets govern.

      The pandering done by the Govt specifically to ‘buy votes’ has ‘initiated, nurtured and encouraged’ a different set of Parasites, the benefit scroungers; another leech upon ‘those with any wealth whom the puppets govern’.

      This pincer movement (compounded by the emulations of some of those of intermediate wealth of the examples set by rich Parasites) of pandering to Parasites is crippling the UK; the Parasites (rich, poor and intermediate) are ‘killing their Host’.

      Govts should govern not in the perceived best interests of the Parasites but in the real best interests of the majority.

      So I don’t consider it correct to blame the continuing demise of the UK upon those perceived to be infatuated with property but upon those who rig, distort and corrupt the ‘playing-fields’ primarily to benefit their utterly selfish selves.

  22. 18/10/2013, Realist wrote

    As long as we still have the present political system, where any party that governs doesn’t have to be qualified in any of the areas that they are controlling, then we will continue to have half-baked ideas on what’s best for the country.
    We have gone so far down the line and so far off course, that bar a revolution, it cannot be solved. I used to be concerned about the future of this Country, but it’s just not worth getting stressed about it.

  23. 19/10/2013, Justin wrote

    Yes the parasites are to blame. Parasite No. 1 is the Government itself. The public sector is far too big and we have too many useless, parasitic M.P.’s on gold plated pensions, who are not giving value for money. They create no wealth, they just redistribute it to themselves and the other parasites. Cut them down to size and make them serve the MAJORITY! Parasite No. 2 is the Royal Family and the same rich landowning families from medieval times who still own most of Britain. Parasite No. 3 is the benefits scroungers who have learnt how to screw the hard-working tax payers. Parasite No. 4 is the banks who issue too much credit for property, but not enough for hard-working people who want to start their own wealth-creating businesses.

    As I said above, they have created a country of haves and have not’s. If you have property, you get richer without actually doing anything to deserve it. If not, you are supposed to take on huge levels of debt to buy an over-valued house. This at a time of record low interest rates and record property prices. What happens to these suckers when interest rates start rising? This is already starting to happen and it could be needed to protect the pound (a weak fiat currency) from collapse.

    I think it is time for the undeserving haves to be taxed on their undeserved property proceeds. Who knows what ideas the government has in the wings?

    And the British people need to put in place a government that serves the MAJORITY, not the parasites.

  24. 19/10/2013, Realist wrote

    Justin. Unfortunately the top 3 parties aren’t a government that will serve the majority. You either have one who serves their rich mates, or the other that serves the scroungers and well, the other isn’t worth talking about.
    While I agree with points 1 and 3, no2 isn’t so clear cut. The land can’t be taken away and if taxed when passed down a generation, it would have to be properties over a large amount, so it isn’t unfair to those who truly worked for their estate.
    Also, while I agree that further down the Royal family chain,they are money for nothing, the Queen and immediate family are good for the Country.

  25. 29/10/2013, RR wrote

    Housing is an essential need like food, health, education. It is not acceptable either to live in substandard accommodation or to indebt people with excessive mortgages for life. A key policy in making houses affordable (to buy or rent) is to have enough housing supply for the people that live in this country. However there is not sufficient building of new houses and/or refurbishment of existing sites to meet the demand. Instead the government introduces policies that ensure that house prices stay high and increase. The government has effectively raided the savings and pensions of ordinary people by imposing exceptionally low interest rates. More recently the government has introduced guarantees for 1st time buyers (to be supported by the taxpayer) so that present high prices are maintained and increased.
    I believe pursuing high property prices will have two outcomes:

    Outcome 1: Low interest rates ensure that the value of the mortgages held by banks as collateral will not drop thus preventing an increase of the banks’ debt. This protection of bankers’ wellbeing is provided at the expense primarily of savers and pensioners.
    Outcome 2: High property prices ensure high land prices (bricks and windows are not as expensive as land). So the future for the people of the UK is that they will have to take on huge mortgages spending their whole life trying to pay them off. The beneficiaries will be large landowners and bankers. This seems like a revival of the feudal system and serfdom.

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