George Osborne's property bubble will lead to disaster

The Chancellor is pouring billions into sub-prime debt. What could possibly go wrong?

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 Services Authority also estimates that around 8 per cent 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 per cent of the value plunged from 6 per cent to more like 4.5 per cent. 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!).

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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.’

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 per cent?).

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 per cent 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 per cent in late 1977 to 14 per cent 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 per cent. But if it were normal relative to inflation, it would be around 5 per cent. Then mortgage rates would be at least 7 per cent. 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.

Merryn Somerset Webb is editor in chief of MoneyWeek.

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Show comments
  • Ledden

    Interesting article, for years I’ve been saying that prices will shoot down soon and for years I’ve been wrong. If the government is determined to keep them high then they will remain high until their attention is focused elsewhere. Only those with a lot of equity will win this one.

    • http://profiles.google.com/oliverthered Oliver Stieber

      equity is an interesting choice of words since it means fairness.

  • Terry Field

    This Ponzi scheme will come to grief, as the forces that will drive unproductive asset prices down become unstoppable.
    Then deluded and ill-served youngsters who were advised to buy these grossly over-priced assets will – like so many others – realise they have been the subject of social fraud.
    But they will be no more certain as to what to do and how to react as the many millions are today .

    Blame the Bankers!
    What a joke.

    • http://twitter.com/LoganDon don logan

      I agree it will all end very unpleasantly but I ended up buying two years ago as I was utterly fed up of living in very expensive rented accomodation where the landlord spent nothing on its upkeep and would demand inflation busting rent increases year after year. I bit the bullet bought and my monthly housing costs dropped 40%. I’m still pissed though as the bust will surely come and I’ll just become one of those deluded and ill-served punters you mention..

      • Terry Field

        Thabks for the response.

        You illustrate the extent of the maladministration and how hard it is to do well in Britain without massive financial advantage.

        My question to you is a simple one – why stay?. There are many better places to make a life now than Britain, would you not say?

        • Jamie

          The UK is HOME to many – having a government which is run by a business agenda and not an agenda which looks after people, while frustrating (no, infuriating!), its not enough of a reason to leave family and frineds.

          • Terry Field

            Of course, the personal connections matter greatly. But I would then ask when Britain has EVER been run in the interests of the general population – in contrast to, for instance, Holland or Denmark?

    • snozzle123

      I don’t blame young people, I blame older people in positions of power who should know better and that includes Gideon. When I see CEO’s of developers and heads of building societies coming on TV and pleading for the government to ‘get the market moving’ and ‘help’ FTB’ers – in the form of subsidised debt – I feel a despair. It’s a kind of irresponsible consensus of delusion, maybe it is cynical I don’t know actually?! We have a narrative at the moment that the availability of credit is ‘below normal’ and any problems in the market can be solved by a return to more normal/natural levels of credit availability. Banks apparently ‘won’t lend’ we at told, despite interest rates being at 400 year lows.

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  • AndyB

    A valid opinion, but there are too many variables to know whether or not prices are really too high (and the London examples are clearly not typical of the wider market.) Personally, I think the income ratio historic comparison is largely invalid because so many households routinely have TWO earners these days who can contribute to paying the mortgage. This may be a major factor in why we see values (in the broad) at five times earnings.

    • itdoesntaddup

      We’ve had two earner households for a very long time – long before the Brown bubble. Have you forgotten all those 1980s DINKYs? Yet in 1995 you could buy a house for about the same real price (adjusted for RPI inflation) as in 1970.

      High prices are propped up by mortgage and rent subsidies, and little else – not even the supposed “shortage” – except foreign money gambling with London property chips.

  • Jamie

    AndyB, people have TWO incomes because THEY HAVE TO! I would love for my wife to stay at home and raise our family, as would she, but its not possible, primarily because of the price of homes.

    Great article, but I suspect it’ll fall on deaf ears – ultimately, the government will look after business over the individuals every single time.

    • Eyesee

      Yes indeed. In fact the first driver of house price inflation was the ability to pay. Lending was once two and a half times main salary and all of the second, for the calculation of a mortgage. The likelihood being the second would drop out at some point ‘to have a baby’, but the first would have increased enough to cope with all that. Just about. Then it was all too apparent to ‘the market’ that both had salaries so ramp up the cost. So yes, husband and wife both have to work to pay the mortgage. But who wins? If the house I sell earns me more, so the cost of the one I buy costs more. Nobody wins. Oh yes, the mortgage lender does, silly me!

  • http://www.lordpalmerston.wordpress.com/ Lord Palmerston

    In many local markets, buy-to-let has eaten up a huge amount of property (student lets are a big part of it). Student numbers have levelled, many unis have been building hall capacity at a fair rate, the outlook isn’t great for BTL landlords in a lot of urban areas. But the market shows no sign of correcting itself, because landlords are convinced that “something will turn up” and Osborne will prop them up, just as everyone else has since the bubble started inflating. Rent levels are flat, and the quality of the investment is declining, but nobody seems to believe that the market will be allowed to decline.

    Housing policy is a long-term process. Many of us have been hanging around waiting for the market to correct itself, but it hasn’t and we are faced with a choice between renting and starting a family, buying but giving up on having a family, or just emigrating somewhere that doesn’t have this absurdly rigged market. The long-term social consequences of the housing bubble and the rentier class are terrifying,

  • Chris

    House prices can stay high as long as we mugs, aka taxpayers, are prepared to prop up prices with housing benefit that now costs more than the armed forces. The “crash” will come in a decade or so when all us old middle income folk retire and stop paying in.

    • http://twitter.com/LoganDon don logan

      Slash the amount you can get in housing benefit by40-50%. Immediate correction.

      • http://profiles.google.com/oliverthered Oliver Stieber

        NO DSS NO PETS

        • Blazenka Hudson-trograncic

          Do you know the real reason for ‘no DSS’, it’s not snobbery but because a landlord can be forced to pay back rent to housing benefit if the authorities made mistake in giving benefit, even many months after the error. A landlord cannot risk being sequestered by the ‘force’.

          • David Kenny

            It’s because local authorities take their time over HB apps
            and because a lot of tenants who need this benefit are less then respectful of other peoples property
            BTW deposits which if paid privately help keep things in balance is now paid by the council and held in escrow
            So tenants have nothing to lose irrespective of how they behave
            That’s why no landlord with any sense takes HB

  • http://twitter.com/WaldorfTBeagle Nick Name

    If you were of a dramatic turn of mind you could say that the government is fomenting social discord.

    Those under 30 can’t even aspire to own property and can look forward to nothing but a lifetime of paying for the fripperies of the older generations through their rent. Those who rent feel little attachment to the area they live in and accumulate little. Those who have little to lose are often willing to take extreme measures when pushed.

    Society seems increasingly riven between the haves and have-nots and the dividing line appears to be very much along age boundaries. Southern Europe seems to have a similar, but much worse, demographic problem so we might get plenty of warning of the consequences, but it seems like a dangerous course to me and one that politicians should take more notice of.

    • http://www.lordpalmerston.wordpress.com/ Lord Palmerston

      I think it’s a bit more extreme than that even – many people under 40 can’t aspire to own property.

      • http://twitter.com/WaldorfTBeagle Nick Name

        Indeed, though I do know some people between 30 and 40 who own property so I settled on 30 to be safe. That’s still a good 40% of the population though.

      • Terry Field

        i suspect many will aspire to eat well in not many years time.

  • itdoesntaddup

    I’ll reprise what I have said elsewhere:

    It helps to look at the evidence rather than swallow the plausible
    soundbites. Do we really have a massive shortage of property? Well,
    the numbers in temporary accommodation are actually close to all time
    lows, having almost halved since peaking during the property boom.
    You’re always going to get some people in temporary accommodation:
    houses burn or are flooded; parts of families seek refuge from violence
    and so forth. There are lots of properties for sale and few buyers:
    seller aspirations are too rich to make a market. Average occupancy is
    also close to all time lows, at just 2.3 per dwelling nationally, and
    under 2 in Scotland.

    It’s prices that make property unaffordable. Propping prices up with
    subsidised mortgages and rent subsidies to BTL landlords via housing
    benefit makes that worse.

    Could you lower prices by building lots more? Eventually, yes. But it would take a massive oversupply, with tumbleweed vacant estates as in Eire to do that. A massive waste of economic resources, and an Irish style banking crisis on the back of it.

    How else could you lower prices? Cut out the green bling building
    standards, the Section 106 levies and the like that simply add to the
    cost of newbuilds and make them uncompetitive with older properties: let
    people have larger homes for the money, as they do everywhere else in

    Encourage land banks to be developed by taxing land held for more than three years without development at a penal rate (say 2% per month) to encourage its sale.

    Raise interest rates: positive real interest rates provide a powerful
    incentive not to overborrow, and lead to lower real house prices. Stop
    the lavish forbearance for existing overextended borrowers: repossessed
    houses provide a flow of cheaper property.

    Cut the housing benefit subsidy that simply goes to landlords when rentals
    are renewed: ignore the siren cries that say this will make people
    homeless – it won’t, because landlords are better accepting a lower rent
    than a void, and if a landlord wishes to compete for a tenant not on
    welfare the rent will have to come down and leave a vacancy elsewhere.

    Exempt landlords who sell to owner occupiers from CGT: they have an incentive
    to compromise a little on price and an exit route, rather than the
    present incentive to increase their portfolios on a ratchet. Limit BTL
    mortgages to 50% LTV (and don’t grant 95% mortgages to anyone). Cutting
    gearing reduces the ability of landlords to outbid would be owners.

    Make HA and Council property fully fungible and competitive with BTL by
    setting market rents on all quasi state properties, and allow anyone to
    apply for any property they can afford, while reserving subsidy for
    those who need it, rather than attaching the biggest subsidy to
    particular homes, which simply creates large council waiting lists. The
    market is a better allocator than housing officials.

    Don’t insult private renters by offering council tenants highly subsidised
    RTB properties: this also adds to council waiting lists.

    Staunch the flow of foreign money into especially the London property market:
    that may mean cutting immigration too. We are getting no benefit once a
    set of foreign buyers simply play spoof selling to the next set of
    foreign buyers, instead of British sales to foreigners who then lose
    when property eventually does correct – and yes, that will happen.

  • http://profiles.google.com/oliverthered Oliver Stieber

    Quite compehensive, would have been nice to see something about the subprime market and george bush’s policies that lead to it.
    One key thing missing is the rise in housing benefits payments (from aprox 2.9bn in real terms at the time of thatcher to 24bn, slightly less than that in government reports).
    It’s nice to see someone commenting about Ponzi Schemes, it’s all, always been Ponzi schemes, at least since the ‘trickel down’ policies began, which are illegal for a good reason.

  • charliegrove

    Well argued treatise of everything that’s been going wrong for a long time.

    Sadly, the likelihood the government will listen and end its war on the citizenry, is low.

    Considering that the housing “market” is by any standard completely dysfunctional, and only operating as it is due to massive state interference, why can’t we sue the state in the european courts for flagrant breach of state aid rules?

  • DavidL

    We need more housing
    We need more first time buyers..
    We need to unblock access to credit caused by large deposits.
    We need more demand.
    Demand will reduce risk by underpinning the market.
    We have a backlog of housing with planning permission ready to go.
    We have huge surplus capacity in construction with unnecessary unemployment.
    What is not to like about this policy?
    Get a grip.

    • NickB

      What’s not to like is that people are already up to their eyeballs in debt. This policy is aimed at getting them to take on more debt than they would under a house price correction.
      What’s not to like is that this policy aims to perpetuate the diversion of credit away from productive activity towards consumption and house price speculation.
      What’s not to like is that the prices are to do with past credit conditions and little or nothing to do with a housing shortage.
      What’s not to like is that all our eggs for the productive economy are being put into one basket, construction.
      What’s not to like is that high house prices transfer income from away from young especially the young with families.

    • jandr0

      “What is not to like about this policy?”

      Government skewing the market and not allowing the market to correct itself.

  • First time Buyer ?

    If you are a youngish person(34), with a reasonable deposit and want to have kids and settle down at some point. what should you do ?

    A. Wait , as you have been doing for the last 7 years. Betting that the house price, fall. This strategy could fail if the government decided to inflate away debt. They would still need to build more houses than approximately 1/2 the population growth ( a house per couple) . This looks unlikely due to nimbys.

    B. Buy now, Betting the government cannot control wage inflation and at some point in the future the initial price paid is not too bad. This would rely on the government causing huge pain to all pensioners and those on a fixed income.
    There is no easy answer and even though both are extremely bad options a decision must be made.

    • http://www.lordpalmerston.wordpress.com/ Lord Palmerston

      Option A is unappealing but the problem with Option B is that you are locked in for the long haul, with all the dangers of negative equity when the cycle finally starts moving. A lot of talented people really are looking at Option C, leave the country.

      • snozzle123

        Leaving the country isn’t just a financial move, it is also a concrete and emotional one. I’ve lived overseas for a few years but came back because I feel the UK is my home despite the many issues it has.

        • justejudexultionis

          I agree. I spent five years in France. It is quite easy to move to another EU country from a practical point of view but quite difficult emotionally since you are dealing with an entirely different culture and set of values every time. Having said that, I do still think the solution is to have a job that allows you to work via the web in any location. I am lucky to have this.

    • michael_gb

      C) Move country e.g. Spain with 50% drop from 2007 prices, and either learn the language and get a local job or work from home + easyjet/vueling every couple of weeks to show your face in the office.
      That’s what I’ve done and I know an increasing number of 30ish people who’ve left for various other countries.

    • snozzle123

      Snap! I’m the same as you exactly (34), have a sizeable deposit of about 40 % of the sort of price range I am interested in, and like you find myself stuck on the horns of this dilemma. I’m at the stage of my life where it is the ideal time to buy personally and after years of renting really want to own my own (modest) house, but some how it doesn’t seem prudent what with the market being stoked again. I’ll probably see how I’m feeling in the new year.

    • Rogsie

      Option B is looking all too likely. You have to be over 50 now to have any adult memory of the ’70s so it’s about time for another whirl of the merry-go-round. It’ll be different this time….

  • disqus_yH1JHQhsGm

    Sounds much like the dutch housing market.Which is slowly
    collapsing the past few years.

    We had it all, unlimited grow of “air “money. 70 % of everyone had interest only mortgages. People were taking money
    out of the paper profit and buying new
    cars and boats.

    Feeding first time buyers with extra space to lend more and pay later. Giving 110+ % loans. Ratios loan to value up to 7 x.

    Situation now decline since 2008 including inflation – 23
    %. Unemployment rate went up to 9%

    They expect full year 2013 – 7-10 %. We need a extra downfall of 33% to get
    back to our long term average

    Evrey one who bought their first house the last 7 years is
    “under”water. And is not able to sell
    their house.

    As long as the UK is doing the same as they do now and like we did, shooting money in a unproductive area like
    the housing market you will have mayham within the next 3/5 years.

    Good luck guys

  • Dan

    Values aren’t going to go down in nominal terms, but they will in real terms, because of inflation. So buy now with debt, then watch the value of the debt get eroded by inflation over the next ten years, thanks to all the money-printing. My parents bought their house for GBP22k in 1975 with debt, thinking it was an astronomical sum, and had to feed us lentils they were so broke. But by 1985, their debt was tiny, they were laughing, and we were eating roast beef. Yes you’ll have to take some interest rate shocks, maybe as high as 15%. What does it all mean in real terms? Work it out -effectively you’ll be paying most of the debt back in the first few years, after which you’ll be drinking Chateau de Chasselas.

    • agabus25

      All very well as long as wage inflation is running at 7%, as it was then. 7% inflation will halve real debt in 10 years. At 2%, only 21% reduction after 10 years. So, the old pain at first and easier later on model doesn’t really apply anymore unless you want 7% inflation again but that comes at a price of 9-10% interest rates. That would break a vast number of households’ backs.

    • itdoesntaddup

      Good luck with that. In the much higher RPI inflation era of the early 1990s, there were large nominal price falls (30-40%) throughout London and the South East. Check up the Nationwide data if you don’t believe me. In the late 1970s we had inflation of over 20%. We also had mortgage interest rates over 15%. Would you fancy paying 15% on today’s mega mortgages? I doubt you could even afford lentils.

      • Dan

        I agree my suggestion to buy now with debt is crazy. But so is our economic policy. Inflation is already way above interest rates, like it was for much of the 70s: when rates hit 15pc in the mid 70s, inflation was 25pc, so those with debt were laughing. All you need to do is decide if you can afford crazy interest rates. My dad worked for the government, so he knew he would not lose his job. I could be wrong. But my previous crazy scheme worked: I converted my savings to Hong Kong dollars in 2004 and bought a flat here with cash when the pound was high and everyone had given up on HK. The flat is now worth four times what I paid, and that’s just in HKD terms. My next crazy scheme is to sell the flat in 2015 and convert the money to pounds, when sterling hits rock bottom. Only problem: will there be any jobs available in England? Will there be riots and strikes and three-day weeks?

  • Blazenka Hudson-trograncic

    In my little post code are of London , inside E5, nothing has actually sold since October 2007, some housing market.

  • First time Buyer ?

    The following tasks are required to fix the housing problems.

    1. Loosen planning law, the current system has dreadfully and shamefully failed to build enough infrastructure (rail) and homes. The population has grow around 8% between 2001 and 2011(1). yet we have failed miserably to build 8% extra housing. The houses should all be area were people would like to live (low density) and not “affordably housing”. This will converting a small proportion of farm land into residential, no matter the objections or current rules.

    2. Subsidizing new builds via 5% deposits is a good idea(new builds only) as it will guarantee, builders customer even in a failing house price market. As the builder will simply build bigger to attract existing home owners (second stepped) to use the equity the have to move up. This will also force up the quality because why more unless it’s better.

    3. Stop having subsidized mortgages for landlords, the tax allowance are too generous, and push up prices far too much. This include via the banks and QE.

    4. Sell more land owned by councils.

    (1) – population growth figures: http://www.ons.gov.uk/ons/rel/mro/news-release/census-2011-result-shows-increase-in-population-of-the-south-east/censussoutheastnr0712.html

  • Gary Cross

    Expect a house price inflation kick both as this gets underway
    and also in the final months as it comes up to scheme closure. Think back to when a
    previous Conservative chancellor Nigel Lawson created an almighty house price
    bubble by pre-announcing MIRAS tax relief withdrawal 12 months in advance…

    • snozzle123

      When’s it planning on closing? Anyone know?

  • BoiledCabbage

    Austerity has been abandoned, the way the debts will be resolved will be via inflation and money printing. All asset prices have risen as a result. The end result is still a mess. There are so many echoes of Vienna circa 1921 – the anti-G8 loons have now latched onto the term ‘profiteer’ which is truly from the hyperinflations of the 20s.

    • Terry Field

      I do not think you are correct about inflation. Impoverishment can be generated by the simple redirection of goods elsewhere – dislocation of old patterns of trade, if you like. For example, try to get hold of honduras mahogany of high quality in the UK now – it is not any longer to be found.
      Impoverishment will not be a manageable event. Governments will have no remedy.
      Sadly for our children we will begin to feel the real weight of history.
      The debt is the mere expression of what has been known by the wise for decades.
      Our wealth has dis-appeared.
      Very probably for ever.

  • Simon Scarth

    Build 500K houses a year, 250k for current shortfall and further 250k to bring down the prices. A normal working couple should be able to buy a house, full stop! Sorry for the nimbies but evey house in the UK was originally build on a field so why not now? The jobs created would be massive and what difference does it make in reality if a house comes down from 500,000 to 250,00 you cannot spend it when you live in it and things like the rented sector would go back to proper market rates and housing sibsidy would be cut at a stroke.

  • e2toe4

    If property goes over the edge then it drags the Banks down into a very deep ravine and the price of their home NOT going down from ‘2007value less 35% or 40%<' is probably all that is keeping a lot of older people from combusting spontaneously–having seen fixed incomes starting to suffer from inflation and annuity rates evaporate.

    There can't be much more in the way of 'now worries money' left in accounts to keep on chasing asset prices higher, and property value is all that's left.

    But with the effect of the internet on retail and commercial property hitting it is debatable how long commercial property rates can continue to avoid being written down.

    In the real world (ie outside the 5 Boroughs in central london–and a few other areas) commercial property in renting out at rates that (at best) imply most is at 60% of book value.

    When all the money's gone one usually gets poorer—we've seen some heroic efforts made for a number of years to prevent the realities of this becoming apparent. I hope they succeed, I fear they won't.

  • Vernon Stradling

    Your article is based on the false premise that houses are currently unaffordable. This is simply not true. My children are currently at the age when they would like to buy their first property, some of them in London. Although the prices are not exactly cheap, they are affordable, as are the monthly mortgage repayments. The problem is finding a 20% deposit.

    Yes, if the price was less a 20% deposit would be less, but it is only 20% rather than 10% because of measures taken by the regulator to punish the banks for reckless lending in the past (e.g. 120% mortgages on 5 x salary).

    Furthermore, developers have large land banks but are not building because there are few potential buyers able to raise such large deposits. So, while the Chancellor’s schemes to help house buyers will certainly release some pent-up demand, it will also increase supply. Gentle rise in house prices – yes. House price bubble – no.

    • Mike Brooks

      It`s like running along a station platform, trying to catch an accelerating train. I meet many young people who would like to buy, but all too many of them have given up hope.

      It`s frankly ftightening how easily one man can create a nice little housing boom, purely for electoral gain.

  • Antiehypocrite

    This is pure insanity!!!

    In Hong Kong, where I am, there is not such nonsense, prices have gone sky high and are about to crash – overseas buyers are being punished with heavy taxes now cooling the market.

    Developers are stuck with huge inventories coming to market – maybe HK will be forced to follow the UK?


  • burningbeardy

    Government furthering opportunities for Brits to enter serfdom…

  • Bill Morgan

    As time goes by, wages will increase and houses will become more affordable. There is no need to cause a massive house price crash which would further damage the economy.

  • willking22

    I think we all know who to thank for the mess the UK housing market – and economy for that matter…… Gordon Brown

    • Mike Brooks

      Yeah that`s right, while the rest of the world was enjoying boom times, we were the only country to be in recession. Brown was absolutely disasterous for the Labour Government, but even Gideon wouldn`t be able to buck another world recession.

  • RobertGreenway

    i think if you find a decent house and set up while your young, you will not be affected by this, especially if you find a decent pension drawdown company to get a good sum when you retire. Hopefully market gets better within the next 10 years

  • silondon

    It would be naive to comment on HPs – an asset with such profound societal impact – while forgetting the likelihood that politicians were most certainly going to get involved in order to ameliorate the downturn. Sadly the commentators appear to work in a statistical vacuum alone – rather than with political pragmatism factored into their thinking – hence their insistence that HPs are going to fall considerably once the bubble bursts. Well they haven’t and the likelihood is that any smart chancellor, lab or con is going to deflate rather than burst any such bubble.

  • coalgateOps

    Liberty empowers us to choose our goals, the efforts we undertake, and how to adjust our ways when confronted with that we couldn’t foresee.

  • Yvonne & Barry Stuart-Hargreav

    But it is not subprime debt. We have very low rates of defaulyt on mortgages now and even fewer repossessions.

  • MistyWeaveFishLosh

    She’s been saying this for many years – But prices still keep going up!

    I hope she is right and the market implodes eventually but the timing of her prediction has been dreadful for so many years.

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