Back on January 3rd I discussed the UK housing market and the fact that the Bank of England was stating that conditions were ripe for an improvement. From its survey of credit conditions and the emphasis is mine.
The availability of secured credit to households was reported to have increased significantly in the three months to mid-December 2012,driven in part by the Funding for Lending Scheme. A further significant increase was expected over the next three months.
As I pointed out at the time there is a clear moral hazard in the Bank of England slapping itself on the back here! However it has persisted with this theme as later in the month its Agents Report told us this.
There had been a number of recent reports of mortgage supply improving and interest rates falling, with competition increasing between banks and building societies.
However not everything was rosy even in the Bank of England’s mortgage garden as a familiar post credit crunch theme appeared.
But increasing competitiveness had been focused on the lower loan to value (LTV) part of the market and those buyers without a significant deposit still struggled to purchase.
So the situation is one of haves and have-nots with some getting competitive deals and others not or if you like banks are taking the FLS money and cherry-picking who they pass it on to.
Are mortgage rates actually falling?
There is plenty of media activity telling us this and if we look there is some evidence to back it up. If we take a prime borrower (25% or more deposit) they could get a 2 year fixed rate averaging 3.1% in January. If one compares this to last summer where the rate peaked at 3.74% then there has been a genuine improvement. However if we make a nuisance of ourselves by looking further back we see that the lowest rates were offered in the summer/autumn of 2011 and that 2.92% was the calculation in that September. That has us shuffling a little uncomfortably in our seats as we know since then that savings rates have been cut and that our banks have the carrot of very cheap money in front of them but somehow we have not made the gains we might have expected.
If we look at the variable rates offered we see a similar pattern to the above.
Ironically considering its own statements above, some clear cut gains can be found for less prime borrowers. The 2 year fixed rate for those with a 10% deposit did hit a series low of 4.73% in January. Indeed virtually all the improvement came in January as this series dropped from 5.33% then making it 0.8% lower than a year before.
Meanwhile some remain unloved. The standard variable rate which has become something of a growing section of the market due to tougher credit criteria has continued the rise I have documented before. It rose to 4.38% in January and if we look at the database we see that it was last at such a level in February 2009. Yes when the last of the base rate cuts were being fed into that market! The low for the series was 3.82% in April 2009 since when interest rates have risen. You would think that the banks thought these people are a captive market or something and ripe for a bit of profiteering. Surely not! However you look at it those on an SVR may well be wondering what is happening to them as cheaper borrowing rates pass them by?
What is happening in the housing market?
So as we move forwards we do so in an Oasis style as we see that mortgage rate falls have a Definitely Maybe tinge to them. The media tells us they have definitely but for some they rose first and for others they have in fact continued to rise.
Today’s report for February has a somewhat nuanced title to it.
Sprightly start to 2013 but ‘old hands’ support the market
Indeed they chose not to hype the 1.1% annual rise and 2.8% month on month rise and carry on with a similar nuanced theme.
Sprightly start to 2013 with new seller average asking price at £235,741, the highest in February since 2008
So we note that we have not quite returned to the levels of five years ago as we are shy of the £237,856 then.
We can look at this in other ways as if we use the official consumer inflation level in the UK we see that it has risen by 18% over this period. So using it as an indicator of real movements then we have seen quite a decline.
However in the complex credit crunch era this is not quite the full picture. We have inflation at varying rates across the economy and indeed some price falls in an inflationary environment. It was only a week ago I was referring to the fact that real wages in the UK have fallen by 7% over this five year time span. So we have slightly cheaper prices which are definitely cheaper in real or inflation adjusted terms but affordability versus real wages will have improved much less. Indeed we see that the rising cost of essential items may mean that in the typical budget there may be less room for mortgage costs leaving the affordability picture very unclear.
What else do we learn?
There is a changing property market.
Rightmove has recorded its busiest ever month in January
But we know that the online world is growing in many directions so this filters again the optimistic sheen. Also we spot a familiar theme present.
though it must be noted that the national average can mask the divide in the market between those with access to equity and finance and those without.
What has the Funding for Lending Scheme actually done?
If we look at the report then the Bank of England spin machine is in danger of being straight driven for six.
While the scheme was intended to make loans more readily available to those struggling to raise finance in the business and housing sectors, it would appear that many risk-averse lenders are subsidising the better-off who could fund a move anyway
So they think it is not achieving its stated objective and even worse there is a shark in the water which it is feeding.
It appears this cheap money frenzy is mostly prompting more transactions among the equity blessed, some of whom will be purchasing buy-to-let investments.
Ah! So a boom that is unwelcome?
As ever some context is required as we do need some buy to let lending to help provide rental properties for those who require/need them. But we also know that the past boom was fed by people “taking a punt” and hoping to make capital gains in a tax-friendly environment. Accordingly the actual renting was secondary. We also know that too much activity in the UK went on in this area as opposed to more productive sectors.
A revealing nugget
This part was hardly bullish for the housing market.
In every region bar London the most common reason given by prospective sellers for moving was their desire to ‘downsize’.
Speaking of London
The central London property bubble seems to be inflating as fast as ever. We get Greater London prices which will have a dampening effect as it is a wider area but even so they are up 8.4% on a year ago and 1.1% on a monthly basis. However we also get a glimpse into the heart of the beast as prices in Kensington and Chelsea rose by 15.5% to £2.18 million over the past year.
Care is needed
This Rightmove series like any other has both strengths and weaknesses. The strengths are the amount of data,its wide coverage and the promptness of it and the weakness is we get asking prices rather than sale prices.
So we see that if we unpick the spin that there are quite a few surprises to be found in the UK housing and mortgage markets. There is no surprise that via its FLS policy the Bank of England is supporting it and frankly these days maybe even less surprise that the main beneficiary looks like being the banks rather than the housing market.
Also when we look for some perspective we see that rather than mortgage rates falling to new lows they are in fact falling but in many cases they were raised first! So yes there has been an improvement in many cases since last summer but if we go back to the preceding summer then there has not.
On that basis it may not be a surprise that Rightmove is very guarded in its comments today on its latest report. The boost provided by the Bank of England seems to be leaking away in more than a few areas and if we look at the wider economy we have to wonder if it has punished savers and rather than helping borrowers has in fact helped the banks one more time.