Comments on: House prices down 10% – more to come

By: Albion

Albion — Mon, 29 Sep 2008 15:42:44 +0000

Credit binge fuelled property booms followed by bust and a devaluation of sterling have been constant features of the British economy since the sixties. Amidst Conservative and New Labour boasts that the UK ranks amongst the most competitive economies in Europe with the largest share of foreign direct investment, the trade deficit has consistently worsened over the last twenty years to reach a staggering £90bn in 2007.
The tax revenues from North Sea oil and botched privatisations financed the Thatcherite economic experiment which predictably ended with the humiliating exit of Sterling from the ERM and Lamont's record budget deficit.
New Labour economic mirage is built on an unregulated credit binge and housing boom which is now ending in tears.
When will you face the facts Mr Redwood? The UK economy has been in decline for years. The budget deficit will soon reach £100bn, there is nothing left to privatise and manufacturing is in terminal decline, unlike in Germany and France.
I could also mention the fact that the class-ridden nature of the UK has produced a lamentable state education system which is of course why, compared to other European countries, the UK is uniquely cursed with a mass irredeemable underclass.
I fear the current crisis is a replay of 1978/79 for the UK, except this time there is almost no North Sea oil left, most of the state assets (inclding gold reserves) have already been sold off (mostly to foreigners ….) and, quite frankly, the young 'Dave' Cameron and his Eton chums is no Margaret Thatcher. What a mess !!

By: Martin

Martin — Wed, 17 Sep 2008 09:51:24 +0000

Labour were handed a modern balanced economy that Mr Brown spent the next ten years claiming were all of his making. We constantly heard the phrase prudence and even Iron Chancellor while he was happily increasing spending at an unaffordable rate. We all know that the credit fuelled binge of the past ten years is well and truly over and one consequence of that is that house prices are going to tumble. As a long time property owner I am quite happy with this, as it means that when the time is right, my children will be able to buy a home at a sensible multiple of their income. The banks will lend at the moment as long as it is no more than 70% of the current value because they know that prics are going to go down.

Once prices have dropped to a sustainable level (down at least 30% ) then they will start to lend again at a max of 90% LTV with sensible multiples again.

By: SMcC

SMcC — Wed, 03 Sep 2008 09:22:39 +0000

There is another way of limiting credit which used to be the norm. It is for lending institutions to look carefully at the lendees ability to repay the loan and also to require a substantial deposit. When I was young building societies asked for a 25% deposit and would not lend more than 2.5 times one's annual salary.
A return to these principles, and the abolition of estate agents, would cut the rapid rise in house prices and return thenm to more realistic levels.

By: Stuart Fairney

Stuart Fairney — Tue, 02 Sep 2008 16:14:24 +0000

Not sure either would enjoy the comparison, but you are blogging on his site !

By: Arlene

Arlene — Sat, 30 Aug 2008 16:34:14 +0000

Am I cynical in believing that the government will hoover up properties when the housing market bottoms out? Could this be Labour's opportunity to re-introduce social housing in the name of 'helping the people'? Doubtless, they will again call such action "investment" of one sort or another.

Kay Tie (7:56 pm) – a rather arrogant view, methinks. I would rather pay a monthly mortgage fee which will result in eventual ownership of property, than to pay rent, which is essentially money down the drain. For example, my flat costs me Â£500 per month in mortgage payments but I get Â£700 per month in rental income from it (and I will eventually own the property). As the credit crunch reduces people's ability to purchase property, so rents rise.

This means that those without properties pay more, just as those with variable rate mortgages pay more.

Yes, people who fail to consider future rate rises must take responsibility for their own actions. However, the government is responsible for allowing the reckless increase in money supply, to encourage consumerism and debt. How much did it gain in taxes from this policy?

It is high time that somebody made the case for fractional reserve banking to be squeezed incrementally until it ceases to exist.

Where is England's version of Ron Paul?

By: William B.

William B. — Sat, 30 Aug 2008 00:03:04 +0000

Affordability is indeed also about access to mortgages and I am certainly not advocating closing the market. However, if we return to loose lending the bubble will simply be reinflated, LTVs of 90-100% and limited analysis of availability to repay are both bad business and a trap for the very people least able to protect themselves. The market must be restricted so that mortgage finance is available to those with a decent deposit and good prospects of being able to meet repayments. This will restrict demand and squeeze prices down.
It will not make mortgages more expensive (indeed it makes them cheaper because there is less capital to repay than with a 100% mortgage) but it will prevent those who, at the moment, cannot afford to buy from being misled into thinking they can afford it.
Of course I am advocating a path which will lead to negative equity for many in the short term, but I believe that to be a lesser evil than lending too much to too many and creating a permanent bubble.
Bubbles can be very pretty, but if they get in your blood they give you the bends; the housing market has a severe case of the bends and requires depressurisation treatment.

Reply: There are 2 effective ways to limit credit – one is to put interest rates up, something the MPC failed to do in the good years. The other is to control the amount banks can lend overall through their capital ratios.

By: Chris

Chris — Fri, 29 Aug 2008 17:33:24 +0000

Firstly can I say thank-you for the support of William B and mikestallard and anyone else who has expressed support for myself and others in my position.

"Surely, since you have to live somewhere, the relative price, rather than the absolute price is what is most important?"

I agree this is an important point and in most cases relative wealth is more important than absolute (as in keeping up with the neighbours). but the difference between my current major assets (Â£0) and any house I could buy (Â£100,000s) is major and here to me the absolute price is the more important than the relative.

(Or to put it another way I don't care how much a 3 bedroom house costs if I cannot afford a 2 bedroom house)

By: William B.

William B. — Fri, 29 Aug 2008 06:48:58 +0000

Your article today could be construed as a lament over falling house prices, Mr Redwood. I do not believe the fall to be a matter for lamentation but for celebration.

Only by houses and flats returning to, what I believe to be, a true market value can those like Chris buy a home. I have commented here before about the problems caused by lenders throwing money at all-comers in the race for a quick buck. It creates an artificial bubble of demand which pushes prices far above the true underlying value of the property.

Only if the bubble is burst (not just deflated a touch) will the next generation of hard working aspirants become home owners. There will be victims along the way, especially those who bought when the market was high are have to sell because they must relocate for work. But protecting them is no reason for continuing the bubble one minute longer. A drop of 40% or more from prices this time last year will be needed for the market to revert to non-bubble values.

It is only when market prices reflect true underlying value that we will see a fair deal for first time buyers like Chris.

Reply: I too want a fair deal for first time buyers – which is why I want to see an end to Stamp Duty and HIPs charges to help them. I too regret the monetary laxness and the Credit binge on the way up which took house prices so high, but that has happened. The danger of the present situation is that falling prices undermines existing owners without necessarily helping new buyers, as they will find it very difficult to get a mortgage to take advantgae of the lower prices. Affordability is not just about price, it is also about access to mortgages. The irresponsible authorities have created boom and bust. We are now about the discover that a bust is not good for first time buyers, anymore than near the top of a boom is.

By: DBC Reed

DBC Reed — Thu, 28 Aug 2008 21:46:59 +0000

All of the above is not unfair but the criticisms apply to all the political parties which have coasted along for decades keeping the owner occupiers happy.
The government cannot be accused (or commended )for bringing house prices down: the responsibility lies with the banks ,which have defied the elected government's wishes and not supplied the housing market with cheap credit despite accepting copper-bottomed public sector securities to replace worthless private paper.
Unless the Conservative Party decides to nationalise the banks there is nothing to be done because the banks' actions look like a legitimate private sector response to their own problems -and the Guvmnt can go hang as far as they are concerned.

By: mikestallard

mikestallard — Thu, 28 Aug 2008 20:58:59 +0000

Today I was idly watching a programme about a couple of young Brits looking at house prices in Perth WA.
For a quarter of a million, they could buy a palace with Jarrahwood flooring and a jacuzzi. For half a million, they could buy a palace.

I am now, myself, rather pleased that house prices are falling because of the many people like Chris above.
Surely, since you have to live somewhere, the relative price, rather than the absolute price is what is most important?

Or am I missing out on something here?