Fears are growing over the state of the recovery in the housing market after new figures showed property prices have all but stalled.
The average cost of a home edged ahead by just 0.1 per cent to stand at £170,111 during the month, following a rise of 0.5 per cent in May, according to Nationwide Building Society.
The annual rate at which house prices are rising also fell for the second month in a row, dropping to 8.7 per cent, down from a year-on-year rise of 9.8 per cent in May.
The drop reflected the fact that house prices were increasing at a faster pace this time last year.
Nationwide said unless there was a significant pick-up in house price growth during the coming few months, the annual rate of house price inflation was likely to continue to drift lower.
Today's figures add to a raft of gloomy data on the property market, with figures from the Bank of England, released yesterday, showing that the number of mortgages approved for house purchase had remained broadly flat in May, as activity in the housing market failed to pick up.
Earlier this week the Land Registry reported a 0.2 per cent house price fall in England and Wales during May, while property intelligence group Hometrack said prices edged ahead by just 0.1 per cent during June as demand from potential buyers stalled.
Recent surveys have pointed to an increase in the number of homes being put up for sale, but this is failing to be matched by rising numbers of buyers. As a result the mismatch between supply and demand is beginning to ease, reducing the upward pressure on prices.
Howard Archer, chief UK and European economist at IHS Global Insight, said: 'The marginal house price rise in June reported by the Nationwide adds to a recent flurry of soft data on the housing market and further fuels our belief that house prices will struggle to make significant gains over the coming months and may very well be only flat overall through the rest of the year.'
Ed Stansfield, chief property economist at Capital Economics, is more pessimistic.
He said: 'After outstripping income growth for over a year now, house price gains more or less stalled in June.
'The impact of the fiscal squeeze on incomes and confidence is likely to drive house prices back down again over the next 18 months.'
But the slowdown in house price growth is not necessarily a bad thing.
House prices have risen by around 12 per cent since their low point in 2009 but many economists think the pick-up in the housing market has got too far ahead of the recovery in the wider economy.
Martin Gahbauer, Nationwide's chief economist, said: 'Last year house prices increased by more than 10 per cent from the trough and household earnings growth was only about 2 per cent, and it was flat or negative for some households.
'House prices were getting ahead of household earnings and that is not healthy in the long term.'
He expects house prices to 'stagnate' for the rest of the year as the supply of homes on the market continues to increase.
But although the slowdown in house price growth may be good news for the long-term health of the housing market, it is bad news in the short term for housebuilders.
Shares in major housebuilders, including Persimmon and Taylor Wimpey, were down 4 per cent today following the publication of Nationwide's figures.
Wednesday, 7 July 2010
Tuesday, 6 July 2010
Mortgage Lending and Property Values
NATIONWIDE, Britain’s biggest building society, has warned that house prices could drop 5% this year because of the credit crunch.Make that more like 20%!!
It is the first of the big lenders to publicly say values could fall. Its official forecast, and that of rival Halifax, is that prices will be flat this year.
Fionnuala Earley, chief economist at Nationwide, said: “We have always thought there was a risk of falls of up to 5% if the financial unrest carried on for longer than anticipated.” The prediction comes amid widespread fears of a mortgage “famine” as lenders rein in their lending.
Michael Coogan, of the Council of Mortgage Lenders, said: “We have entered a substantially slower phase in the housing market and there will be problems in the mortgage funding markets unless the Bank of England makes new, broader-based attempts to improve levels of liquidity.”The CML is still sticking with its official forecast of 1% house-price growth this year, but it admits privately that it may need to look at the prediction again later in the spring.
Mortgage rationing has so far affected only borrowers with smaller deposits or black marks on their credit files, but brokers said there are signs it is spreading. In the past fortnight, Mortgage Express, part of Bradford & Bingley, suspended all lending through brokers for one week, while Scottish Widows closed its phone lines to brokers. Halifax, Abbey and Lloyds TSB have also restricted deals available via brokers. Small building societies have been hardest hit. Bath pulled all its deals last week except those at its standard variable rate, saying the mortgage market had come to a “standstill”. Cheltenham & Gloucester, meanwhile, has said that borrowers relying on bonuses of more than £100,000 must now be referred to underwriters.
Jane McLelland, 31, of Tunbridge Wells, Kent, was forced to borrow £18,000 from her parents or face punitive rates when she came to remortgage after lenders valued her home at less than she had been expecting. With a mortgage of £198,000, she believed the property to be worth £220,000 and therefore needed to borrow 90% of the value of the property.However, Abbey said the 2-bedroom flat was worth just £200,000, taking her mortgage to 99% of the property value – but it does not offer loans on such high values.
McLelland said: “I bought my home two years ago for £200,000 and it was valued in October at £215,000. I was really disappointed that they downvalued it. Luckily, I had the option of finding more money so that I could reduce my loan to £180,000, or 90% with Abbey.”
Richard Morea of brokers L&C, said: “Surveyors are coming under increasing pressure to tighten their valuations as the property market starts to cool.”Ray Boulger, of John Charcol, a broker, said: “We had one client looking to remortgage with a £111,000 loan who was turned away because she couldn’t verify her address on the electoral roll despite other proof. Her property was worth £227,500 and we didn’t expect any problems, but her lender, Accord, didn’t agree.”
The above examples are becoming endemic in this mixed up market. But what happens when lenders wake up to the fact that valuations (valuations for mortgage purposes that is) are still sliding? The scenario is such that negative equity issues will become noticable. Then some lender will want more security, but if home owners cannot provide it will they want their money back, or at least a part?
If property prices keep falling, and there is NOTHING to stop them doing so (especially as lenders are so much more reluctant to actually lend), then the unshakeable faith we have in the UK, the 'culture' of property as an asset will be put to the test.
It will be bloody, personal bankrupcies will rocket and lenders will collapse. How else do you see it?
It is the first of the big lenders to publicly say values could fall. Its official forecast, and that of rival Halifax, is that prices will be flat this year.
Fionnuala Earley, chief economist at Nationwide, said: “We have always thought there was a risk of falls of up to 5% if the financial unrest carried on for longer than anticipated.” The prediction comes amid widespread fears of a mortgage “famine” as lenders rein in their lending.
Michael Coogan, of the Council of Mortgage Lenders, said: “We have entered a substantially slower phase in the housing market and there will be problems in the mortgage funding markets unless the Bank of England makes new, broader-based attempts to improve levels of liquidity.”The CML is still sticking with its official forecast of 1% house-price growth this year, but it admits privately that it may need to look at the prediction again later in the spring.
Mortgage rationing has so far affected only borrowers with smaller deposits or black marks on their credit files, but brokers said there are signs it is spreading. In the past fortnight, Mortgage Express, part of Bradford & Bingley, suspended all lending through brokers for one week, while Scottish Widows closed its phone lines to brokers. Halifax, Abbey and Lloyds TSB have also restricted deals available via brokers. Small building societies have been hardest hit. Bath pulled all its deals last week except those at its standard variable rate, saying the mortgage market had come to a “standstill”. Cheltenham & Gloucester, meanwhile, has said that borrowers relying on bonuses of more than £100,000 must now be referred to underwriters.
Jane McLelland, 31, of Tunbridge Wells, Kent, was forced to borrow £18,000 from her parents or face punitive rates when she came to remortgage after lenders valued her home at less than she had been expecting. With a mortgage of £198,000, she believed the property to be worth £220,000 and therefore needed to borrow 90% of the value of the property.However, Abbey said the 2-bedroom flat was worth just £200,000, taking her mortgage to 99% of the property value – but it does not offer loans on such high values.
McLelland said: “I bought my home two years ago for £200,000 and it was valued in October at £215,000. I was really disappointed that they downvalued it. Luckily, I had the option of finding more money so that I could reduce my loan to £180,000, or 90% with Abbey.”
Richard Morea of brokers L&C, said: “Surveyors are coming under increasing pressure to tighten their valuations as the property market starts to cool.”Ray Boulger, of John Charcol, a broker, said: “We had one client looking to remortgage with a £111,000 loan who was turned away because she couldn’t verify her address on the electoral roll despite other proof. Her property was worth £227,500 and we didn’t expect any problems, but her lender, Accord, didn’t agree.”
The above examples are becoming endemic in this mixed up market. But what happens when lenders wake up to the fact that valuations (valuations for mortgage purposes that is) are still sliding? The scenario is such that negative equity issues will become noticable. Then some lender will want more security, but if home owners cannot provide it will they want their money back, or at least a part?
If property prices keep falling, and there is NOTHING to stop them doing so (especially as lenders are so much more reluctant to actually lend), then the unshakeable faith we have in the UK, the 'culture' of property as an asset will be put to the test.
It will be bloody, personal bankrupcies will rocket and lenders will collapse. How else do you see it?
Thursday, 1 April 2010
UK Property Too Fragile to Consider
Estate agents will tell you London is the key indicator for the rest of the country when it comes to property.
And sure, the capital HAS seen the bulk of price rises in the last year.
But they’re not telling you the true story.
For example, right now the centre of Manchester is a property landmine that could blow in up in our face at any moment... with disastrous repercussions for the rest of the country.
Let me explain why...
Take a walk through Manchester today and it’s awash with empty shells of property... commercial, flats and residential houses... utterly unlettable... many unsaleable.
The Government would never highlight this, but their own figures show...
- Three in every 50 homes across the city are empty...
- 7,179 homes have been empty for six months or more with a total of 13,251 empty homes across the city...
- And the Greater Manchester area has 26,970 homes empty for more than six months
It’s not only Manchester... it’s other major cities too, including Leeds and London. In fact, at last count there were 750,000 empty houses in Britain!
What’s this got to do with you? And what does it mean for UK house prices in 2010?
Here’s the thing...
It shows this ‘recovery’ in the property market hasn’t been caused by a surge in demand OR a shortfall in supply.
Instead, record low interest rates are easing the burden on overextended borrowers... enabling the owners of these ‘empty shells’ to keep ticking over... while seducing more and more buyers into taking the plunge…
But that’s about to change. Drastically.
And for once, we’re not the only ones who think so...
According to Danny Blanchflower, a former member of the UK’s Monetary Policy Committee:
“House prices have risen by about 6%... But the markets are thinly-traded, and that’s pushed up prices... I don’t believe the data and I think prices will fall a lot.”
We believe house prices won’t just fall... they’ll HALVE and take nigh on a decade doing it.
I’m deadly serious.
From peak to bottom, UK residential and commercial property prices could easily fall an eye-watering 50% before they even begin to truly recover.
When property slumps, GET OUT of these stocks
Of course politicians, the media and house sellers like to talk down this idea.
Why? Because that’s what people want to hear! When people’s houses are worth more they feel richer... they’re more likely to spend their money... and vote the ‘right way’ in the polls.
According to one of the UK’s leading estate agencies, Savills, house prices in the UK are set to RISE by 27% up to 2015... and the National Housing Federation agrees, saying the average house price will reach £274,700 over the next three years.
The mainstream media and industry spokesman always love to be optimistic about house prices.
But we’ve seen this happen before...
“House prices to recover next year,” reported TheTimes on 17 November, 1989... But it took another 7 years for UK property to reach rock-bottom.
Interest rates were cut in each and every one of those years and it didn’t make the blindest bit of difference. By 1996 the average home had lost more than 40% of it value!
Home repossessions went into a tailspin... and personal bankruptcies rocketed...
The same thing could happen again in 2010.
And it could blindside over-zealous buyers who were too quick to believe the rosy outlook handed to them by agents, lenders and politicians.
Thing is... it’s not just the price of ‘bricks and mortar’ this deception will crush...
Wednesday, 24 March 2010
Comment by Roger Bootle: Budget 2010
"Government needs first and foremost to look to its own failings. Incompetent and bloated government is one of the most serious factors holding the British economy back."
Wednesday, 6 May 2009
Licensing or Taxing
The Government is right now in the middle of another campaign of pure SPIN: The need to License Landlords.
With the advent of the hopeless deposit scheme, its administrative nightmares and the way it bends over backwards to help the tenant is filling us with such foreboding. One case had the tenant abscond after 10 months without paying the rent due. The deposit scheme made the landlord wait 4 months before the deposit was finally handed back to its rightful owner. And why? Because the authorities we waiting to contact the tenant to get their permission!! As they had done a runner with no forwarding address - a futile process.
Where do they get these people from who make such idiotic decisions?
Will this proposed licensing scheme be any better? No way.
The new scheme has identified "accidental landlords" (as a new source of tax revenue?) as a "problem" as they do not understand their obligation to the tenants.
Like any scheme from this vacuous Government it will reduce the supply of private rentals at a time when no amount of social housing providers can satisfy the demand for homes. And they [social landlord sector] still have serious problems with BAD tenants.
When will we have the suggestions for a tenent licensing scheme? I wonder.
Please make any comment as this area needs a balanced review.
With the advent of the hopeless deposit scheme, its administrative nightmares and the way it bends over backwards to help the tenant is filling us with such foreboding. One case had the tenant abscond after 10 months without paying the rent due. The deposit scheme made the landlord wait 4 months before the deposit was finally handed back to its rightful owner. And why? Because the authorities we waiting to contact the tenant to get their permission!! As they had done a runner with no forwarding address - a futile process.
Where do they get these people from who make such idiotic decisions?
Will this proposed licensing scheme be any better? No way.
The new scheme has identified "accidental landlords" (as a new source of tax revenue?) as a "problem" as they do not understand their obligation to the tenants.
Like any scheme from this vacuous Government it will reduce the supply of private rentals at a time when no amount of social housing providers can satisfy the demand for homes. And they [social landlord sector] still have serious problems with BAD tenants.
When will we have the suggestions for a tenent licensing scheme? I wonder.
Please make any comment as this area needs a balanced review.
Saturday, 4 April 2009
Dollar Denominated Property Under Threat
The coming financial storm no one is talking about
BY MANRAAJ SINGH
Dear Reader,
There’s a major trend that could have a devastating impact on the US dollar.
What’s shocking is that I haven’t come across a single other financial analyst who has fully grasped the implications of it.
This is crazy, given that it will affect anyone who owns dollar-denominated investments, whether it’s gold, international shares or commodities. In fact, even if you aren’t directly invested in them, there is very good chance your pension fund is.
That’s how big this is.
The thing is, though, you can turn this trend to your advantage, as we’ll see in a moment.
I’m talking about the planned creation of a single common currency in the Gulf States. A new monetary union just like the eurozone, but for oil rich countries.
That might not sound like a big deal. After all, who really cares what a bunch of Arab countries are doing with their currencies?
But this is going to have a colossal impact on the world economy. Let me explain…
Last Friday, I explained why the dollar’s long-term value is under threat as the US economy falters. But now let me show you the threat to the dollar that the rest of the world still hasn’t picked-up on…
The great petrodollar merry-go-round is about to break down
You see, right now the dollar receives a huge amount of support from being the standard currency for international trade. The international oil trade is a big part of that. Oil is priced in dollars on the international market. It is bought and sold in dollars.
What that basically means is that countries that want to buy oil need to have dollars. Countries that sell it are left holding dollars. That fuels global demand for the American currency. It props up its value…
Right now, the only major producer that sells in a different currency is Iran. They take their payments in euros and Japanese yen. But it is the Gulf Arab states like Saudi, Kuwait and the UAE that are at the heart of the global oil trade.
But now think of a situation where global oil production is increasingly concentrated in the hands of the Gulf Arab countries. And, as I explained in a recent special report, that is what is going to happen as non-OPEC production collapses.
Now consider what the impact on the dollar is going to be when those countries say they don’t want to be paid in dollars anymore. Once they’ve got a common currency you can bet they are going to price their oil in it. They will want to be paid in Dirhams or Dinars or whatever else it is that they eventually name it.
That is going to short circuit global demand for the dollar. Because oil importing countries won’t need to buy dollars to pay for their oil anymore. The Gulf countries won’t be left holding huge reserves of dollars which they then have to recycle into the US…
Right now the oil-exporting countries are the second-biggest holders of US government debt after China. That’s because they get paid for their oil in US dollars. A lot of that money then gets reinvested in US dollar-denominated assets. But if they aren’t being paid in dollars anymore, they won’t have to recycle them by investing in US government bonds. International demand for the dollar is going to plunge. And the value of the dollar is going to plunge with it.
Two years to D-Day?
The Gulf Co-operation Council (GCC) states have been talking about this for a long time. And they signed the first concrete agreements to implement it last September. Since then they have been moving ahead with their plans. By the end of this year, they should have a monetary council in place. This will be a precursor to the Gulf central bank. And it will decide on the name and value of the currency.
They had planned to have their new currency in place by 2010. I doubt they will manage it that quickly though. The way I see it, the impact of the financial crisis will force them to push it back by about a year.
But there is absolutely no doubt about it – the Gulf common currency is now on its way. And when it happens it is going to kick the legs out from under the dollar.
As I said though, there are ways that you could profit from this. An obvious trade is to go short on the dollar. There are listed funds that allow you to do that. And again, not all dollar-denominated assets will lose out. Whilst the value of US shares, for example, is going to be eroded, the value of certain dollar-denominated commodities like oil and gold rises as the dollar weakens.
Kind regards,
Manraaj Singh
For The Right Side
Editor’s recommendation: Manraaj Singh is Chief Investment Strategist at Profit Hunter. As he explains, when the dollar falls, oil goes up. Click here to receive his latest smart way to play the “oil rebound”.
BY MANRAAJ SINGH
Dear Reader,
There’s a major trend that could have a devastating impact on the US dollar.
What’s shocking is that I haven’t come across a single other financial analyst who has fully grasped the implications of it.
This is crazy, given that it will affect anyone who owns dollar-denominated investments, whether it’s gold, international shares or commodities. In fact, even if you aren’t directly invested in them, there is very good chance your pension fund is.
That’s how big this is.
The thing is, though, you can turn this trend to your advantage, as we’ll see in a moment.
I’m talking about the planned creation of a single common currency in the Gulf States. A new monetary union just like the eurozone, but for oil rich countries.
That might not sound like a big deal. After all, who really cares what a bunch of Arab countries are doing with their currencies?
But this is going to have a colossal impact on the world economy. Let me explain…
Last Friday, I explained why the dollar’s long-term value is under threat as the US economy falters. But now let me show you the threat to the dollar that the rest of the world still hasn’t picked-up on…
The great petrodollar merry-go-round is about to break down
You see, right now the dollar receives a huge amount of support from being the standard currency for international trade. The international oil trade is a big part of that. Oil is priced in dollars on the international market. It is bought and sold in dollars.
What that basically means is that countries that want to buy oil need to have dollars. Countries that sell it are left holding dollars. That fuels global demand for the American currency. It props up its value…
Right now, the only major producer that sells in a different currency is Iran. They take their payments in euros and Japanese yen. But it is the Gulf Arab states like Saudi, Kuwait and the UAE that are at the heart of the global oil trade.
But now think of a situation where global oil production is increasingly concentrated in the hands of the Gulf Arab countries. And, as I explained in a recent special report, that is what is going to happen as non-OPEC production collapses.
Now consider what the impact on the dollar is going to be when those countries say they don’t want to be paid in dollars anymore. Once they’ve got a common currency you can bet they are going to price their oil in it. They will want to be paid in Dirhams or Dinars or whatever else it is that they eventually name it.
That is going to short circuit global demand for the dollar. Because oil importing countries won’t need to buy dollars to pay for their oil anymore. The Gulf countries won’t be left holding huge reserves of dollars which they then have to recycle into the US…
Right now the oil-exporting countries are the second-biggest holders of US government debt after China. That’s because they get paid for their oil in US dollars. A lot of that money then gets reinvested in US dollar-denominated assets. But if they aren’t being paid in dollars anymore, they won’t have to recycle them by investing in US government bonds. International demand for the dollar is going to plunge. And the value of the dollar is going to plunge with it.
Two years to D-Day?
The Gulf Co-operation Council (GCC) states have been talking about this for a long time. And they signed the first concrete agreements to implement it last September. Since then they have been moving ahead with their plans. By the end of this year, they should have a monetary council in place. This will be a precursor to the Gulf central bank. And it will decide on the name and value of the currency.
They had planned to have their new currency in place by 2010. I doubt they will manage it that quickly though. The way I see it, the impact of the financial crisis will force them to push it back by about a year.
But there is absolutely no doubt about it – the Gulf common currency is now on its way. And when it happens it is going to kick the legs out from under the dollar.
As I said though, there are ways that you could profit from this. An obvious trade is to go short on the dollar. There are listed funds that allow you to do that. And again, not all dollar-denominated assets will lose out. Whilst the value of US shares, for example, is going to be eroded, the value of certain dollar-denominated commodities like oil and gold rises as the dollar weakens.
Kind regards,
Manraaj Singh
For The Right Side
Editor’s recommendation: Manraaj Singh is Chief Investment Strategist at Profit Hunter. As he explains, when the dollar falls, oil goes up. Click here to receive his latest smart way to play the “oil rebound”.
Wednesday, 18 March 2009
FSA to Destroy the Housing Market
Apparently, potential homebuyers will be banned from borrowing more than three times their annual salary, under new rules to be announced this week. And they'll have to stump up at least a 5% deposit.
The Telegraph reports that the tough new rules are part of a move by the Financial Services Authority (FSA) to change its regulation of the financial industry.
I'm not sure if anyone's told the FSA, but I think the new rules might have come a little bit on the late side…
The latest move to regulate the housing market shows the limitations of regulation. The FSA is talking about asking for minimum deposits of 5% when someone buys a house. But these days, most banks are asking for at least 10% minimum, and 40% if you want the best deals. And that's assuming they don't then find an excuse to get out of lending at all.
Why regulators waited until the bust came along
So why introduce the rules now? After all, during the good times, it was clear that housing was in a bubble. It should have been clear to anyone that lending at six times salary, the widespread use of interest-only mortgages, and 100% or higher loans, were a recipe for disaster when combined with historically high house prices.
And the truth is, it was clear to most people. They might be speaking with the benefit of hindsight, but when you talk to City workers, they all knew that the good times couldn't last forever. But while the music was on, they just kept on dancing.
So why not introduce the rules then? Well, like everything else in markets, it all comes down to human behaviour. During the good times, everyone gets swept up in the bubble mentality. The political pressure to allow bubbles to keep expanding is irresistible. Can you imagine the carnage if the FSA had introduced these rules a couple of years ago?
Mortgage lending would have dried up overnight. The housing market would have collapsed. And the FSA (and by extension, the government) would have been hit with the blame. It doesn't matter that popping the housing bubble prematurely may have left us in better shape for today's big crisis. No one would have won any popularity contests by being the ones to stand up and call a halt to the party.
So that's why regulators tend to wait until the bust comes along. They then try to cram in as much regulation as possible while everyone is still shell-shocked and not thinking straight.
New regulations are useless now
But the trouble with this is that you then end up with completely useless regulations. As we pointed out banning 100% mortgages is pointless now, because you can't get them anymore. The market has already done everything the FSA might want to happen, and more.
So the regulations made today will make life more difficult for tomorrow's mortgage borrowers and lenders. But they won't stop the next bubble. Because that'll inflate in a different area, one that the regulators haven't paid as much attention to. And when that bubble looks like it's getting out of hand, the regulators will just ignore it, because everyone's having fun, and they don't want to be seen as the party poopers.
Then it'll pop, and they'll make up a load of rules to try to prevent it from ever happening again, as always happens.
Of course, the other thing to ponder is how this chimes with the government's mission to "get the banks lending again". I have no problem with the principle of sensible lending – I just think it should be up to the lender to decide what that consists of – but if you're going to restrict loans to three times salary, then we'd really better get used to sharply lower house prices.
Property bargain-hunters look set to be disappointed
Rightmove reports that asking prices in England and Wales rose for the second month in a row over the last four weeks. Sellers are apparently having difficulty adjusting to reality, says the group's commercial director Miles Shipside.
Prices are still down 9% on last year, but with the average price sitting at £218,000-odd, that's well out of the range of your average worker, given that the average salary in the UK is around £25,000 (and I realise a lot of people outside London will think that's overstating it somewhat).
Bulls have tried to point to the fact that Rightmove has seen a 120% rise in the number of enquiries to its site compared with this time last year. However, it's no surprise that people are more interested in looking at properties – with all this talk of a crash, they're probably hoping to find some bargains.
But with sellers "still pricing wishfully high" as Shipside puts it, it looks like they'll be disappointed. Prices still have a good way to come down – Numis Securities reckons as much as 55%, as we noted last week (Read: Will Britain go bankrupt?). And by the time houses are genuinely cheap, we'll no doubt be obsessing over some other asset bubble.
The Telegraph reports that the tough new rules are part of a move by the Financial Services Authority (FSA) to change its regulation of the financial industry.
I'm not sure if anyone's told the FSA, but I think the new rules might have come a little bit on the late side…
The latest move to regulate the housing market shows the limitations of regulation. The FSA is talking about asking for minimum deposits of 5% when someone buys a house. But these days, most banks are asking for at least 10% minimum, and 40% if you want the best deals. And that's assuming they don't then find an excuse to get out of lending at all.
Why regulators waited until the bust came along
So why introduce the rules now? After all, during the good times, it was clear that housing was in a bubble. It should have been clear to anyone that lending at six times salary, the widespread use of interest-only mortgages, and 100% or higher loans, were a recipe for disaster when combined with historically high house prices.
And the truth is, it was clear to most people. They might be speaking with the benefit of hindsight, but when you talk to City workers, they all knew that the good times couldn't last forever. But while the music was on, they just kept on dancing.
So why not introduce the rules then? Well, like everything else in markets, it all comes down to human behaviour. During the good times, everyone gets swept up in the bubble mentality. The political pressure to allow bubbles to keep expanding is irresistible. Can you imagine the carnage if the FSA had introduced these rules a couple of years ago?
Mortgage lending would have dried up overnight. The housing market would have collapsed. And the FSA (and by extension, the government) would have been hit with the blame. It doesn't matter that popping the housing bubble prematurely may have left us in better shape for today's big crisis. No one would have won any popularity contests by being the ones to stand up and call a halt to the party.
So that's why regulators tend to wait until the bust comes along. They then try to cram in as much regulation as possible while everyone is still shell-shocked and not thinking straight.
New regulations are useless now
But the trouble with this is that you then end up with completely useless regulations. As we pointed out banning 100% mortgages is pointless now, because you can't get them anymore. The market has already done everything the FSA might want to happen, and more.
So the regulations made today will make life more difficult for tomorrow's mortgage borrowers and lenders. But they won't stop the next bubble. Because that'll inflate in a different area, one that the regulators haven't paid as much attention to. And when that bubble looks like it's getting out of hand, the regulators will just ignore it, because everyone's having fun, and they don't want to be seen as the party poopers.
Then it'll pop, and they'll make up a load of rules to try to prevent it from ever happening again, as always happens.
Of course, the other thing to ponder is how this chimes with the government's mission to "get the banks lending again". I have no problem with the principle of sensible lending – I just think it should be up to the lender to decide what that consists of – but if you're going to restrict loans to three times salary, then we'd really better get used to sharply lower house prices.
Property bargain-hunters look set to be disappointed
Rightmove reports that asking prices in England and Wales rose for the second month in a row over the last four weeks. Sellers are apparently having difficulty adjusting to reality, says the group's commercial director Miles Shipside.
Prices are still down 9% on last year, but with the average price sitting at £218,000-odd, that's well out of the range of your average worker, given that the average salary in the UK is around £25,000 (and I realise a lot of people outside London will think that's overstating it somewhat).
Bulls have tried to point to the fact that Rightmove has seen a 120% rise in the number of enquiries to its site compared with this time last year. However, it's no surprise that people are more interested in looking at properties – with all this talk of a crash, they're probably hoping to find some bargains.
But with sellers "still pricing wishfully high" as Shipside puts it, it looks like they'll be disappointed. Prices still have a good way to come down – Numis Securities reckons as much as 55%, as we noted last week (Read: Will Britain go bankrupt?). And by the time houses are genuinely cheap, we'll no doubt be obsessing over some other asset bubble.
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