Nov
6
Despite falling house prices First-Time Buyers (FTBs) are having to find larger deposits, stumping up an average of £19,000 compared to just £14,500 a year ago, according to data from the Council of Mortgage Lenders (CML). Even though data from both Nationwide and Halifax indicate house prices have fallen an average of 15% in the last 12 months.
Credit Crunch induced tightening of lending criteria, including the lowering of loan-to-value ratios, has reduced mortgage choice by nearly three quarters. From a peak of 13,000 different products in July 2007, the number is now less than 3,300 today.
Less choice and larger deposits mean that more than ever FTBs are turning to family in order to make their house purchase possible. In 2006 just 38 percent of buyers borrowed from family to fund the deposit, recently that figure has soared to around 50 percent as FTBs find that essential deposit by turning to their own ‘lender of last resort’ . . . mum and dad.
“So even though the total needed to buy a house is declining, first-time buyers are facing a new affordability challenge in the shape of a higher deposit required by lenders”, a CML spokesperson said.
Whilst the need for higher deposits exists, those wishing to take that first step on to the property ladder will continue to find it difficult. Some, particularly given the deepening recession and procession of bleak headlines, will decide not to bother. And, without the first-time buyers coming in and putting a floor under the housing market, the volume of property sales will continue to trend down dragging house prices down with it.
Oct
29
Mortgage Approvals Stabilise at Historic Lows
Filed Under News, Property | Leave a Comment
Today’s announcement by the Bank of England that new mortgage approvals for house purchases totalled 33,000 in September, a 1,000 increase from their August low, may provide a little comfort for all those with a vested interest in the housing market. However, it will take more than a slight bounce from historic lows to confirm a turn in the market, especially as volumes are still down by two thirds from their 2007 levels.
The trend of easing in interbank lending rates continues, the overnight dollar rate dropped by 10 basis points to 1.14pc and the 3-month rate fell 5bp to 3.42pc today, providing an encouraging sign that banks may be tentatively beginning to lend to each other again.
The beginning of what appears to be a three-month counter-trend rally for stockmarkets, which are still in the third cyclical bear of the larger secular bear which began in 2000, may also add a little positive feeling to those who have seen the value of their pension funds decimated in recent months.
In the meantime, borrowers will be hoping that the anticipated 50bp cut in the base rate, expected at the November meeting of the BoE Monetary Policy Meeting next week, will be passed along swiftly and help to cut their interest costs. Earlier today the FOMC, the U.S. equivalent of our MPC, cut the Fed Funds Rate by 50bp to 1.00pc.
No doubt the Government will be hoping that cheaper lending will be forthcoming, thereby providing some shoring-up of the debt-fuelled economy which they had fostered and which is now showing the signs of collapsing under its own weight.
This still leaves the bigger issue of the recession, the secular bull in unemployment and concerns about deflation spreading beyond the confines of asset prices. All these issues need to be addressed if the stabilisation in mortgage numbers seen last month are to be anything other than a pause before a resumption of the downward trend.
Aug
12
Are you a home owner who has been affected by the current Credit Crunch yet desperately need to move house?
IWC Media, the makers of Location, Location, Location and Relocation, Relocation, are making a one-off special tackling the tricky issue of the Credit Crunch, which will be presented by Phil Spencer.
Whether you need to relocate for work or move to a larger house and have been affected by the current housing dip, they would like to hear from you.
If you would like the chance to appear on the programme and benefit from Phil’s advice on how best to cope with your current situation and are available to move in the next couple of months then contact Martin Connery, Associate Producer, immediately.
email: martin.connery@iwcmedia.co.uk
phone: 0141 353 8495
Aug
8
The Secular Bear in Homeownership
Filed Under Property | Leave a Comment
Warning signs of an evaporating desire to be homeowners came in figures released by the Council of Mortgage Lenders today as the number of mortgages dropped by 81,000 from 11,822,000 in the second half of 2007 to 11,741,000 in the first half of 2008.
The drop was the largest ever recorded and only the third since the inception of the figures in 1971. The previous two declines being for 18,000 in the second half of 2004 and 14,000 in the second half of 2007.
The unprecedented back-to-back declines between July 2007 and June 2008 make it the first ever decline over a twelve month period in the whole 37-year history of the figures, reducing the number of mortgages by 95,000. (An interactive chart be found at inspecie.co.uk).
The acceleration in the reduction of mortgages, which cannot be laid solely at the feet of those who have cleared their mortgages and are now unencumbered, corroborates data from other sources which indicate a dearth of buyers.
The decline suggests that a secular bear in homeownership, and by extension house prices, is well under way.
First proposed in the free report “Sell Now! Why You Don’t Want to be a Homeowner” (”Sell Now!”), published by Debt Advice Bureau in October 2006, the secular bear hypothesis incorporated the view that the country was at or very close to saturation homeownership. That is that the multi-generation expansion of homeownership was about to go into reverse as the annual number of new people becoming homeowners would be less than those ceasing to be homeowners.
The chart below, taken from “Sell Now!”, highlights how relatively feeble the growth in mortgage numbers for owner-occupiers was during the house price boom.
In 1990-1992, the three years directly following the 1989 peak in house prices, the number of mortgages increased by 715,000. All when house prices fell, repossessions soared and interest rates were much, much higher than during the Noughties. However, from January 2000 to June 2006, the most recent figures when the chart was prepared, the number of mortgages increased by only 689,000 and, more importantly, on an ever declining growth rate.
Prices rocketing whilst growth rates fall is not a market built on strong underlying fundamentals.
Further confirmation of the theory, or should that be multiple confirmations, came in 2006 and 2007 courtesy of the ultimate contrarian indicator, Gordon Brown, with his uncanny ability to get the timing perfectly wrong.
Headline hogging promises to: have three million homes built; use tax payer money to subsidise purchases by key workers; expand the ill-conceived shared ownership schemes, and; increase homeownership to 75%, all served to underscore that homeownership and property prices were about to head south.
Secular trends are generational by nature, usually lasting 16 to 24 years. It is because of this that they happen. Everyone believes things only go one way. Once everyone believes that, they invariably change. Initially, no one can comprehend it. It will take time for the ingrained mindset to change. Even with prices falling, people will be talking of holding on, of buying low for the inevitable rise beyond the old highs. Only after more than a decade or two, when it becomes commonplace to think of investing in “that thing” as a bad idea and a waste of money, will the secular trend change and the next secular bull be under way.
As discussed in “Sell Now!”, factors that will help erode the desire to be homeowners and so contribute to a secular bear in homeownership, include:
- Secular bull in unemployment. (Already started).
- Multiple recessions between now and 2020. (Includes the 2008 recession predicted by the “GDP Wedge of Doom”).
- The demographic timebomb.
- Large debts carried by non-homeowners will make getting mortgages difficult. The effect, they will not be their to provide a floor to prices as they continue to decline.
- An expansion of the number of people per household. Reversing a multi-decade trend and a symptom of lower disposable income, increased unemployment and increased repossessions.
- The ultimate realisation that UK PLC is bankrupt. Government induced debt and unfunded liabilities currently stand at £360,000 per household on a Net Present Value basis.
The collapse in house prices and current Credit Revulsion are the catalysts for the first wave down. Whether the secular bear that follows charts an a-b-c pattern, which was the preferred choice in October 2006, or takes the form of a relentless protracted Japan-style decline, which became much more likely after the Northern Rock debacle, may only become clear once it is too late.
In the meantime, three key projections from October 2006 appear to be on course:
- Expected bottom in RPI-adjusted house prices in 2018-2023.
- A 100,000-repossession year.
- A 250,000-insolvency year.
Aug
5
The Stamp Duty Dilemma
Filed Under Mortgages, Property, Tax | Leave a Comment
Since Alistair “Move Over” Darling allowed himself to be drawn on Stamp Duty on Radio 4 the media has been full of debate.
In response to a rant on CityWire I posted my four penneth worth. The drift of which was:
1. Stamp Duty is an unfair and unjust tax. It was a post-War tax designed to deprive landowners of some of their wealth. It is a long time since that was the purpose it served. Ideally it should be abolished. Saving that it is overdue a very serious overhaul. The current environment provides a justifiable opportunity to do just that.
2. Any change should be permanent and not temporary. Deferring payment does nothing. Temporary, on the other hand, encourages people to delay purchasing before it starts and stop once things revert, causing more problems as a result. Any change also needs to be big. Piddling around with minor little band-aids will more likely make Darling et al look even more impotent. To put it bluntly, any change has got to be the BSD of changes.
3. The Treasury has got to stop thinking that overhauling Stamp Duty is costing them money.
Firstly, the party is over. The years of £6bn+ from Stamp Duty are gone. The house price bubble and orgy of transactions that allowed tens of billions to be stolen through Stamp Duty during the Noughties may have helped hide some of the maladministration of the public finances but that was then. The cash cow is dead and it is starting to stink. If things keep going the way they are then they’ll be lucky to raise six quid, let alone six billion.
Secondly, it isn’t their money. It certainly isn’t the public’s money. It is the hard saved money of certain members of the public with the aspiration of being homeowners. Letting house buyers off the pernicious tax is not throwing it away, as some whingers have claimed. Taking it from those purchasers and giving it to Incapability Brown and Co., that is throwing it away.
4. This is not precedent territory, Stamp Duty was futzed with during the previous house price correction. But those measures came in well into the correction, though prices still bobbed along going nowhere for a few years afterwards whilst the mild credit revulsion remained in place. Which means that as prices still have some way to fall, there is an argument for not shooting one’s bolt just yet, since it will be most productive when a floor in prices is likely to be forming.
However, the media focus means doing nothing may no longer be an option. Inaction could be an additional negative removing even more buyers from the market. After all, no one will want to purchase if they think there is a chance that Stamp Duty will be lifted. Result, housing market seizes up.
5. Liquidity. Without the availability of finance any changes to Stamp Duty will have, at best, negligible impact. Yes LIBOR rates seem to have stabilised, though the end of the year may be interesting, and yes we are close to a peak in CPI and RPI, with a subsequent bottom 2009Q4-2010Q2 before the next move up, Japan-scenario excluded, but if buyers can’t get mortgages properties can’t be bought.
6. Psychology. Fear is stronger than greed and fear is in charge at the moment. In the good times, there were no reasons not to buy. In the bad times, you don’t need another reason not be buy. As it stands, Stamp Duty is another reason not to buy. Whilst it makes sense as an investor to hold off, home movers who are trading one enmortgaged property for another don’t need to be mugged. The threat of a financial coshing only helps the housing market to seize up just that little bit more.
7. Home Information Packs. Since we are talking property sales … HIPs are a joke. They are ignored by prospective purchasers. Let’s face it, they are effectively a tax on selling. Scrap them.
Abolishing Stamp Duty completely is not going to happen. Therefore, any change should be to switch it to a marginal system, a la Income Tax. 0% on the first £250K minimum. Say 1% on the next £750K and then 2% on everything over the million. That should still be sufficient to appeal to the “tax-those-with-more-money-than-me” crowd.
Totally overhauling Stamp Duty by itself will do nothing. It needs to be one of several measures. Liquidity will take time to return, though the delusional lending practices are gone forever.
House prices still have some way to fall. If, as I suspect, we have moved into a multi-decade secular bear for house prices, as data will subsequently prove one way or the other, then persistent price inflation will be what keep nominal prices supported in the long run.
Stability and continuity are key at the moment. Property prices need to form a base and transactions drag themselves off life support. Jettisoning the current punitive Stamp Duty rates and replacing them with something fair(er), easily understandable and permanent would be a good start.
What the housing market doesn’t need is to be left twisting in the wind while the Dithering Duo um and ah. Or, even worse, be subjected to another ham-fisted exercise in ill-considered complexity which is then repeatedly improved-to-death.
May
13
10p Tax Rate: U-Turn with a Flourish
Filed Under Living Expenses, News, Poverty, Tax | Leave a Comment
Chancellor Alistair Darling today announced that personal tax allowances would be increased by £600, to £6,035 for under 65s, adding a flourish to the u-turn centered on the abolition of the 10p tax rate.
The headline at BBC News Basic rate taxpayers to get £120 misses a point. When the 10p tax rate existed that would have been £60 tax savings. The £120 savings are based on the 20% tax rate no longer being applied. Those on low incomes are still getting mugged, just now they get to wear a nice little hat on their heads as they get coshed. A £600 hat to be precise.
I’d like to think someone read More 180s than the World Darts Championship, though if they had it would have been the full £1,160 increase in the personal allowance and not the £600 increase, which is delayed until September, and refunds. Still with the complicated.
One could be suspicious of the timing of the u-turn, that is apparently going to cost taxpayers £2.7bn, given the recent abysmal showing by Labour in the local elections and the impending by-election in Crewe and Nantwich. A point made by Conservative MP and shadow chancellor George Osborne,
“Let no-one be fooled why you are making this statement today - not because you wanted to…. but because this divided, dithering and disintegrating government are panicking in the face of the Crewe and Nantwich by-election”.
Moreover, the £2.7bn will be financed from borrowing. The rationale being that more debt and incurring huge interest bills, to be paid by the taxpayer now and in the future, doesn’t drain money from the economy while it is slowing. Though the whole idea of draining money from the low-waged while an economy is slowing didn’t appear to concern them when they announced they were abolishing the 10p tax rate.
What this “solution” doesn’t seem to include is all the extra hassle and expense for employers dealing with updating all their records. Apparently, costs incurred by those other than the Government aren’t even worth acknowledging.
Then there are all the new tax tables and updated employer packs which will have to be produced and sent out. How much taxpayer’s money is being wasted there?
As for the low-waged, initial reaction is that they are more confused than ever.
The £120 spoken of in the BBC headline will come in the form of an effective £60 rebate in September and then should equate to £10 a month from then on, assuming you earn enough that is. This should be good news for many on low incomes. However, some of the very lowest earners, including those who don’t have families or work enough hours to claim tax credits, will still end up with less money.
Middle income earners, of which there are about 17 million, should gain. The abolition of the 10p rate coincided with the reduction in the basic rate of tax from 22% to 20%. Therefore, most middle-earners did not lose out from the loss of the 10p band but, like everyone else, they will save the £120 tax that the increased personal allowance provides. This equates to £2bn of the £2.7bn cost, the Institute of Fiscal Studies says.
The upshot of all this is that employees and employers will be less confident about the future. Employers will waste time and money trying to put semi-right what Darling et al made wrong. Those on low incomes will find finances a little tighter, in the near-term at least.
As for confidence in the Government’s ability to deal with the more fundamental problems of an economy heading towards contraction whilst house prices are falling, it is likely that it has been irrevocably damaged.
May
8
A Warning from Tiberius
Filed Under Living Expenses, News, Tax | Leave a Comment
It is said that Tiberius warned his regional commanders against overtaxing the citizenry by telling them, “boni pastoris est tondere pecus non deglubere”. It is of a good shepherd to shear his flock, not to flay them.
For a number of years tax rates have been creeping up. Both direct and indirect taxes being constantly cranked higher. During the good times hardly anyone cared that the Government kept confiscating ever greater swathes of people’s income. Credit was easy, house prices did nothing but go up, the economy, thanks to financial services and an obscenely bloated civil service, appeared to be tootling along fine. But when the outlook is uncertain the public loses its tolerance for being repeatedly mugged.
Stamp duty on house purchases up to 4%. Increase in the small business corporation tax rate, totalling more than 15% staggered over three years. The non-dom tax. National Insurance rates that creep forever upwards. An 80% increase on the lowest rate of Capital Gains Tax. And most recently, the ongoing incompetence that is the abolition of the 10% tax rate.
As with everything political, persecution by tax is initially on those who are seen as more fortunate. Picking on a minority group is fine, just as long as it is on status and not race. They are buying a bigger house than you, we’ll charge them four times the rate of stamp duty you pay. They are saving for their retirement, let’s rape their pension funds of £5bn+ a year. They have a bigger car than you, we’ll tax them more. Just wrap the penal tax rate in “pay their fair share” propaganda and you should be able to get away with it.
Analysis shows that, net of tax credits, the top 0.1% pay more income tax than the bottom 15% combined. They do not earn 150 times the income. If that top 0.1%, which is only 47,000 people, decided to leave there would be a big hole in the finances. The problem is there are big holes already.
The deteriorating economy, combined with profligate social spending and the escalating cost of maintaining bribes to keep key voter demographics on side, mean ever larger amounts of tax have to be drained from the populace. Result, larger groups have to be targeted. Hence the 10% tax band debacle.
The end result, many of the overtaxed are getting out. It is not only the so-called rich who are looking for the exit. Adding to the exodus is a middle-class squeezed on all sides. A tax system that persecutes single people for being single doesn’t help either. Now government proposals to tax companies on foreign profits have added many businesses to the growing list of those thinking of upping sticks.
The future does not look good. The secular trend is one of rising taxes across the board. Those being driven abroad by the Government’s ever more oppressive tax regime are net contributors to the country’s tax take. That means those who remain will find themselves having to pay a growing share of a rising tax bill.
Never mind being flayed, tax paying Britons prepare to be kebabbed.