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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

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:

1. Secular bull in unemployment. (Already started).
2. Multiple recessions between now and 2020. (Includes the 2008 recession predicted by the “GDP Wedge of Doom”).
3. The demographic timebomb.
4. 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.
5. 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.
6. 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:

1. Expected bottom in RPI-adjusted house prices in 2018-2023.
2. A 100,000-repossession year.
3. A 250,000-insolvency year.

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.