Bank rate increase more likely as house prices rise
The Halifax today confirmed figures released recently by other lenders with the announcement today that house prices rose by a full one percent in September, with an annual increase of 8 percent on the period.
The figures show a strong increase and is the second month in a row that the rises have been so high. Whilst the Nationwide is cautious, Halifax has been quoted as saying that the fundamentals are sound and will “continue to support a healthy housing market over the coming months” – surely throwing done a challenge to the Bank of England and the Government as worries about a housing bubble start to grow again.
House prices have constantly outstripped inflation this past year, with the Bank of England’s target of 2 percent increase in CPI starting to look like a joke as house prices - generally the largest expenditure of any household – not even included. The ratio of rental yield to house prices is also at an all time low, indicating that storm clouds are gathering.
The Bank of England will review interest rates tomorrow with the likelihood of an increase of 25 points still in the balance.
A footnote from the Halifax notes that the full impact of the August increase of 25 points and increases in utility bills may prove to dampen the market towards the end of the year.
It also notes that the strength of the buy-to-let market shows no sign of abating, with more ‘amateur’ landlords getting into the market.
The concerns we’ve previously expressed are heightened by worries that the buy-to-let market is potential over exposed at the moment. As newer, less experienced landlords get into the market their leverage is high, so the combined elements of higher interest payments and low yields could mean that they are in negative income. If house prices turn then any potential capital gain would be wiped out and the ‘investment’ would quickly become a serious liability.
As before, we call on the Bank of England to raise rates this month (and the month after) so that the housing market either cools or declines in the short term. Then consumers will be encouraged to tighten their belts a bit more. The BoE and the government are only storing up problems for the future by encouraging speculation on property and a worrying willingness to take on huge debt.