House market – are we loosing the plot?
There’s a scene in Monty Python’s satire ‘Life of Brian’ where the protagonist drops a shoe, the crowd following him takes this as a ‘sign’ and everyone holds up one shoe. We’re beginning to think that in the property market life may be imitating art.
During the last few months we have reported that the headlines have fluctuated from one wild prediction to another in the property marketplace in the UK – of course this month is no different. As we’ve explained in previous articles this is generally to be expected in times of uncertainty i.e. when markets peak – in fact the central tenant of ‘chaos theory’ is that you have no way of knowing at the time what part of the curve you’re on.
In the USA and Australia, two markets that have been through very much similar growth patterns as the UK, there is a much wider acceptance that the markets are either stalled, or are in decline. Yet in the UK there seems to be continuous scratching and searching around to find more ‘signs’ that the markets are still increasing.
On the face of it, common sense would tell us that the housing markets in certain areas are stretched beyond their limits. When the press is full of articles suggesting that young married couples borrow from their parents or use credit cards to raise deposits for mortgages, then you know that the market is beyond reality. With the average income to loan ratio of 1:3.2 in the UK in general and in London an enormous 1:5.3 clearly things are at the limit – wages in the UK are growing at a slower rate than ever.
A few weeks ago the central bank in the UK increased its base rate 0.25 percent, with strong indications that it will increase them again, soon. These increases will take kick into most peoples mortgages in September – already the number of loan defaults is increasing in general – at this point many more may just not be able to repay their loans. At the same point many people who extended themselves by borrowing heavily on fixed rate loans are starting to come out of these loans and find themselves exposed to repayments that may be up to twice the current amount – they too will find it difficult to keep up with payments.
The latest headline is from the Department for Communities and Local Government, who say that the increase year-on-year is down from 5.6 percent in May to 5.2 percent in June. We note the fanfare over a fluctuation of 0.4 percent in the newspapers and comments in editorials – but really this is statistical noise. The trend can only be pause or stall.
As we approach a ‘tipping point’ the newspapers, estate agents and commentators will publish hundreds of words about smaller and smaller percentage fluctuations.