After the slight calm after the storm of the past few weeks that has raged in the waters of the property market (or at least if certain elements of the media are to be believed) there has been further evidence this week that trying to control the elements is a foolhardy past time. After the announcement by Ed (“I love my brother-honest”) Miliband that on coming into the hot seat at Number 10 he would cap energy prices for at least 20 months, the immediate effect was that 2 of the biggest energy companies saw £2 billion wiped off their share price. This is not intended as a lament for those working in an energy company whose pension package may have been affected, but it is a clear illustration that trying to control anything- particularly through artificial measures- always produces a flawed result. As we intimated last week on the blog, the call by the Royal Institution of Chartered Surveyors to place a 5% cap (in any one year) on house price rises will not produce the desired result. Capping the housing market -though perhaps well-intentioned-will not keep everything on an even keel, it could in fact drive the property market in the opposite direction (rather like the share price of certain energy companies).
Other clichés are available…but the ones that relate to dodgy estate agents, second hand car dealers and other ne’r-do-wells are starting to resurface as it is reported that estate agency is a boom industry. Unfortunately for the lady who penned the article published in the Daily Mail on September 2013, such rogues have never actually disappeared, they have just taken a less prominent role in recent years. Some of the shenanigans that she lists have been going on since Jesus was in short trousers (other deities are available). Being forced into a packaged solicitor arrangement together with a packaged in-house mortgage product, is sadly, nothing new; and despite what the estate agent may tell you, nobody has to do it. There are many very good independent solicitors and financial advisors in our area who never seem to be recommended by any of our corporate brethren. The reason for this is, although they do a very good job, they do not pay introductory fees to the estate agent or what some people may call back-handers. We are starting to sound like a worn record with the needle stuck, but again we cannot emphasise enough that any potential purchaser should seek independent advice before committing to anything.
After the mass hysteria of last week with people running lemming-like to become estate agents/put their homes on the market to make a fortune to allow them to become buy-to-let zillionaires, this week has seen the resumption of normal service. Just after the Royal Chartered Institute of Surveyors (RICS), forewarned – quite rightly – of the dangers of super house price inflation – the Office for National Statistics produced a report of what actually is happening. The report stated that if you lived in London and certain areas of the South East, then life was indeed a bed of roses and you could name your price. Outside of the capital, the ONS reported, “house price growth remains stable, although house price in London are increasing faster than the UK average”. For those members of the population who don’t live in the economic hub of London and its environs, this was confirmation that they were not in the early stages of dementia; if your property is worth less than it was 5 years ago and your income has also fallen, how can one think that the feel-good factor is flourishing and all is well in the world? Allowing for the fact that it is his party’s annual conference this week and all possible political acumen is to be exploited, somebody should have a quiet word in the delicate ear of Mr Vince Cable; there is no housing bubble in the mass of the voting public. The pronounced spike in London carries no real political voting clout because most of the purchasers are non-UK residents and do not get issued with a ballot card for our General Election. Being invited onto an oligarch’s yacht does not construe a housing bubble.
The new Governor of The Bank of England, Mark Carney quelled the hysteria when telling MP’s, “there are many big pockets of the country where there has not been any meaningful recovery in the housing market”. Many families living outside London and the South-East would agree.
In the Bard’s tale of murder and intrigue in the quest for the Scottish throne, the three witches famous – and invariably misquoted- chant in their own version of ‘Ready, Steady, Cook’ could be a metaphor for the current state of estate agency in the United Kingdom. I would not suggest that root of hemlock or gall of goat are ingredients in the property market stew but nearly every other ingredient has this week been chucked into the mix. I cannot remember the last time that the property markets – at all levels – featured so heavily in the musings of the Fourth Estate. ‘You and Yours’ (Tuesday lunchtime on Radio 4) focussed entirely on the property market and in keeping with the genteel listening audience expected from the home of The Archers did not descend into the typical hysteria of other radio ‘phone-ins. It actually covered a number of very valid points with a cross section of people offering comment and opinion. The most prevalent was the “meddling” of the coalition government with the introduction in 2012 of Funding For Lending and the first stage of Help To Buy earlier this year. The world of the estate agent was further covered in the Jeremy Vine Show yesterday lunchtime whose coverage was generated by the release of figures from the Office Of National Statistics (ONS) reporting an estate agent boom. Apparently the number of employees in the estate agency sector has increased to 562,000 in the second financial quarter of 2013; the largest number since records began in 1978. If the figures are to be taken at face value this means that my occupation has seen an increase of 77,000 (from 485,000) since June 2012. Really?
The news of estate agents breeding like rabbits was not met with joy in all quarters. The ‘Estate Agent Oldies’ that featured on Simon Mayo’s Drivetime kicked off with Fleetwood Mac’s, “Little Lies”. Harsh. But there is an element of if not outright dishonesty, illusiveness and fallacious use of information. Firstly as this blog has alluded to before, what is happening in London and the South East is not representative of the rest of the country. The ONS figures do not detail where the estate agent boom is most prevalent. My money would be on London and the surrounding area. Not surprising but not nationally representative. Yes, the market is getting better but it is a steady improvement. Secondly, the Government schemes, though welcomed by many, distort market forces. They are effectively tampering in an open market allowing many people to acquire an asset that they wouldn’t normally be able to afford and one that they may find in years to come is worth less than its original purchase price. In trying to counter the looming threat of another housing bubble The Royal Institution of Chartered Surveyors (RICS) have called for radical new rules to be introduced. These include banning banks from lending more than 80% of a property’s value and a mortgage being based upon a maximum of 5% increase per annum in the property’s value. Seeing the latter through as an example; a house bought 5 years ago for £100k, is now worth £160k but a mortgage raised on it can only be based on a value of £125k.
Quite rightly nobody wants to see the housing market overheat and Britain to be again crippled with debt, but artificial suppressors are just as dangerous as artificial stimuli.
An oft heard cry of those in the property world who cannot emphasise enough that the location of your house far outweighs the importance and value of your chosen décor, the disco ball in the master bedroom, or the marble tiling in the bathroom. I can add further fuel to the fire of cartography with my experiences of the past week. If you should ‘choose’ to collapse in a heap on the floor of a country club with a subarachnoid haemorrhage, try to ensure that the said country club is a mere 7 minutes away from a hospital with one of the most highly rated neurological wards in the country. The workings of a hospital has always held a somewhat ghoulish fascination for me (admittedly I watch Holby City with a pillow in front of my face) but I can now freely admit that that interest has now been sated. Joking aside, the last few days have only re-emphasised to me that location really is everything.
Location featured subcutaneously in this week’s national property news. Hometrack’s monthly survey reported that house prices have risen 0.4% in August against 0.3% in July and many deem Britain’s’ housing market to be at its strongest for 6 years with an accelerating recovery knocking out the traditional August slowdown. A representative from Hometrack comments, “the balance of supply and demand recorded by the survey leads house prices by 3 months and is an indicator of future changes” (sic). As always though, the mismatch between supply and demand is more pronounced in the traditional hotspots of London and the South East. Yet again, location is the primary driving factor.
The downside of these rising house prices is that for many, home ownership may well prove to be an unattainable goal. The machinations of the world since 2007 have forced the country to become a nation of renters. In 2001 the average house price in England and Wales was six times the average person’s annual income; today it is nine times the average salary. At these rates, it is impossible to get a mortgage without a huge deposit. Inflation and therefore savings rates are at rock-bottom meaning that the ability to gather that initial deposit is still for many a never-ending if not impossible struggle. This week, Mark Carney, the new Governor of the Bank of England reiterated his message that interest rates are to remain low until at least 2015. There are several voices of dissent with City figures warning that this plan is flawed and risks accelerating inflation and increasing the probability of boom-bust cycles. For those of us who were around when Jesus was still in short trousers and have seen the cycle peak on more than one occasion, the resulting troughs are something to be avoided.