The National Crime Agency and our Prime Minister are suddenly concerned that the UK has become the natural home for a lot of money which might not be entirely honestly gained. The influx of this cash from overseas into London residential property, often through a series of shell companies, is a genuine cause for concern.
Most commentators accept that the £356m of gross lending in 2007 was excessive, but they are also agreed that the £138m to £144bn seen from 2009 to 2011 was abnormally low. The return to circa £200bn in 2014 and 2015 is an improvement, but still short of the £250bn threshold that many consider is the base of normality. However, it is not just gross lending that has shifted gear. A more important measure from the broader economic perspective is net lending. Real growth in the total of mortgage balances outstanding is much more likely to fuel house price inflation (HPI). The more often quoted gross measure is a proxy for market activity, as it is this which drives estate agency, solicitor instructions and valuations – the wider property economy. However, it is the net rate which we should consider to debate the likely impact of initiatives on house prices and the wider market.
With UK residential property assets now totalling £5.75trillion, the £1.3trillion of outstanding mortgage debt looks small. The fact this asset value has grown by £966bn in the last 5 years at a time when net mortgage lending has grown by less than £50bn indicates that it is not increasing mortgage lending that is the main driver of increasing UK property prices. The volume and value of cash buyers appears to be the main driver of HPI. It is for these reasons that any attempts by the Financial Policy Committee to curb house price growth, with loan to income or debt to income caps, are likely to fail. Indeed all this will do is limit the ability of genuine purchasers who can afford and want to buy from getting on the housing ladder.
Another significant factor is the property market itself. Reports in the last few weeks indicate that the numbers of properties available for sale is at the lowest level in recent memory. There are a range of factors contributing to this. Firstly, we have seen a gradual decline in numbers of properties for sale as those looking to purchase have not seen a property they want to buy, meaning they will not put their own house on the market – this downward spiral has now reached critical proportions.
Secondly, last time sellers have not been coming to market as increased longevity and a push by the care services to maintain people in their own home has reduced volumes. The rise in Equity Release will further reduce the elderly down-sizing and making homes more homes available.
Thirdly, the rise of Let-to-Buy has also reduced transaction levels and the stock of desirable properties available to purchasers. More people seeing property as their longer term, into retirement, funding solution rather than a traditional pension, is reducing property turnover.
Fourthly, we continue to see low levels of re-possessed properties as lenders continue to show forbearance, with large numbers falling into professional portfolios rather than appearing to the widest market.
Fifthly, the 5% Stamp Duty Land Tax rate which is incurred on most property purchases is making some seriously consider placing their property on the market. Where costs will exceed £30k, it appears a better bet to extend and renovate than move.
Finally, it appears that following the largesse of the Thatcher years and the grand recession in 2008, the Great British Mrs and Mrs Average have become risk averse. They do not see moving up the housing ladder and taking on more mortgage debt as necessarily the right way to go. Keeping what they have got is a more comfortable place, than “climbing the ladder” and more debt.