Barclays 100% Mortgage Pours Fuel on UK House Prices Bull Market
05-07-2016
Barclays 100% Mortgage Pours Fuel on UK House Prices Bull Market
The UK mortgage providers are once more innovating new products with old objectives, that of allowing those who cannot afford to buy their first homes, being engineered an helping hand onto the property ladder. Which is what Barclays 100% mortgage (no deposit) represents at upto 5.5X earnings. However we are not quite back to the free for all frenzy of 2007 when the credit markets were so loose that self certified mortgages were rampant and not forgetting savers who could lock in 7%+ yields! Even savvy borrowers could turn the tables on the credit card providers and rake in several thousands of pounds a year by stoozing (borrowing on 0% credit cards and saving in accounts paying as high as 7%).
Instead today's mortgage market reality is one of a slowly thawing deep credit freeze that began Summer 2007, that within a year would bring the worlds financial system to the brink of total collapse. No seriously we were just hours away from total financial collapse as the following video illustrates of just how close the U.S. Financial System came towards ending! At 2 minutes, 20 seconds into this C-Span video clip, Rep. Paul Kanjorski of Pennsylvania in February 2009 explains how the Federal Reserve told Congress members about a "tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars." According to Kanjorski, this electronic transfer occurred over the period of an hour and threatened a further $5 trillion to be drawn out triggering a total collapse of the Financial System, which prompted Hank Paulson's emergency $700 billion TARP bailout action.
With that in mind that the big banks still heavily supported by the central banks have still nowhere near recovered from their near death experience and so rather then Barclays 100% mortgage being a leap over the cliff, instead is a mere belie crawl towards the edge for the key component is that Barclays 100% mortgage DOES require a 10% deposit from friends or family (usually Mom and Dad) to be deposited into a Barclays savings account for 3 years. And if after 3 years the mortgage is upto date then they will get their money back with interest.
So basically Mom and Dad cover the risks for the first 3 years after which the expectations are that there would be at least 10% equity built up by then via capital repayments and house price inflation so as that the real risk to Barclays is never likely to be more than 90%. Apparently a win win situation for home buyers without deposits (those with wealthy parents) and also for Barclays which gets to expand its mortgage book.
Of course Barclays 3 year bet only pays of if house prices don't fall! They can stagnate, but NOT fall for then the borrowers will be in negative equity and thus at higher risk of defaulting on their mortgages.
So what are the future prospects for UK house prices ?
UK House Prices Momentum
The Non seasonally adjusted UK house prices momentum shows that after a post election slowdown to 7%, momentum has once more steadily increased to an inflation rate of 11.1%, now at its highest rate since the last housing bull market! Therefore the effective house prices momentum range is between +11% and +7% which implies to expect an average annual house price inflation rate for 2016 of about 9%.
Therefore don't expect any follow through on March's surge higher to 11.1% as the buy to let sector frenzy is over! Instead I expect house price inflation to fast slow to a more sedate pace of about 8% pr 7% per annum.
UK House Prices 5 Year Forecast
In terms of the prospects for UK house prices, it is now well over 2 years since excerpted analysis and the concluding 5 year trend forecast from the then forthcoming UK Housing Market ebook was published:
30 Dec 2013 - UK House Prices Forecast 2014 to 2018, The Debt Fuelled Election Boom
UK House Prices Forecast 2014 to 2018 - Conclusion
This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.
My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts as the following forecast trend trajectory chart illustrates:
UK average house prices (£212,859) are currently showing a 3.6% deviation against the forecast trend trajectory, which if it continued to persist then in terms of the long-term trend forecast for a 55% rise in average UK house prices by the end of 2018 would translate into a 9% reduction in the forecast outcome to approx for a 46% rise by the end of 2018.
The bottom line is that house prices are going to continue to get ever more expensive where those who are waiting for a crash to more affordable levels will continue to regret not buying as the only way housing can even start to become more affordable is if the UK literally triples the number of new builds each year from approx 140,000 per year to 400,000, something that is just not going to happen as it would literally mean the government undertaking to build a new major city EVERY YEAR! Instead it has been over 40 years since the last new town let alone city was built.
So in my opinion I think it is inevitable that eventually the government will be forced to build a series of new towns that will grow into new major cities that should be announced over the coming years, which whilst encouraging economic growth will however also encourage further mass immigration, so even a series of new towns and cities may only make a marginal short-term difference to UK housing market affordability ratios.
And where the Barclays 100% (90%) mortgage is concerned, it is just another step towards reaching that ultimate bubble phase, and we all should know what follows the bubble! So don't forget that at the end of every bull market lies a BEAR MARKET, just as I warned in the months leading up to the August 2007 bubble peak that the clueless mainstream press remained blind to for at least another YEAR! With garbage headlines for a soft landing rather than the unfolding CRASH!
22 Aug 2007 - UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth
UK Housing Market Conclusion:
The UK Housing market is expected to decline by at least 15% during the next 2 years. Despite the 2012 Olympics, London is expected to fall as much as 25%. UK Interest rates are either at or very near a peak, as there is an increasingly diminishing chance of a further rise in October 2007. After which UK interest rates should be cut as the UK housing market declines targeting a rate of 5% during the second half of 2008. The implications for this are that the UK economy is heading for sharply lower growth for 2008.
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By Nadeem Walayat
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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