There is a small but vibrant web forum, housepricecrash.co.uk, whose members’ outrage at inflated property prices is matched only by their dismay that the longed-for slump has never materialised. After Nationwide reported last week that house prices had fallen for the third month in a row, its faithful believe the day of reckoning is finally coming.
The average home fell in value by 0.2% in May, said Nationwide, following on from declines of 0.4% in April and 0.3% in March. Not since the height of the financial crisis in 2009 have prices fallen for three months in a row.
When the report of that data was published on theguardian.com, the highest-rated response below the line was: “If you have a house for sale, drop the price because in six months it’s going to be a lot lower.”
It is worth taking a closer look at the data. The most striking figure to emerge is that house prices in May actually rose – from £207,699 to £208,711. Nationwide reported them as falling only after making a seasonal adjustment. That may make statistical sense to some, but it’s no comfort to a buyer whose deposit won’t be seasonally adjusted by their bank.
The unadjusted figure of £208,711 is actually the all-time record high for house prices in the UK. But a slowdown in London – and outright declines in many boroughs – is evident to any buyer. The capital is both the reception city for migrants, now falling in number, and the exit city for the UK’s financial services industry post-Brexit. It would be remarkable if its rental and sales markets had done anything other than go into reverse. The glut of luxury apartment building only adds to the downward pressure.
The question for the 87% of the British population not in London is how far this will ripple beyond the capital. There are some good reasons why it should; the absolute level of prices is so high that further expansion is almost inconceivable. While London prices reflect an international market, in towns and cities elsewhere they must be supported by local UK incomes, which are currently static at best.
Crucially, we are also seeing the end of the buy-to-let landlord as the marginal buyer of virtually every new one- or two-bed flat to come on to the market. Stamp duty, higher taxes and strict new affordability tests have sent lending to landlords into freefall. It is a long-overdue rebalancing of the market, and will inevitably depress prices.
Every hit on landlords and fall in prices is greeted cheerfully by young adults, who have been priced out of the market. But there’s the rub. The scale of the decline in home ownership among the young has been so dramatic that it has created a vast level of pent-up demand. It means that any significant fall in the market will provoke a “relief rally” of buying by those who have been desperate to get on the fabled ladder.
Now throw into this mix Britain’s near permanent failure to build enough houses. Then add migration – yes, it’s down, but instead of the need to build a new city the size of Sheffield each year, it suggests we need to build one the size of Brighton, and there’s little sign of that. What all this tells you is that price falls, when they come, are likely to be moderate rather than steep.
Always bear in mind that house prices are largely a function of how much a bank is willing to lend against an asset. Banks and building societies, no longer lending in volume to landlords, are now throwing money at first-time buyers. Rates for 90% loans have tumbled to as low as 1.9% for two-year deals and just 2.55% for five-year fixes.
Of course, we can’t rule out a house-price crash. The fog of Brexit will becalm the market for several years to come. But a full-scale crash requires a steep rise in interest rates – and, for now, no one is forecasting that.
Sorry, pension fund managers: your relief may be short-lived
What do BT and British Airways have in common? You could point to the public relations disasters that dog each organisation: one hitting the headlines recently following its accounting scandal, the other struggling to cope with the after-effects of last weekend’s cancelled flights.
The other problem they share is a huge shortfall in their retirement fund. But there is good news on this front, because pension deficits at the UK’s largest companies appear to be falling. Pension adviser Mercer said last week that the collective deficit of final salary pension schemes among FTSE 350 firms fell in the past month by more than £10bn – from £145bn to £134bn.
One of the biggest factors was a year of rising stock markets: they are at all- time highs in New York and London. Another, more surprising, factor is a slowdown in decades of improving life expectancy.
In March, an Institute of Actuaries paper showed that the usual annual improvements in life expectancies were slowing. Mortality rates showed fairly steady improvements of 2.6% a year for men and 2.2% for women between 2000 and 2011. Since then, it says, annual increases have been close to zero. Accountant PwC says total liabilities for the UK’s 5,800 final salary pension schemes, which it estimates at £2tn, would fall by 15%, or £310bn.
Not everyone agrees. Andrew Scott and Lynda Gratton of London Business School – authors of a recent book, The 100-Year Life – argue that the majority of children born in rich countries today can expect to live to more than 100, and individuals and employers should be planning on that basis.
Other experts counter that poorer people and those most likely to suffer ill-health, and drag down mortality averages, are less likely to be in jobs with generous retirement schemes.
With this in mind, far from breathing a sigh of relief following news of a short-term cut in pension deficits, employers should continue to prepare for the worst.
Failing French Connection continues in splendid isolation
French Connection was once a big brand – remember when every teenager wanted FCUK on their T-shirt? But the label has been drifting for a decade and has run up five years of losses.
At this point, big shareholders might suggest new management is required. But founder Stephen Marks, with over 40 years at the helm of the fashion retailer, still believes he knows best.
Marks has always found corporate governance a tad challenging. He is the biggest shareholder and is dug in as both chair and chief executive. The group doesn’t even have the requisite two independent non-executive directors to challenge him. Activist investor Gatemore Capital says no one has a “God-given right” to run a company and he should step down or run a transparent sale process.
It is probably right. But history suggests Marks won’t care. The shares are around 37p, compared with 487p in their heyday: but, like the retailer’s fashions, they still look expensive.