March 17, 2023 • 31 mins
In an earlier episode of Merryn Talks Money, reporter Neil Callanan joined the podcast to talk house prices. It’s fair to say his outlook for the UK housing market was not optimistic. It is, he said, entirely possible that prices across the UK will end this cycle down 40% in real terms (adjusted for inflation).
This week, Bloomberg Opinion writer Marcus Ashworth joined Merryn Somerset Webb and John Stepek to make a different case. He contends that the mortgage rates actually paid by buyers are nothing like the ones you see on the panicked pages of Sunday newspapers. Not only that, but UK planning rules have kept supply far too tight, he argues, turning it into a “cash-led” market.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
Welcome to Marion Crooks Money, the podcast in which people
who know the markets explain the markets. I'm Marion Somerset
work this week. We are revisiting our conversation on the
UK property market this week with an extra guest, Bloomberg
opinion columnist Marcus Ashworth, some might say also an expert
on this topic. We get a lot of experts on
this podcast. Now, thank you both for joining us. Of
(00:31):
course I forgot to say. You know the other person
joining us for this conversation. It's John Stepec johns Depeck
of the Wild Crazy Housing Market podcasts How much is
a housing market? Get Paul? John tell us one more time? Well,
I said start two percent in real terms. But I
would just like to blame Neil who was joined our
Lives podcast who said forty percent in real terms. Yeah,
(00:53):
why to go properly crazy? Neil's your mind? Well, I'm
sure Neil is listening in now, Marcus, I know that
you are one of the few people left who is
not insanely bearish on the UK property market. So how
about we start with you telling John exactly why he's wrong,
which getting used too much? John? Oh? Yes, Marcus, let's
(01:17):
blame Neil first as much easier, but he's bigger than
I am, so let's blame John instead. Look firstly, I
don't think you should look at house prices which are
an asset as opposed to a good or a service
in real terms. I think it's meaningless. House price inflation
is what it is, but to compare it contrast it
in real terms, I don't think is a statistically good
(01:38):
habit for starters. Nonetheless, realistically, I am not necessarily bullish
on the UK housing market. We've had a very big
run twenty percent plus since the pandemic, and a bit
of a froth is coming off here and we will
probably go to a small negative number year on year
gains by the summer. From there, I've got no real idea,
(01:59):
but I'm pretty certain no one else does either, which
gives me more confidence that the housing market is in
perfectly good shape. It's had a stop start moment, as
we all know, from September October, and I really thought
that was just everyone thought, let's forget about the rest
of twenty twenty two, come back at in twenty twenty three,
and they're every signs that volumes, prices, mortgage activity, is
(02:23):
sufficiently robust. I think the market is changed about at
the moment. I think it's much more cash led. I
think people are prepared to do life decisions without total
focus on mortgage rates. As we all know, less of
the third about thirty percent of houses have mortgages, and
the people who do tend to buy houses are wealthier,
(02:45):
and they indeed are probably seeing reasonable way journeys. You know,
we've got a very strong labor market, and I think
there's too much going on, but people are reaching for
what they want to see, what they think ought to happen,
rather than practically will happen. And in a very complicated,
regulated and protected market the UK housing small island, ridiculous
(03:07):
planning rules, banking sector which wants desperate to lend money,
plenty of money in savings kicking about, and just demand
is much much higher than supply. Oh girl, you can
see what rents are doing going straight up. I think
that's going to feed through and support housing. So you know,
I'm not saying it's going to go up. I just
don't think it's going to go down by very much
(03:28):
at all. Okay, but to the extent that any any
market operates on supply and demand. Prices are set at
the margin, right, So if we if we look at
interest rates in the UK, I accept that, you know,
not everyone is paying four percent on the mortgage, but
nonetheless all these fixed mortgages are going to roll off
soon and that a lot of people are going to
(03:49):
have a nasty shock. Mortgage rates have gone up very,
very significantly. Even if you take out last year's blip,
we're still up a lot. That's making servicing these mortgage
stots cost significantly higher. And while we may be seeing
high pay settlements in some areas of the economy, it's
not across the board. So it still seems to me
that that's got to have an impact Page two of
(04:11):
the ft. Today buyers hold upper hand in cooling house market.
Good for the ft, but they're normally wrong with this stuff.
As I said, you can think what you want to
and you can look a parallel across on mortgage rates,
but the brattal reality, they don't make that much difference
in people making decision whether they're going to buy a
house or not. We've seen the gap between asking prices
come down a bit. That's perfectly normal. Start of the year.
(04:34):
There's plenty of activity. Sellers have been far more realistic
and buyers are still keen to buy. So I mean, look,
we're going to We've probably got sort of a three
way split in the UK at the moment. We've got
the sort of lower end where people are feeling very
much the pressure the cost of living renters in particular.
We've got this middle band which is probably going to
get hit most by mortgages. Clearly, I certainly bought my
(04:58):
first property with fifteen plus mortgage rates. I mean, there
are ways and means people can get around this. It's
been seen and been coming for a long long while.
People got plenty of savings and there's ways of moving
around the mortgage market. I mean, you know there's tracker rates.
We can see what's happening in bond yields in the
last few days. You know they'll come down sharply. That's
going to feed through to lower mortgages. We know, in
(05:20):
get five year fixes below four percent, the swap curve,
which is where a lot of banks do they're hedging
in is dropped a three point seven or below. Now
for ten year fixes and around four to five year
banks are prepared to lend below both the swap curve
and indeed below where the Bank of England are far
as interest rates are concern. So as far as I'm concerned,
(05:43):
you know the banks that are working around it, and
I think everyone else will too. You know, I quitely
did del Ben too there because I think that a
lot of old lessons replay. I p see a somewhat
beta'll understanding of how mortgages are placed. So you've just
talked about swap the old markets. So I think a
lot of people less than will probably think that the
(06:03):
mortgage rate is roughly set by the Bank at England
base rate, but actually it's set by market expectations for
what's going to happen to interest rates. There's that kind
of more accurate to see you talk us through a
little bit of the kind of banks placing mortgages. Sure,
(06:25):
I mean, first things first, there are two elements to
a mortgage. One is the bank eving and based rate
prevailing market interest rates. It's really the swap curve which
is most important. I'll come back down a second. And
the second is the credit spreader, which you know the
bank is prepared to lend to you as opposed to
lend to another bank. And what's fascinating at the moment,
for one, is that credit spread is basically completely disappeared,
(06:47):
and that means banks are very long cash. I want
to do something with it. Bear a mind, a mortgage
is secured lending and often with a nice big fact
you know, percentage safety deposits should we call, which protects
the bank from any formal losses. So the praclareality here
is that banks are prepared to be more aggressive and
(07:08):
what they are prepared to offer out to their sort
of mortgage brokers or teams that go out there and
get the retail customers in Normally, what would happen is
that a treasurer would say, okay, I've got a billion
pounds here. I'm going to give that to my mortgage team,
go out and lend. You've got that now for however
long you need it for. I will then go and
hedge that billion at the prevailing swap rate, and that's
(07:30):
where I'm going to fix my benchmark. I've got everything
sort of all my ducks in a line. Now, that
only happens when it's sort of perhaps in a market
whereby we don't have very volatile interest rates. What has
happened recently is clearly banks of not hedging anywhere near
as much as they were a few years ago, certainly,
(07:50):
and they are prepared to take straightforward cash, but they're
getting in from deposits and put it straight out to
work in the mortgage market and just make it a
nice fact interest margin. So the law all rules which
prevailed perhaps before the pandemic aren't really happening. That how
banks hedged themselves and setting the net amounts then needing
to hedge, it's almost evaporated, which is one of the
reasons not to get to come to get here. While
(08:11):
the swat curves dropped dramatically and got it inverted. Because
there's so much less pressure on keeping interst rate hedges
up as in banks buying protection for higher rates, they
don't need to as much. Therefore rates have fallen, so
it's all feeding in on itself. And I just think
that what's fascinating to me is that we know throughout
them but the start of pandemic, we had a massive
credit spread whereby it looked was really difficult to get
(08:32):
a mortgage six seven percent. Sometimes that evaporated quickly. It
came back again after this. Gilts crisis where the banks
panicked and yanked all their sort of best buy rates
and started posting mark to make believed rates in just
to avoid business. Unfortunately, the media the then jumped on
this and started saying average mortgage rates have gone from
(08:53):
the moon and it's all disasters and the world's ending.
With the practical realities, you could always get a best
buy below six percent in the two year fix. Now,
that's much, as Marion's pointed out, much harder and nasty
than it was a few months prior. But basically people
stop borrowing money, They stayed, they put hold on their
mortgage and their house price purposes, and wait till the
(09:14):
start of this year, where things have got a lot
more attractive. You can get very aggressive tracker rates. You
can get a two year fix now, which is probably
with my sort of I think where the sweet spot
is if you wish to borrow money and buy, how
forced to remortgage or buy a house at the moment,
I would look at a two year fix and then
indeed of five year fixes, as we mentioned earlier, around
four percent, which is a lot better than than they
(09:35):
were a few months back, but still a lot more expensive.
But people buy houses because there are a lot of
other reasons than just where the mortgage interest rates are,
and they can normally afford it quite comfortably, and markets
just get back a bit. What can you get a
two year fixed for at the moment around four percent,
maybe a little bit over, but certainly four and a
(09:57):
little bit of change. And five year you can get over,
certainly below four percent. I mean co Op went a
bit lower. They always tend to pull their offers very quickly.
They'd like to get a lot of free headlines. But
I mean I would say you could certainly get at
your fixer just around just over four percent, and five
year maybe a little bit below. But I would wait
because I think interest rates are probably going to come
(10:17):
down over the course of later on this year. If
you can afford to wait, then great. I mean there's
trouble with banks. They when they make a mortgage offers
to you and you've got it confirmed, you've got six
months and that's quite a long time for a bank
to be exposed on interest rates. That's why they perhaps
a little bit cautious and going lower in interest rates
just yet, which rates, but I think they probably will. Okay,
(10:39):
So the fact that house prices are still at actually
I was going to say near record, but still at
record ratios relative to incomes. That doesn't bother you, because
you reckon that the people who want to buy houses
right now can still afford those much higher levels of
interest rate. You don't see any problem where people who
(11:00):
were on two percent of the moment have to roll
on to four percent or five percent, or any problem
with people saying, well, do you know what I could
afford to pay half a million pounds to that house
when the interest rate was two percent? But actually I
can only afford to pay three hundred and fifty thousand
now it's four or five now. It hurts you in
my soul. Don't get me wrong. I think this is
an iniquitous way that the market works. But just as
(11:23):
you know, in the brutal reality of the real world,
it doesn't make any difference. If you can't afford, you're
out the game. Very sorry about that, but you'll have to,
you know, rethink and come back another time. There are
plenty of people, and particularly it's interesting on how many
cash purchases are being made. This is a phenomenon in
the buy to let market where everyone leveraged themselves bought
(11:44):
lots of properties and just look at capital values going up,
and with very low interest rates, have been doing a
very nice little retirement planning a part for themselves. Of course,
we know the government has taken a lot of the
fun out that they've taxed it, their regulating it, and
now interest rates going up. There's clearly going to be
some pain in the by tolet but there is plenty
(12:06):
it seems of cash money coming in and picking up,
particularly in the rental type properties and buying it outright
and take them out of the market. And that's what
squeezing house prices are empty imagine by to let markets
because that seems to me to be one of the
elephants in the realm of the UK housing market. You know,
it's been one of the struts of the UK housing
market for some decades now, and as you say, a
(12:26):
lot of people who have been perfectly happy as expenses
have risen and the tax regime has changed. They've been
happy to barely break even on an annual basis, and
for a lot of people to be cash flow negative
on an annual basis, happy in the knowledge that they're
making ten percent plus a year on capital gains. So
it doesn't really matter now if those capital gains are
gone and nominal terms at least, and their expenses are
(12:47):
still rising because the whole raft of new legislation coming through.
There's the energy performancetification, there's the oras down duty, etcetera.
Except there's a lot of stuff going on here. You're
losing money every year, every month, and you're not going
to make the capital games either. If we all accept
your premise that maybe prices will stay flat for a word,
that looks to me like we may see a huge
amount of additional selling coming into the market, and how
(13:10):
many two bedrooms two bedroom flats can this market absorb?
Plenty because cash buyers are coming in. It's the bank
of mom and dad. Now, I hear what you're saying,
and I think for some people in the margin that's
clearly the case. However, it seems that there's a lot
of capital gains built up over the years. If this
is a long term strategy, as it is for most people,
(13:30):
they will take the roof of the smooth for a
year or two of higher interest rates with the expectation
they'll probably come down a bit anyway. But what we're forgetting.
Here is the other side of the equation, which is rents,
and they're going up through the roof, up seventeen percent
in London terms and close to thirteen or fourteen cent
the rest of the country. This is softening the blow. Now.
(13:50):
I don't think it means people are going to break even,
but a lot of people look at this and say, okay,
I'm losing a bit this year. This isn't quite attractive.
Maybe I'll try and so when my rental agreement comes up,
or I'll reduce a few of my properties either they've
got several, but a lot will just say, you know what,
I've had a great get run on this. I'm going
to take a bit of a mark to market hits
(14:12):
on it, but I'll carry it on. And it clearly
seems that people who are are turning over the violets
and selling, and there will be a few because obviously
it will be expensive with these fixes when they're quite
savvy and they can get better deals, and you'd be
quite surprised. The bithlet markets still very aggressive. You can
you can get fixes on bithlet terms really very attractive,
(14:33):
certainly se five percent, So there isn't the pressure that
perhaps might have been the last year on that, but
there's plenty of cash buyers out there and that's what's
going to take up the slack because literally people are
getting bought flats for by their parents. You know one
thing that you said that I know I'm possibly too pessimistic,
(14:54):
but when you talk about brands going up seventeen thirteen percent,
fourteen deca, do you know what I think? I think
the rent controls, rent controls, you know, yeah, there is
Goland already. I'd be amazed if in the current political
environment you could have rent rising at that kind of
speed in London and not see some controls put in place.
(15:18):
You look at Berlin at least the Belgium there, but
I'm sure they've got some bad expresses. Well, the Berlin
certainly they're absolute disaster where there's some massive illegal mark
secondary market whereby you can't rent everything because it's on
rent control. The raticles do not work. They don't work,
of course, they don't work. There are a total disaster.
But politically they sound absolutely brilliant, which is why you
(15:39):
get them all the time, and my people talk about
them all the time. And I don't know how many
blogs and articles I've written about the general disasters with
rank control. There are enough case studies to make anyone
with even half a sentient brain say rent controls, we
must do that. But that doesn't mean it won't happen.
That's not how politics works, how modern politics works. I
don't think it's going to happen in England. Scotland is
(16:01):
a different story. But I certainly think that they just
the simple answers. We have to build more properties. Housing
associations have to replace the things they sell off to
the one ratio by building you you know, we know
we've got a situation whereby big business, big insurers, the
black rocks that legal in generals are ready to move
(16:21):
in and provide build to rent houses. That's necessarily isn't
a great development, but at some point that's what Michael
go is got a very important job here and he's
making some progress, for instance on Clauding. He knows this
is the big existential risk for the Tory Party that
they're not going to get reelected if they lose their
entirety of their younger voters, who are not going to
(16:44):
want to be able to vote for a party which
won't allow them on the housing leader so into the
mid to late thirties. Now that's the average. It's a disgrace,
it's a shock. It's a horrible way our system works.
But practically speaking, we've got four or five very large
builders who dominate the building sector. We were at risk
of letting that switch into the same for the for
the rental market. We're not careful by by completely freezing
(17:07):
out the private landlords. The government's got to get out
the way of here. The planning rules have got to
be changing, We've got to build more houses. None of
that's going to happen in the short term. But I
clearly think that the government and both sides of the
of Commons need to think very, very careful about this
because it's it's it's ruin us for our youth. I
think this is kind of the point because you know,
(17:30):
I guess my scenario of you know, thirty percent full
in real terms and there is a quote in real terms,
because that reflects improving affordability. I mean, yeah, affordability improved,
and you get ready this kind of political and it's
a massive political problem. I mean, you're right, because you know,
hall ownership in the UK is now don't be you know,
sub sexty five percent kind of levels, which is getting
(17:54):
on FOT you know, I mean, gentleman, he's fifty percent.
You know, we all bach fathered them again DOT having
hardly any hollers an extremely insecure rental can a tenure.
So I think this is the problem. It's that if
the affordability doesn't improve this way, then really markets I
guess what you're saying, or what it sounds like you're saying,
is that we're on the road to a market where
(18:15):
are the vice majority of the kind of younger population
is stuck renting, and then anyone who does get on
the mortgage kind of market ends up taking out the
cost mortgage an average kind of you know, ten years
of light over thirty years rather than twenty five years
as it was when when we were buying. So it
(18:36):
sounds it just kind of sounds quite dystopian, to be honest.
You think there has to be a political tipping point, Yeah,
and I think we're not far away from. I think
Marion's right to point out that, you know, we start
getting screams for rent controls, then then you know the
fallout is going to be well far and wide Nonetheless,
that's going to keep the house prices up, you know,
(18:57):
not for the right reasons. We've already got an affordability
ratio which is way above you know what perhaps it
wants used to be. I don't worry at all about
extended terms of mortgages. I think that's a you know,
a red herring in the sense that's just people being smart,
turning out their debt, keeping the payments as low as possible,
shifting to interest only, whatever it may be, do what
(19:19):
you need to do to get through the next year
or two. And that's that's the smart sort of finances.
And I think banks are very flexible and mature about that.
I mean, that's the one good news we've got here.
We've got a we've got a banking sector or a
property lending sector which is keen to do business. And
that's why I think the market is fairly active. We've
seen sellers being far more you know so flexible on
(19:42):
what the prices. Asking prices and between actual trader prices
are down by somewhere around six percent. So yes, we're
going to get a drop in mortgage approvals, particularly for
first time buyers this year. That's just symptomatic of a
much higher interest rates. It's a rough crawl market for
those who can afford to go out on the first
step of the ladder. But those on the ladder things
(20:03):
are going to carry on as normal. I mean, I'm
sitting here with with with well on ones renting, but
two two sort of you know, early twenties children who
I'd like to see how to my home in a
rental properties, who literally are being priced out of the market,
and that's that's hurting me because I'm having to support them.
So I'm by them flats markets. But the parents are
(20:26):
doing it. Why can't you? It's the obvious thing for
a journalist to be able to forty two except work harder. Man. Listen,
I don't know why your children are looking to rent.
But let's talk about how we always talk about this
market as being one market. We talk about the UK
property marketing. Of course it's nothing. There are so many
different markets and inside it it's very regional markets. So
you know, I got prices down to seventeen percent in
(20:49):
Southampton and prices up in Exeter. There ay an hour
and a half drive apart. Are they I'm not found
up on south of England anymore. How long does it
take to drive from except Southampton? Two hours? I wouldn't
start from there. They all don't be like that. Well,
now you go Markers, where would you start from? Yeah,
but I think your point it's exactly right. I mean
it's it's you can't I mean potential London or to
(21:11):
the environs further out is where my children were looking
to rent. You know, probably, but that's a different market altogether.
It's compared to certain parts of the rest of the
country which are say to take extra here. As you
said that, that's very much a localized economy and it
works on different ways. However, price house prices have probably
been doing better in cheaper areas over the last few years,
(21:35):
and it rents work in a different way. But certainly
the London upswing. Also we say urban centers, big urban
centers are hit very hard during the pandemic. A lot
of landlords took it on the chin, agreed much lower rates,
and now we're seeing the flip side of it being
super strong and they're they're now pushing rates up by
as much as fifty or sixty percent on rent reviews.
(21:56):
So you know, there's a very localized market. House price wise,
it's becoming very much an unpleasant urban rental market. But
still there is a paucity of houses to rent throughout
the country and it's creating very strange effects. What hap
happened for the idea that no one was ever going
to have to live in a city center again and
we could all move to the back end of Northumberland
(22:16):
and it would be fine. Quite worked out, has it? Yeah,
they want us back in the office. I think it's
part of the problem, and people are realizing that it's
it's all well and good, but it's actually much more
expensive to live out the country than it isn't in
the city center, and you know, people perhaps miss the vibe. Yeah, yeah,
and they're getting really cold as well, I'm guessing yeah,
(22:37):
of course. Yeah, eating heating is a problem. You know,
John and I have caught about this before when we
were talking about how much we thought prices might fall
and which areas might fall most. We thought that it
was those those detached houses in the country that would
suffer the most in any proper house price crash. If
they kape us on the country, they tend to go
completely dead. And what happens there is that market just stops,
(23:01):
as in you get a bit off a spread of
ten or even twenty percent, whereby people aren't prepared to
move unless they get what they thought was the high print.
And no one is prepared to pay up and buy
something they know it's going to cost them at king's
ransom just to heat, let alone maintain, because it is
much more expensive to live out, you know, leading extra
cars and petrol and the whole, the whole rest of it.
(23:22):
It is certainly what looked great perhaps in the pandemic
everyone wants to flee that disease ridden urban centers is
now turned around a bit on itself. But I think
the other thing as well is there are definite younger
moved back into other staid move back into into working,
back into the office and trying to get back on
with their lives. And that's what's driving the rental surge. Yeah, well,
(23:42):
I mean the natural things interesting because last year, so
during the pandemic, I actually knew quite a few people
who mightaged to get absolutely fantastic deals on the London
vents because you know, everyone moved though, and a lot
of people were aile collecting move might quarter is wine
for the same place the insects or whatever. You know,
I've got a bigger police for the latest money. So
I do think part of the you know, the rampingt
(24:04):
for you boom. You know, it's just up an adjustment
to the last couple of years in which rents actually fail,
which is the other thing about the fun from working
from holds. Yeah, I hope you're acty. What it all
kinds of looks like, both in the rental market and
in the buying market, is that everything is simply going
back to where it was before COVID, and so post
(24:26):
COVID prices are going to be almost identical to pre
COVID prices. That twenty percent up lived and buying prices
disappears the rent that went down a lot during COVID,
and I'm going back up to where they were, and
here we are like the whole thing never happened. I
think house prices will remain twenty percent ish above where
they were before pandemic. That's that's I think we're going
(24:47):
to tread water. So I don't think we're going to
go down and price very much, is my overall opinion,
just because I think that the dynamics us supplying them
are so strong. I think the rental push is going
to soften the blow for those by a lead trying
to people get out exits. I think they'll they'll, they'll
all And the amount of cash kicking around, both in
banks and people who are prepared to use its deposit
(25:09):
is sufficient just to keep all of it, you know.
I take and I hope John's right with it. As
far as the rental uh, you know, calming down, I
think he is right in the sense it's gone over
overbought blown a bit, and then things will come down
in rental price increases that may start to feed through
into it. And it's a general calming and just a
(25:29):
choppy market I think in in house prices overall, but
it will become ever more localized. It's a stop picking market,
you know. It depends on your on your sector stop pickers. Well, John,
have you been convinced by markers that you are completely wrong? Oh?
Of course, absolutely give in that easily. By it, I
(25:50):
mean obviously everything you'll see it. All I would say
is I think the view deference is that I and
I think I think yeously down this. They'll wait change
in interest rates much more heavily than you do markets,
because I mean I hear you on all of these things,
and you're clearly not desperately bullish on the house in
market either. It's sort of like you're basically seeing Kina
(26:13):
flat single digit nominal falls and I guess nominal terms,
I'm probably saying about fifteen percent nominal fifteen percent inflation,
So not actually you know, as far apart as it
might sound umatistical sleight of fand here I do think
that interest rates if you I think the other perhaps
(26:35):
fundamental differences it. I think that we're in a secular
regime of higher or more volatile inflation and therefore corrupt
systemically higher interest rates. And even if they stick it
three point five percent to four percent, that is a
lot higher than they we have two or three years ago.
And that's that just don't see how that's got to
(26:56):
have an impact on property prices, and historically it's always
hard and impact on property places and you don't even
need because the other thing is, I'm not a particularly
very show in the UK economy. You know, I think
there's a good chance for skept of session this year.
I mean, let's park who was going on with Bank
sales on the world. But you know, we make it
a we reord siasition, things may improve a lot. I
(27:19):
still think that because of the higher mortgage rates, it
just has to be some adjustment in places. It just
doesn't need to be catastrophic for the way that the economy.
But I think, yeah, I can of ten to fifteen
percent nominal fall is very realistic. I agree with John
oh well, you know, look a well for part and
(27:41):
there was a banking crisis or indeed, you know the
economy does go into a session, you may well prove
to be right. I mean it's one of these things
that you know, the housing market is clearly fragile. It
had a nasty shop last year. It seems to recovered
perfectly well, as if it never really happened. It really
was the six weeks of badness and then you know,
everyone shake themselves off and got back to what they
(28:01):
were doing beforehand. That's my opinion. But you know that
there's a fine line here. I mean, if interest rates
where to go to, say six percent from the Bank
of England, then I think your view might be proved
more correct. I just think they're probably going to stop
around four and I think the fact that banks are
so keen to lend, and I think the fact that
people have so much evident cash and prepared to get
(28:23):
on with their lives and buy that flatter they want
to the help of mom and dad. Maybe that the
housing prices are probably set fairly stable and may chop
around a bit, But I mean, come on, three or
four percent, Morgues, I was used to fifteen. Yeah, and
look how much lower and house prices were then. Yeah,
I just don't let that fact right. Listen, you doube.
(28:47):
We're gonna have come back this any year, I think, Marcus.
Can we invite you back on this podcast in one
year from today to have this conversation again a pleasure
and they'll have to be a lunch or some some
form of alcohol on are writing on this, John, So
I'm sure we can work that out as well. Yes,
I thought you had a bet going already, you two.
It's basically a lunch. I want to double down on it,
(29:10):
though I can. I can smell blood here. The only
thing I would say to you, Marcus is statistically speaking,
John and I have to be right one day, Yes,
one day, we have to be right on the stop
clock theory one day, there's got to be a proper
housing crash in the UK. Listen. I wanted to finish
with reading you a tweet from one of our one
(29:32):
of our favorite property sources, Henry Pryor, who's a buying agent,
who sent a tweet the other day that I thought
was really good. Actually, and the mails seem obvious to
lots of people, but I don't think it's obvious lots
of sellers. Things that don't count when working out what
your home is worth, what you paid for it, what
you need, what your neighbor is asking for his, what
your friends think, what your a state agent says, what
(29:54):
it might cost to rebuild, and crucially, because we've all
heard people complaining about this, what you've spent on it.
The fifty grand you spent on your new kitchen did
not add fifty grand for the value of your house.
It just didn't. So I think that's all useful information.
Anything to add to that that sounds spot on it.
It's literally what someone's prepared to pay for it. Any
(30:16):
of you are lucky, and the two people prepared to
pay for it, then you're in jam. Yeah, yeah, and
there we go, right, Marcus, we will hear from you
again in one year. Thank you very much for joining us. John,
I will be torturing you again next week. Thank you
very much for joining us and all of you. Thank
you for listening to this week's Marion Talks Money. We
will be back again next week. In the meantime, If
(30:37):
you like ours show, rate, review, and subscribe wherever you
listen to podcasts, And by the way, do also get
in touch and let us know how much you think
house prices are going well. And I would be particularly
interested to hear from buy to let infestors. Are you selling?
Are you holding? Are you even thinking of buying more?
Let us know I would be interested in that. This
episode was hosted by me Marion Sumset Web. It was
(30:59):
produced by Samasadi, additional editing by Blake Maples and Spectled.
Thanks obviously, Duke Marcus and John. Finally, our weekly reminder
to sign up to John's daily newsletter, Money Distilled, in which,
by the way, if you send us in what you
think about house prices, we will sum it all up.
The link for that is in the show notes. I
know I said finally I was wrong. That was not finally.
(31:19):
Here is finally, this is your last chance to sign
up to be in the audience of the live taping
of the podcast. This is happening next week. Take it back.
I won't be talk sing John next week. It's somebody else.
This is that the Bloomberg invest event on the twenty
second of March. It's called Strategies for Wealth Creation. If
you're in London you can join in person. Everyone else
can join online. Link is in the show notes for registration.
(31:41):
Please do register. I'll be there on the day and
John will as well. You are there, aren't you, John,
damn them in the morning. Excellent, see you all there,
Thank you very much.
Welcome to Marion Crooks Money, the podcast in which people
who know the markets explain the markets. I'm Marion Somerset
work this week. We are revisiting our conversation on the
UK property market this week with an extra guest, Bloomberg
opinion columnist Marcus Ashworth, some might say also an expert
on this topic. We get a lot of experts on
this podcast. Now, thank you both for joining us. Of
(00:31):
course I forgot to say. You know the other person
joining us for this conversation. It's John Stepec johns Depeck
of the Wild Crazy Housing Market podcasts How much is
a housing market? Get Paul? John tell us one more time? Well,
I said start two percent in real terms. But I
would just like to blame Neil who was joined our
Lives podcast who said forty percent in real terms. Yeah,
(00:53):
why to go properly crazy? Neil's your mind? Well, I'm
sure Neil is listening in now, Marcus, I know that
you are one of the few people left who is
not insanely bearish on the UK property market. So how
about we start with you telling John exactly why he's wrong,
which getting used too much? John? Oh? Yes, Marcus, let's
(01:17):
blame Neil first as much easier, but he's bigger than
I am, so let's blame John instead. Look firstly, I
don't think you should look at house prices which are
an asset as opposed to a good or a service
in real terms. I think it's meaningless. House price inflation
is what it is, but to compare it contrast it
in real terms, I don't think is a statistically good
(01:38):
habit for starters. Nonetheless, realistically, I am not necessarily bullish
on the UK housing market. We've had a very big
run twenty percent plus since the pandemic, and a bit
of a froth is coming off here and we will
probably go to a small negative number year on year
gains by the summer. From there, I've got no real idea,
(01:59):
but I'm pretty certain no one else does either, which
gives me more confidence that the housing market is in
perfectly good shape. It's had a stop start moment, as
we all know, from September October, and I really thought
that was just everyone thought, let's forget about the rest
of twenty twenty two, come back at in twenty twenty three,
and they're every signs that volumes, prices, mortgage activity, is
(02:23):
sufficiently robust. I think the market is changed about at
the moment. I think it's much more cash led. I
think people are prepared to do life decisions without total
focus on mortgage rates. As we all know, less of
the third about thirty percent of houses have mortgages, and
the people who do tend to buy houses are wealthier,
(02:45):
and they indeed are probably seeing reasonable way journeys. You know,
we've got a very strong labor market, and I think
there's too much going on, but people are reaching for
what they want to see, what they think ought to happen,
rather than practically will happen. And in a very complicated,
regulated and protected market the UK housing small island, ridiculous
(03:07):
planning rules, banking sector which wants desperate to lend money,
plenty of money in savings kicking about, and just demand
is much much higher than supply. Oh girl, you can
see what rents are doing going straight up. I think
that's going to feed through and support housing. So you know,
I'm not saying it's going to go up. I just
don't think it's going to go down by very much
(03:28):
at all. Okay, but to the extent that any any
market operates on supply and demand. Prices are set at
the margin, right, So if we if we look at
interest rates in the UK, I accept that, you know,
not everyone is paying four percent on the mortgage, but
nonetheless all these fixed mortgages are going to roll off
soon and that a lot of people are going to
(03:49):
have a nasty shock. Mortgage rates have gone up very,
very significantly. Even if you take out last year's blip,
we're still up a lot. That's making servicing these mortgage
stots cost significantly higher. And while we may be seeing
high pay settlements in some areas of the economy, it's
not across the board. So it still seems to me
that that's got to have an impact Page two of
(04:11):
the ft. Today buyers hold upper hand in cooling house market.
Good for the ft, but they're normally wrong with this stuff.
As I said, you can think what you want to
and you can look a parallel across on mortgage rates,
but the brattal reality, they don't make that much difference
in people making decision whether they're going to buy a
house or not. We've seen the gap between asking prices
come down a bit. That's perfectly normal. Start of the year.
(04:34):
There's plenty of activity. Sellers have been far more realistic
and buyers are still keen to buy. So I mean, look,
we're going to We've probably got sort of a three
way split in the UK at the moment. We've got
the sort of lower end where people are feeling very
much the pressure the cost of living renters in particular.
We've got this middle band which is probably going to
get hit most by mortgages. Clearly, I certainly bought my
(04:58):
first property with fifteen plus mortgage rates. I mean, there
are ways and means people can get around this. It's
been seen and been coming for a long long while.
People got plenty of savings and there's ways of moving
around the mortgage market. I mean, you know there's tracker rates.
We can see what's happening in bond yields in the
last few days. You know they'll come down sharply. That's
going to feed through to lower mortgages. We know, in
(05:20):
get five year fixes below four percent, the swap curve,
which is where a lot of banks do they're hedging
in is dropped a three point seven or below. Now
for ten year fixes and around four to five year
banks are prepared to lend below both the swap curve
and indeed below where the Bank of England are far
as interest rates are concern. So as far as I'm concerned,
(05:43):
you know the banks that are working around it, and
I think everyone else will too. You know, I quitely
did del Ben too there because I think that a
lot of old lessons replay. I p see a somewhat
beta'll understanding of how mortgages are placed. So you've just
talked about swap the old markets. So I think a
lot of people less than will probably think that the
(06:03):
mortgage rate is roughly set by the Bank at England
base rate, but actually it's set by market expectations for
what's going to happen to interest rates. There's that kind
of more accurate to see you talk us through a
little bit of the kind of banks placing mortgages. Sure,
(06:25):
I mean, first things first, there are two elements to
a mortgage. One is the bank eving and based rate
prevailing market interest rates. It's really the swap curve which
is most important. I'll come back down a second. And
the second is the credit spreader, which you know the
bank is prepared to lend to you as opposed to
lend to another bank. And what's fascinating at the moment,
for one, is that credit spread is basically completely disappeared,
(06:47):
and that means banks are very long cash. I want
to do something with it. Bear a mind, a mortgage
is secured lending and often with a nice big fact
you know, percentage safety deposits should we call, which protects
the bank from any formal losses. So the praclareality here
is that banks are prepared to be more aggressive and
(07:08):
what they are prepared to offer out to their sort
of mortgage brokers or teams that go out there and
get the retail customers in Normally, what would happen is
that a treasurer would say, okay, I've got a billion
pounds here. I'm going to give that to my mortgage team,
go out and lend. You've got that now for however
long you need it for. I will then go and
hedge that billion at the prevailing swap rate, and that's
(07:30):
where I'm going to fix my benchmark. I've got everything
sort of all my ducks in a line. Now, that
only happens when it's sort of perhaps in a market
whereby we don't have very volatile interest rates. What has
happened recently is clearly banks of not hedging anywhere near
as much as they were a few years ago, certainly,
(07:50):
and they are prepared to take straightforward cash, but they're
getting in from deposits and put it straight out to
work in the mortgage market and just make it a
nice fact interest margin. So the law all rules which
prevailed perhaps before the pandemic aren't really happening. That how
banks hedged themselves and setting the net amounts then needing
to hedge, it's almost evaporated, which is one of the
reasons not to get to come to get here. While
(08:11):
the swat curves dropped dramatically and got it inverted. Because
there's so much less pressure on keeping interst rate hedges
up as in banks buying protection for higher rates, they
don't need to as much. Therefore rates have fallen, so
it's all feeding in on itself. And I just think
that what's fascinating to me is that we know throughout
them but the start of pandemic, we had a massive
credit spread whereby it looked was really difficult to get
(08:32):
a mortgage six seven percent. Sometimes that evaporated quickly. It
came back again after this. Gilts crisis where the banks
panicked and yanked all their sort of best buy rates
and started posting mark to make believed rates in just
to avoid business. Unfortunately, the media the then jumped on
this and started saying average mortgage rates have gone from
(08:53):
the moon and it's all disasters and the world's ending.
With the practical realities, you could always get a best
buy below six percent in the two year fix. Now,
that's much, as Marion's pointed out, much harder and nasty
than it was a few months prior. But basically people
stop borrowing money, They stayed, they put hold on their
mortgage and their house price purposes, and wait till the
(09:14):
start of this year, where things have got a lot
more attractive. You can get very aggressive tracker rates. You
can get a two year fix now, which is probably
with my sort of I think where the sweet spot
is if you wish to borrow money and buy, how
forced to remortgage or buy a house at the moment,
I would look at a two year fix and then
indeed of five year fixes, as we mentioned earlier, around
four percent, which is a lot better than than they
(09:35):
were a few months back, but still a lot more expensive.
But people buy houses because there are a lot of
other reasons than just where the mortgage interest rates are,
and they can normally afford it quite comfortably, and markets
just get back a bit. What can you get a
two year fixed for at the moment around four percent,
maybe a little bit over, but certainly four and a
(09:57):
little bit of change. And five year you can get over,
certainly below four percent. I mean co Op went a
bit lower. They always tend to pull their offers very quickly.
They'd like to get a lot of free headlines. But
I mean I would say you could certainly get at
your fixer just around just over four percent, and five
year maybe a little bit below. But I would wait
because I think interest rates are probably going to come
(10:17):
down over the course of later on this year. If
you can afford to wait, then great. I mean there's
trouble with banks. They when they make a mortgage offers
to you and you've got it confirmed, you've got six
months and that's quite a long time for a bank
to be exposed on interest rates. That's why they perhaps
a little bit cautious and going lower in interest rates
just yet, which rates, but I think they probably will. Okay,
(10:39):
So the fact that house prices are still at actually
I was going to say near record, but still at
record ratios relative to incomes. That doesn't bother you, because
you reckon that the people who want to buy houses
right now can still afford those much higher levels of
interest rate. You don't see any problem where people who
(11:00):
were on two percent of the moment have to roll
on to four percent or five percent, or any problem
with people saying, well, do you know what I could
afford to pay half a million pounds to that house
when the interest rate was two percent? But actually I
can only afford to pay three hundred and fifty thousand
now it's four or five now. It hurts you in
my soul. Don't get me wrong. I think this is
an iniquitous way that the market works. But just as
(11:23):
you know, in the brutal reality of the real world,
it doesn't make any difference. If you can't afford, you're
out the game. Very sorry about that, but you'll have to,
you know, rethink and come back another time. There are
plenty of people, and particularly it's interesting on how many
cash purchases are being made. This is a phenomenon in
the buy to let market where everyone leveraged themselves bought
(11:44):
lots of properties and just look at capital values going up,
and with very low interest rates, have been doing a
very nice little retirement planning a part for themselves. Of course,
we know the government has taken a lot of the
fun out that they've taxed it, their regulating it, and
now interest rates going up. There's clearly going to be
some pain in the by tolet but there is plenty
(12:06):
it seems of cash money coming in and picking up,
particularly in the rental type properties and buying it outright
and take them out of the market. And that's what
squeezing house prices are empty imagine by to let markets
because that seems to me to be one of the
elephants in the realm of the UK housing market. You know,
it's been one of the struts of the UK housing
market for some decades now, and as you say, a
(12:26):
lot of people who have been perfectly happy as expenses
have risen and the tax regime has changed. They've been
happy to barely break even on an annual basis, and
for a lot of people to be cash flow negative
on an annual basis, happy in the knowledge that they're
making ten percent plus a year on capital gains. So
it doesn't really matter now if those capital gains are
gone and nominal terms at least, and their expenses are
(12:47):
still rising because the whole raft of new legislation coming through.
There's the energy performancetification, there's the oras down duty, etcetera.
Except there's a lot of stuff going on here. You're
losing money every year, every month, and you're not going
to make the capital games either. If we all accept
your premise that maybe prices will stay flat for a word,
that looks to me like we may see a huge
amount of additional selling coming into the market, and how
(13:10):
many two bedrooms two bedroom flats can this market absorb?
Plenty because cash buyers are coming in. It's the bank
of mom and dad. Now, I hear what you're saying,
and I think for some people in the margin that's
clearly the case. However, it seems that there's a lot
of capital gains built up over the years. If this
is a long term strategy, as it is for most people,
(13:30):
they will take the roof of the smooth for a
year or two of higher interest rates with the expectation
they'll probably come down a bit anyway. But what we're forgetting.
Here is the other side of the equation, which is rents,
and they're going up through the roof, up seventeen percent
in London terms and close to thirteen or fourteen cent
the rest of the country. This is softening the blow. Now.
(13:50):
I don't think it means people are going to break even,
but a lot of people look at this and say, okay,
I'm losing a bit this year. This isn't quite attractive.
Maybe I'll try and so when my rental agreement comes up,
or I'll reduce a few of my properties either they've
got several, but a lot will just say, you know what,
I've had a great get run on this. I'm going
to take a bit of a mark to market hits
(14:12):
on it, but I'll carry it on. And it clearly
seems that people who are are turning over the violets
and selling, and there will be a few because obviously
it will be expensive with these fixes when they're quite
savvy and they can get better deals, and you'd be
quite surprised. The bithlet markets still very aggressive. You can
you can get fixes on bithlet terms really very attractive,
(14:33):
certainly se five percent, So there isn't the pressure that
perhaps might have been the last year on that, but
there's plenty of cash buyers out there and that's what's
going to take up the slack because literally people are
getting bought flats for by their parents. You know one
thing that you said that I know I'm possibly too pessimistic,
(14:54):
but when you talk about brands going up seventeen thirteen percent,
fourteen deca, do you know what I think? I think
the rent controls, rent controls, you know, yeah, there is
Goland already. I'd be amazed if in the current political
environment you could have rent rising at that kind of
speed in London and not see some controls put in place.
(15:18):
You look at Berlin at least the Belgium there, but
I'm sure they've got some bad expresses. Well, the Berlin
certainly they're absolute disaster where there's some massive illegal mark
secondary market whereby you can't rent everything because it's on
rent control. The raticles do not work. They don't work,
of course, they don't work. There are a total disaster.
But politically they sound absolutely brilliant, which is why you
(15:39):
get them all the time, and my people talk about
them all the time. And I don't know how many
blogs and articles I've written about the general disasters with
rank control. There are enough case studies to make anyone
with even half a sentient brain say rent controls, we
must do that. But that doesn't mean it won't happen.
That's not how politics works, how modern politics works. I
don't think it's going to happen in England. Scotland is
(16:01):
a different story. But I certainly think that they just
the simple answers. We have to build more properties. Housing
associations have to replace the things they sell off to
the one ratio by building you you know, we know
we've got a situation whereby big business, big insurers, the
black rocks that legal in generals are ready to move
(16:21):
in and provide build to rent houses. That's necessarily isn't
a great development, but at some point that's what Michael
go is got a very important job here and he's
making some progress, for instance on Clauding. He knows this
is the big existential risk for the Tory Party that
they're not going to get reelected if they lose their
entirety of their younger voters, who are not going to
(16:44):
want to be able to vote for a party which
won't allow them on the housing leader so into the
mid to late thirties. Now that's the average. It's a disgrace,
it's a shock. It's a horrible way our system works.
But practically speaking, we've got four or five very large
builders who dominate the building sector. We were at risk
of letting that switch into the same for the for
the rental market. We're not careful by by completely freezing
(17:07):
out the private landlords. The government's got to get out
the way of here. The planning rules have got to
be changing, We've got to build more houses. None of
that's going to happen in the short term. But I
clearly think that the government and both sides of the
of Commons need to think very, very careful about this
because it's it's it's ruin us for our youth. I
think this is kind of the point because you know,
(17:30):
I guess my scenario of you know, thirty percent full
in real terms and there is a quote in real terms,
because that reflects improving affordability. I mean, yeah, affordability improved,
and you get ready this kind of political and it's
a massive political problem. I mean, you're right, because you know,
hall ownership in the UK is now don't be you know,
sub sexty five percent kind of levels, which is getting
(17:54):
on FOT you know, I mean, gentleman, he's fifty percent.
You know, we all bach fathered them again DOT having
hardly any hollers an extremely insecure rental can a tenure.
So I think this is the problem. It's that if
the affordability doesn't improve this way, then really markets I
guess what you're saying, or what it sounds like you're saying,
is that we're on the road to a market where
(18:15):
are the vice majority of the kind of younger population
is stuck renting, and then anyone who does get on
the mortgage kind of market ends up taking out the
cost mortgage an average kind of you know, ten years
of light over thirty years rather than twenty five years
as it was when when we were buying. So it
(18:36):
sounds it just kind of sounds quite dystopian, to be honest.
You think there has to be a political tipping point, Yeah,
and I think we're not far away from. I think
Marion's right to point out that, you know, we start
getting screams for rent controls, then then you know the
fallout is going to be well far and wide Nonetheless,
that's going to keep the house prices up, you know,
(18:57):
not for the right reasons. We've already got an affordability
ratio which is way above you know what perhaps it
wants used to be. I don't worry at all about
extended terms of mortgages. I think that's a you know,
a red herring in the sense that's just people being smart,
turning out their debt, keeping the payments as low as possible,
shifting to interest only, whatever it may be, do what
(19:19):
you need to do to get through the next year
or two. And that's that's the smart sort of finances.
And I think banks are very flexible and mature about that.
I mean, that's the one good news we've got here.
We've got a we've got a banking sector or a
property lending sector which is keen to do business. And
that's why I think the market is fairly active. We've
seen sellers being far more you know so flexible on
(19:42):
what the prices. Asking prices and between actual trader prices
are down by somewhere around six percent. So yes, we're
going to get a drop in mortgage approvals, particularly for
first time buyers this year. That's just symptomatic of a
much higher interest rates. It's a rough crawl market for
those who can afford to go out on the first
step of the ladder. But those on the ladder things
(20:03):
are going to carry on as normal. I mean, I'm
sitting here with with with well on ones renting, but
two two sort of you know, early twenties children who
I'd like to see how to my home in a
rental properties, who literally are being priced out of the market,
and that's that's hurting me because I'm having to support them.
So I'm by them flats markets. But the parents are
(20:26):
doing it. Why can't you? It's the obvious thing for
a journalist to be able to forty two except work harder. Man. Listen,
I don't know why your children are looking to rent.
But let's talk about how we always talk about this
market as being one market. We talk about the UK
property marketing. Of course it's nothing. There are so many
different markets and inside it it's very regional markets. So
you know, I got prices down to seventeen percent in
(20:49):
Southampton and prices up in Exeter. There ay an hour
and a half drive apart. Are they I'm not found
up on south of England anymore. How long does it
take to drive from except Southampton? Two hours? I wouldn't
start from there. They all don't be like that. Well,
now you go Markers, where would you start from? Yeah,
but I think your point it's exactly right. I mean
it's it's you can't I mean potential London or to
(21:11):
the environs further out is where my children were looking
to rent. You know, probably, but that's a different market altogether.
It's compared to certain parts of the rest of the
country which are say to take extra here. As you
said that, that's very much a localized economy and it
works on different ways. However, price house prices have probably
been doing better in cheaper areas over the last few years,
(21:35):
and it rents work in a different way. But certainly
the London upswing. Also we say urban centers, big urban
centers are hit very hard during the pandemic. A lot
of landlords took it on the chin, agreed much lower rates,
and now we're seeing the flip side of it being
super strong and they're they're now pushing rates up by
as much as fifty or sixty percent on rent reviews.
(21:56):
So you know, there's a very localized market. House price wise,
it's becoming very much an unpleasant urban rental market. But
still there is a paucity of houses to rent throughout
the country and it's creating very strange effects. What hap
happened for the idea that no one was ever going
to have to live in a city center again and
we could all move to the back end of Northumberland
(22:16):
and it would be fine. Quite worked out, has it? Yeah,
they want us back in the office. I think it's
part of the problem, and people are realizing that it's
it's all well and good, but it's actually much more
expensive to live out the country than it isn't in
the city center, and you know, people perhaps miss the vibe. Yeah, yeah,
and they're getting really cold as well, I'm guessing yeah,
(22:37):
of course. Yeah, eating heating is a problem. You know,
John and I have caught about this before when we
were talking about how much we thought prices might fall
and which areas might fall most. We thought that it
was those those detached houses in the country that would
suffer the most in any proper house price crash. If
they kape us on the country, they tend to go
completely dead. And what happens there is that market just stops,
(23:01):
as in you get a bit off a spread of
ten or even twenty percent, whereby people aren't prepared to
move unless they get what they thought was the high print.
And no one is prepared to pay up and buy
something they know it's going to cost them at king's
ransom just to heat, let alone maintain, because it is
much more expensive to live out, you know, leading extra
cars and petrol and the whole, the whole rest of it.
(23:22):
It is certainly what looked great perhaps in the pandemic
everyone wants to flee that disease ridden urban centers is
now turned around a bit on itself. But I think
the other thing as well is there are definite younger
moved back into other staid move back into into working,
back into the office and trying to get back on
with their lives. And that's what's driving the rental surge. Yeah, well,
(23:42):
I mean the natural things interesting because last year, so
during the pandemic, I actually knew quite a few people
who mightaged to get absolutely fantastic deals on the London
vents because you know, everyone moved though, and a lot
of people were aile collecting move might quarter is wine
for the same place the insects or whatever. You know,
I've got a bigger police for the latest money. So
I do think part of the you know, the rampingt
(24:04):
for you boom. You know, it's just up an adjustment
to the last couple of years in which rents actually fail,
which is the other thing about the fun from working
from holds. Yeah, I hope you're acty. What it all
kinds of looks like, both in the rental market and
in the buying market, is that everything is simply going
back to where it was before COVID, and so post
(24:26):
COVID prices are going to be almost identical to pre
COVID prices. That twenty percent up lived and buying prices
disappears the rent that went down a lot during COVID,
and I'm going back up to where they were, and
here we are like the whole thing never happened. I
think house prices will remain twenty percent ish above where
they were before pandemic. That's that's I think we're going
(24:47):
to tread water. So I don't think we're going to
go down and price very much, is my overall opinion,
just because I think that the dynamics us supplying them
are so strong. I think the rental push is going
to soften the blow for those by a lead trying
to people get out exits. I think they'll they'll, they'll
all And the amount of cash kicking around, both in
banks and people who are prepared to use its deposit
(25:09):
is sufficient just to keep all of it, you know.
I take and I hope John's right with it. As
far as the rental uh, you know, calming down, I
think he is right in the sense it's gone over
overbought blown a bit, and then things will come down
in rental price increases that may start to feed through
into it. And it's a general calming and just a
(25:29):
choppy market I think in in house prices overall, but
it will become ever more localized. It's a stop picking market,
you know. It depends on your on your sector stop pickers. Well, John,
have you been convinced by markers that you are completely wrong? Oh?
Of course, absolutely give in that easily. By it, I
(25:50):
mean obviously everything you'll see it. All I would say
is I think the view deference is that I and
I think I think yeously down this. They'll wait change
in interest rates much more heavily than you do markets,
because I mean I hear you on all of these things,
and you're clearly not desperately bullish on the house in
market either. It's sort of like you're basically seeing Kina
(26:13):
flat single digit nominal falls and I guess nominal terms,
I'm probably saying about fifteen percent nominal fifteen percent inflation,
So not actually you know, as far apart as it
might sound umatistical sleight of fand here I do think
that interest rates if you I think the other perhaps
(26:35):
fundamental differences it. I think that we're in a secular
regime of higher or more volatile inflation and therefore corrupt
systemically higher interest rates. And even if they stick it
three point five percent to four percent, that is a
lot higher than they we have two or three years ago.
And that's that just don't see how that's got to
(26:56):
have an impact on property prices, and historically it's always
hard and impact on property places and you don't even
need because the other thing is, I'm not a particularly
very show in the UK economy. You know, I think
there's a good chance for skept of session this year.
I mean, let's park who was going on with Bank
sales on the world. But you know, we make it
a we reord siasition, things may improve a lot. I
(27:19):
still think that because of the higher mortgage rates, it
just has to be some adjustment in places. It just
doesn't need to be catastrophic for the way that the economy.
But I think, yeah, I can of ten to fifteen
percent nominal fall is very realistic. I agree with John
oh well, you know, look a well for part and
(27:41):
there was a banking crisis or indeed, you know the
economy does go into a session, you may well prove
to be right. I mean it's one of these things
that you know, the housing market is clearly fragile. It
had a nasty shop last year. It seems to recovered
perfectly well, as if it never really happened. It really
was the six weeks of badness and then you know,
everyone shake themselves off and got back to what they
(28:01):
were doing beforehand. That's my opinion. But you know that
there's a fine line here. I mean, if interest rates
where to go to, say six percent from the Bank
of England, then I think your view might be proved
more correct. I just think they're probably going to stop
around four and I think the fact that banks are
so keen to lend, and I think the fact that
people have so much evident cash and prepared to get
(28:23):
on with their lives and buy that flatter they want
to the help of mom and dad. Maybe that the
housing prices are probably set fairly stable and may chop
around a bit, But I mean, come on, three or
four percent, Morgues, I was used to fifteen. Yeah, and
look how much lower and house prices were then. Yeah,
I just don't let that fact right. Listen, you doube.
(28:47):
We're gonna have come back this any year, I think, Marcus.
Can we invite you back on this podcast in one
year from today to have this conversation again a pleasure
and they'll have to be a lunch or some some
form of alcohol on are writing on this, John, So
I'm sure we can work that out as well. Yes,
I thought you had a bet going already, you two.
It's basically a lunch. I want to double down on it,
(29:10):
though I can. I can smell blood here. The only
thing I would say to you, Marcus is statistically speaking,
John and I have to be right one day, Yes,
one day, we have to be right on the stop
clock theory one day, there's got to be a proper
housing crash in the UK. Listen. I wanted to finish
with reading you a tweet from one of our one
(29:32):
of our favorite property sources, Henry Pryor, who's a buying agent,
who sent a tweet the other day that I thought
was really good. Actually, and the mails seem obvious to
lots of people, but I don't think it's obvious lots
of sellers. Things that don't count when working out what
your home is worth, what you paid for it, what
you need, what your neighbor is asking for his, what
your friends think, what your a state agent says, what
(29:54):
it might cost to rebuild, and crucially, because we've all
heard people complaining about this, what you've spent on it.
The fifty grand you spent on your new kitchen did
not add fifty grand for the value of your house.
It just didn't. So I think that's all useful information.
Anything to add to that that sounds spot on it.
It's literally what someone's prepared to pay for it. Any
(30:16):
of you are lucky, and the two people prepared to
pay for it, then you're in jam. Yeah, yeah, and
there we go, right, Marcus, we will hear from you
again in one year. Thank you very much for joining us. John,
I will be torturing you again next week. Thank you
very much for joining us and all of you. Thank
you for listening to this week's Marion Talks Money. We
will be back again next week. In the meantime, If
(30:37):
you like ours show, rate, review, and subscribe wherever you
listen to podcasts, And by the way, do also get
in touch and let us know how much you think
house prices are going well. And I would be particularly
interested to hear from buy to let infestors. Are you selling?
Are you holding? Are you even thinking of buying more?
Let us know I would be interested in that. This
episode was hosted by me Marion Sumset Web. It was
(30:59):
produced by Samasadi, additional editing by Blake Maples and Spectled.
Thanks obviously, Duke Marcus and John. Finally, our weekly reminder
to sign up to John's daily newsletter, Money Distilled, in which,
by the way, if you send us in what you
think about house prices, we will sum it all up.
The link for that is in the show notes. I
know I said finally I was wrong. That was not finally.
(31:19):
Here is finally, this is your last chance to sign
up to be in the audience of the live taping
of the podcast. This is happening next week. Take it back.
I won't be talk sing John next week. It's somebody else.
This is that the Bloomberg invest event on the twenty
second of March. It's called Strategies for Wealth Creation. If
you're in London you can join in person. Everyone else
can join online. Link is in the show notes for registration.
(31:41):
Please do register. I'll be there on the day and
John will as well. You are there, aren't you, John,
damn them in the morning. Excellent, see you all there,
Thank you very much.
Host
Merryn Somerset Webb
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