Over the past year the rate of house price inflation has fallen while the number of first-time buyers has risen to its highest level since 2006. These two facts are connected: the reason young people have become renters rather than owner-occupiers is that property became expensive.
Property has become so dear that the average first-time buyer is now 30 years old and has a salary of £41,000 a year. Owner-occupation rates have fallen from 70% to 63% over the past decade and it is not difficult to see why.
Ultra-low interest rates mean that it has never been cheaper to service a mortgage, but that doesn’t matter all that much when the price of a home relative to incomes is so high.
For those who want to buy their own home, the good news is that house-price inflation will be modest in 2018. Earnings growth is still around 2.5%; the Bank of England is warning that interest rates are likely to go up faster and by more than previously expected; and tax changes that have helped cause a 17% annual drop in buy-to-let purchases in the year to December are going to become more stringent in April.
House prices would already be falling were it not for the fact that interest rates and unemployment are low. It was the combination of 15% interest rates and a doubling of the jobless total that caused the property-price collapse of the early 1990s, and a repeat of that looks highly improbable because of a (welcome) lack of distressed sellers.
The air has gradually been seeping out of the housing-market bubble for the past 18 months, and that process will continue until the house price-to-earnings ratio falls to more sustainable levels, making property affordable to more first-time buyers.
House prices are going to tread water and despite what estate agents might say, this is no bad thing. On the contrary, it is an entirely healthy development.
Nicky Morgan gets tough over RBS. About time too
In a week’s time, the damning report spelling out how just how badly the Royal Bank of Scotland treated its small business customers will be fully in the public domain. That’s the clear message from Nicky Morgan, who chairs the Treasury select committee.
Morgan is taking a no-nonsense approach to her dealings with the City watchdog, the Financial Conduct Authority, which commissioned the report into RBS’s Global Restructuring Group but has so far only released edited highlights from it.
The FCA has said it will be breaking the law if it publishes the full report without the consent of the RBS executives named or implicated in the findings, but late last week was ordered by Morgan either to do so or to hand over a copy to her committee.
Andrew Bailey, the FCA’s chairman, said he would hand over the report by this Friday if – as was almost certain – he had failed to get permission from the RBS executives by then. But a copy of the report has now found its way online and Morgan has had enough.
“A version of the report is now in the public domain. The FCA has completely lost control of the publication process,” she said. “If the FCA doesn’t publish or provide the report by Friday, it will have breached an order of the House of Commons and may be found in contempt of parliament.” Ouch.
Morgan will use parliamentary privilege to ensure that the report can be published in full without legal challenge from RBS executives – and a good thing too. The way in which the bank treated its small business customers was scandalous. That it was more than 80% owned by the government at the time adds insult to injury.
What is the statistics office trying to say about MPs?
The Office for National Statistics has announced that from April it will be publishing its report on the state of the UK labour market on a Tuesday rather than a Wednesday. The reason, according to the ONS, is that the release – which includes data for employment, unemployment, job vacancies and earnings – currently comes out two and a half hours before Theresa May stands up for prime minister’s questions.
To be sure, the labour market statistics run to many pages and – as the ONS notes – are complicated and multi-faceted. But what are we to make of its warning that “there is a risk that these detailed statistics are not fully understood by parliamentarians on both sides of the house before they can be debated”? Not that MPs are a bit thick, surely?