Britain’s passion for rising house prices is both strange and irrational because by any yardstick a surging property market is bad news. It makes people feel wealthier than they actually are and so encourages them to take on more debt than they can afford. It diverts investment from more productive uses. It helps those who own housing assets at the expense of renters. And for every boom there is a reckoning, often extremely painful.
As a result, there are two possible responses to the forecast from the Halifax that house prices will rise by 2-4% in 2019. One is to treat only modest house price inflation as some sort of national tragedy. The other is to hope that Britain’s biggest mortgage lender has got it right. Response number two is the correct one.
What’s happening in the residential property market has nothing really to do with Brexit – not yet, at least. Clearly, a disruptive, unplanned departure from the European Union at the end of March would have serious consequences, which is why the Bank of England has stress-tested the high street banks to see whether they could cope with a 30% drop in house prices.
But the reason house price inflation has been moderating in 2018, and is likely to remain modest in 2019, is really an inevitable correction to the overblown market conditions in the middle of the decade. Record low interest rates, freshly minted money courtesy of the Bank’s quantitative easing programme, subsidies to homebuyers provided by the Treasury’s help-to-buy programme, a rising population and very low levels of housebuilding combined to provide the perfect conditions for a boom.
All the usual things happened. A rising property market generated a feelgood factor. Property owners spent more, with knock-on effects for the rest of the economy. Imports went up, leading to a widening trade deficit. And the next generation of first-time buyers was squeezed out of the market.
In the past – in the early 1990s, for example – rising interest rates have brought property bubbles to a rapid and painful end. This time, though, the Bank kept official borrowing costs low, which meant the UK avoided the negative growth and longer dole queues that in the past have led to falling house prices.
Potential housebuyers found prices far too high, even with mortgage rates low. But with employment at record levels, sellers found themselves under little pressure to drop excessively high asking prices. The upshot has been a standoff that has seen low levels of activity and houses only gradually becoming affordable.
This process is far from over. Houses will become more affordable as asking prices come down and earnings pick up, but this is going to take time. In London and the south-east, it is still almost impossible for a first-time buyer to raise the necessary deposit unless they have the facility to make a cash withdrawal from the bank of mum and dad.
If anything, the Halifax forecast looks to be a tad high. The economy has slowed since the summer and the Bank of England is sufficiently worried about inflation to be considering raising interest rates if there is a smooth Brexit. A more likely outcome is that house prices will move sideways during 2019.
This, though, would be a good outcome. If house prices crash it will be because the economy is in recession, unemployment is going up, mortgage arrears are mounting and home repossessions are soaring. If house prices stay where they are or even fall gently, it will mean that an unsustainable boom has ended in a rare soft landing. Small energy suppliers have the power to recover from a bad press
The energy industry likes to point to the market’s 70-plus suppliers as a sign that the sector is thriving and competition flourishing. But there is no masking the fact that this has not been a good year for the image of challenger firms.
The price increases of the big six – British Gas, EDF Energy, E.ON, Npower, Scottish Power and SSE – still rightly command negative headlines, given how many households they affect. However, the reputation of small suppliers jostling to unseat them has been tarnished, not least after eight collapsed this year.
That matters because the cost of picking up the pieces is borne by all energy consumers. As the former chief regulator Stephen Littlechild has pointed out, “prudent suppliers” and their customers are bailing out the “imprudent ones”.
Small suppliers have also topped the tables for worst customer service. Several of these, such as Iresa and OneSelect, have since gone bust.
It emerged this week that five of the biggest price increases this year came from small players. The worst was Economy Energy, which incredibly put up customers’ bills by 38%, or £311 a year, in a single blow.
Concerns over challengers’ viability and service have led Ofgem to consider tougher rules for new entrants. That is a welcome move but it would be a mistake to buy into a big-six-friendly narrative that tars all small suppliers with the same brush. The truth is that while there are some bad apples in the basket of challengers, they nestle among the finest in the market.
Small and medium suppliers offer the best prices, service and choice, be it renewably powered, publicly owned, time-of-use tariffs, app-only, you name it. As the big six get hammered by the price cap next year, let’s hope that small becomes beautiful once again. HMV’s troubles could soon sound like a broken record for the retail industry
Happy Christmas? HMV is calling in administrators and the next two or three weeks threaten to be a litany of doom for the retail industry.
Next is set to kick off the annual festive trading statement season on 3 January, but fears remain that names such as Debenhams, Marks & Spencer or Mothercare may have to issue a profits warning early next week after poor seasonal trading.
It is a tense time for Debenhams, where the retailer’s major shareholder, Mike Ashley’s Sports Direct, is poised to capitalise on any further financial distress. Ashley is no doubt keen to find a way to prop up recent purchase House of Fraser, which is sharing Debenhams’ pain in tough clothing, beauty and homewares markets.
Unseasonably warm weather, a general slowdown in spending on “stuff”, a lacklustre housing market and the uncertainty of Brexit have combined with increased competition from online specialists such as Boohoo, FeelUnique and Cult Beauty to put department stores on the rack.
The likes of Mothercare, FootAsylum, John Lewis and Dixons, the owner of PC World and Carphone Warehouse, face similar pressures.
M&S and Next largely stuck to their tactic of holding off on major price cuts until late December. It will become clear if ducking the festival of discounting across the rest of the high street paid off in profitable sales or lost them a big chunk of market share. It’s possible that they benefited from holding firm until the surge in trading in the last three days before Christmas.
It’s clearly been gloomy on the high street, with the number of shoppers down on last year.
But the biggest battle has been played out less visibly, with delivery vans and parcels. HMV’s troubles highlight the online onslaught. With all retail sales growth online, the next few weeks will reveal which retailers grabbed a slice of that action and which are lost in the post.