Macroprudential fail as London prices rise again: Pete Wargent

Pete WargentSeptember 29, 20150 min read
The UK Land Registry released its latest House Price Index for the month of August 2015, which showed prices rising in the East (+8.4% year-on-year), South East (+7.6%), and yet again, in London (+6.6%).
The largest gain for the month was seen in the capital city of London (+1.7%), while Cambridgeshire recorded yet another robust +7.8% year-on-year gain.
On the other hand prices declined in the month in a number of the regions located away from The Smoke, including in t'North West, Yorkshire & t'Humber, and in the East Midlands. 

Prices have also remained relatively flat over the past year in Wales and the North East like.

Not shorting shortages
There have been some alarming statistics reported over recent years projecting dramatic housing shortages around London and the South East, and rarely is progess made on how the supply shortages will be tackled.
If there is one thing there has been a glut of over the past 20 years years it has been hapless experts trying in vain to pick turning points in the London housing market.
Meanwhile average house London prices have increased from £91,000 to nearly £500,000 (A$1,090,000), comfortably greater than a fivefold increase (today's average price is 5.4 times higher than in 1995, to be precise).
Different strokes for different folks, of course, but the single best investment decision I've made over the years has simply been to never sell a property, regardless of what the 'experts' in the media say.

Buy prime location capital city properties, never sell them. Sure you'll get cyclical downturns - see 2008, for example, which was quite a significant pull-back - but the long term trend is clear enough, provided you do buy in the right locations.

Down under
It is worth noting that cash rate futures markets in Australia are pricing in at least one more interest rate cut in this cycle, while implied yields already suggest that two further cuts by 2017 is a distinct possibility.
Even in the more bullish case scenarios, it appears likely that there are couple of years worth of slack in the labour market to be mopped up.

You can clearly see in the first chart of this blog post above the impact of the UK's macroprudential measures in 2014.

The City regulator the Financial Conduct Authority (FCA) "ran interference" with a series of measures known as the Mortgage Market Review last year, which temporarily disrupted growth in the London housing market.
Macroprudential measures can undoubtedly slow the market for a while - HSBC will be the next bank to put the cold freeze on new investor loans in Australia - but ultimately nothing gets to work on cooling a housing market quite like higher interest rates.
Unfortunately in Britain the emerging threat of an interest rate hike in 2016 (after a long hiatus since March 2009) now seems to be resulting in a surge of activity as buyers dive in before the Bank of England taps on the brakes.
The Bank of England's mortgage approvals figures released this morning revealed the highest number of approvals in 19 months and the largest monthly jump in borrowing since 2008, with a net increase of £3.4 billion smashing analyst expectations - so the market appears set to accelerate once again, fuelled by record low mortgage rates.
All of these are factors worth taking into account as the line of market observers trying to pick the next turning point in Sydney's housing market lengthens by the day. 

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His latest book is Four Green Houses and a Red Hotel.

Pete Wargent

Pete Wargent is the co-founder of, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.
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