Latest / Merryn Talks Money / Why UK Mortgage Rates Aren’t as High as You Think

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Why UK Mortgage Rates Aren’t as High as You Think · Merryn Talks Money

0:09
Speaker 1: Welcome to Marion Crooks Money, the podcast in which people
0:12
Speaker 1: who know the markets explain the markets. I'm Marion Somerset
0:15
Speaker 1: work this week. We are revisiting our conversation on the
0:19
Speaker 1: UK property market this week with an extra guest, Bloomberg
0:22
Speaker 1: opinion columnist Marcus Ashworth, some might say also an expert
0:27
Speaker 1: on this topic. We get a lot of experts on
0:29
Speaker 1: this podcast. Now, thank you both for joining us. Of
0:31
Speaker 1: course I forgot to say. You know the other person
0:33
Speaker 1: joining us for this conversation. It's John Stepec johns Depeck
0:36
Speaker 1: of the Wild Crazy Housing Market podcasts How much is
0:40
Speaker 1: a housing market? Get Paul? John tell us one more time? Well,
0:43
Speaker 1: I said start two percent in real terms. But I
0:46
Speaker 1: would just like to blame Neil who was joined our
0:49
Speaker 1: Lives podcast who said forty percent in real terms. Yeah,
0:53
Speaker 1: why to go properly crazy? Neil's your mind? Well, I'm
0:57
Speaker 1: sure Neil is listening in now, Marcus, I know that
1:01
Speaker 1: you are one of the few people left who is
1:04
Speaker 1: not insanely bearish on the UK property market. So how
1:07
Speaker 1: about we start with you telling John exactly why he's wrong,
1:12
Speaker 1: which getting used too much? John? Oh? Yes, Marcus, let's
1:17
Speaker 1: blame Neil first as much easier, but he's bigger than
1:21
Speaker 1: I am, so let's blame John instead. Look firstly, I
1:24
Speaker 1: don't think you should look at house prices which are
1:26
Speaker 1: an asset as opposed to a good or a service
1:30
Speaker 1: in real terms. I think it's meaningless. House price inflation
1:33
Speaker 1: is what it is, but to compare it contrast it
1:35
Speaker 1: in real terms, I don't think is a statistically good
1:38
Speaker 1: habit for starters. Nonetheless, realistically, I am not necessarily bullish
1:43
Speaker 1: on the UK housing market. We've had a very big
1:46
Speaker 1: run twenty percent plus since the pandemic, and a bit
1:50
Speaker 1: of a froth is coming off here and we will
1:52
Speaker 1: probably go to a small negative number year on year
1:55
Speaker 1: gains by the summer. From there, I've got no real idea,
1:59
Speaker 1: but I'm pretty certain no one else does either, which
2:01
Speaker 1: gives me more confidence that the housing market is in
2:04
Speaker 1: perfectly good shape. It's had a stop start moment, as
2:08
Speaker 1: we all know, from September October, and I really thought
2:12
Speaker 1: that was just everyone thought, let's forget about the rest
2:14
Speaker 1: of twenty twenty two, come back at in twenty twenty three,
2:17
Speaker 1: and they're every signs that volumes, prices, mortgage activity, is
2:23
Speaker 1: sufficiently robust. I think the market is changed about at
2:27
Speaker 1: the moment. I think it's much more cash led. I
2:29
Speaker 1: think people are prepared to do life decisions without total
2:34
Speaker 1: focus on mortgage rates. As we all know, less of
2:37
Speaker 1: the third about thirty percent of houses have mortgages, and
2:41
Speaker 1: the people who do tend to buy houses are wealthier,
2:45
Speaker 1: and they indeed are probably seeing reasonable way journeys. You know,
2:49
Speaker 1: we've got a very strong labor market, and I think
2:52
Speaker 1: there's too much going on, but people are reaching for
2:54
Speaker 1: what they want to see, what they think ought to happen,
2:57
Speaker 1: rather than practically will happen. And in a very complicated,
3:02
Speaker 1: regulated and protected market the UK housing small island, ridiculous
3:07
Speaker 1: planning rules, banking sector which wants desperate to lend money,
3:11
Speaker 1: plenty of money in savings kicking about, and just demand
3:15
Speaker 1: is much much higher than supply. Oh girl, you can
3:18
Speaker 1: see what rents are doing going straight up. I think
3:20
Speaker 1: that's going to feed through and support housing. So you know,
3:23
Speaker 1: I'm not saying it's going to go up. I just
3:26
Speaker 1: don't think it's going to go down by very much
3:28
Speaker 1: at all. Okay, but to the extent that any any
3:33
Speaker 1: market operates on supply and demand. Prices are set at
3:36
Speaker 1: the margin, right, So if we if we look at
3:40
Speaker 1: interest rates in the UK, I accept that, you know,
3:42
Speaker 1: not everyone is paying four percent on the mortgage, but
3:44
Speaker 1: nonetheless all these fixed mortgages are going to roll off
3:47
Speaker 1: soon and that a lot of people are going to
3:49
Speaker 1: have a nasty shock. Mortgage rates have gone up very,
3:52
Speaker 1: very significantly. Even if you take out last year's blip,
3:56
Speaker 1: we're still up a lot. That's making servicing these mortgage
3:59
Speaker 1: stots cost significantly higher. And while we may be seeing
4:02
Speaker 1: high pay settlements in some areas of the economy, it's
4:05
Speaker 1: not across the board. So it still seems to me
4:08
Speaker 1: that that's got to have an impact Page two of
4:11
Speaker 1: the ft. Today buyers hold upper hand in cooling house market.
4:16
Speaker 1: Good for the ft, but they're normally wrong with this stuff.
4:18
Speaker 1: As I said, you can think what you want to
4:20
Speaker 1: and you can look a parallel across on mortgage rates,
4:22
Speaker 1: but the brattal reality, they don't make that much difference
4:26
Speaker 1: in people making decision whether they're going to buy a
4:28
Speaker 1: house or not. We've seen the gap between asking prices
4:31
Speaker 1: come down a bit. That's perfectly normal. Start of the year.
4:34
Speaker 1: There's plenty of activity. Sellers have been far more realistic
4:38
Speaker 1: and buyers are still keen to buy. So I mean, look,
4:40
Speaker 1: we're going to We've probably got sort of a three
4:43
Speaker 1: way split in the UK at the moment. We've got
4:45
Speaker 1: the sort of lower end where people are feeling very
4:47
Speaker 1: much the pressure the cost of living renters in particular.
4:51
Speaker 1: We've got this middle band which is probably going to
4:54
Speaker 1: get hit most by mortgages. Clearly, I certainly bought my
4:58
Speaker 1: first property with fifteen plus mortgage rates. I mean, there
5:01
Speaker 1: are ways and means people can get around this. It's
5:03
Speaker 1: been seen and been coming for a long long while.
5:06
Speaker 1: People got plenty of savings and there's ways of moving
5:08
Speaker 1: around the mortgage market. I mean, you know there's tracker rates.
5:12
Speaker 1: We can see what's happening in bond yields in the
5:14
Speaker 1: last few days. You know they'll come down sharply. That's
5:17
Speaker 1: going to feed through to lower mortgages. We know, in
5:20
Speaker 1: get five year fixes below four percent, the swap curve,
5:24
Speaker 1: which is where a lot of banks do they're hedging
5:26
Speaker 1: in is dropped a three point seven or below. Now
5:28
Speaker 1: for ten year fixes and around four to five year
5:33
Speaker 1: banks are prepared to lend below both the swap curve
5:36
Speaker 1: and indeed below where the Bank of England are far
5:40
Speaker 1: as interest rates are concern. So as far as I'm concerned,
5:43
Speaker 1: you know the banks that are working around it, and
5:45
Speaker 1: I think everyone else will too. You know, I quitely
5:47
Speaker 1: did del Ben too there because I think that a
5:49
Speaker 1: lot of old lessons replay. I p see a somewhat
5:52
Speaker 1: beta'll understanding of how mortgages are placed. So you've just
5:57
Speaker 1: talked about swap the old markets. So I think a
6:01
Speaker 1: lot of people less than will probably think that the
6:03
Speaker 1: mortgage rate is roughly set by the Bank at England
6:07
Speaker 1: base rate, but actually it's set by market expectations for
6:12
Speaker 1: what's going to happen to interest rates. There's that kind
6:15
Speaker 1: of more accurate to see you talk us through a
6:19
Speaker 1: little bit of the kind of banks placing mortgages. Sure,
6:25
Speaker 1: I mean, first things first, there are two elements to
6:28
Speaker 1: a mortgage. One is the bank eving and based rate
6:30
Speaker 1: prevailing market interest rates. It's really the swap curve which
6:33
Speaker 1: is most important. I'll come back down a second. And
6:35
Speaker 1: the second is the credit spreader, which you know the
6:37
Speaker 1: bank is prepared to lend to you as opposed to
6:40
Speaker 1: lend to another bank. And what's fascinating at the moment,
6:43
Speaker 1: for one, is that credit spread is basically completely disappeared,
6:47
Speaker 1: and that means banks are very long cash. I want
6:49
Speaker 1: to do something with it. Bear a mind, a mortgage
6:51
Speaker 1: is secured lending and often with a nice big fact
6:54
Speaker 1: you know, percentage safety deposits should we call, which protects
7:00
Speaker 1: the bank from any formal losses. So the praclareality here
7:05
Speaker 1: is that banks are prepared to be more aggressive and
7:08
Speaker 1: what they are prepared to offer out to their sort
7:10
Speaker 1: of mortgage brokers or teams that go out there and
7:13
Speaker 1: get the retail customers in Normally, what would happen is
7:16
Speaker 1: that a treasurer would say, okay, I've got a billion
7:19
Speaker 1: pounds here. I'm going to give that to my mortgage team,
7:22
Speaker 1: go out and lend. You've got that now for however
7:25
Speaker 1: long you need it for. I will then go and
7:27
Speaker 1: hedge that billion at the prevailing swap rate, and that's
7:30
Speaker 1: where I'm going to fix my benchmark. I've got everything
7:33
Speaker 1: sort of all my ducks in a line. Now, that
7:36
Speaker 1: only happens when it's sort of perhaps in a market
7:40
Speaker 1: whereby we don't have very volatile interest rates. What has
7:43
Speaker 1: happened recently is clearly banks of not hedging anywhere near
7:47
Speaker 1: as much as they were a few years ago, certainly,
7:50
Speaker 1: and they are prepared to take straightforward cash, but they're
7:53
Speaker 1: getting in from deposits and put it straight out to
7:55
Speaker 1: work in the mortgage market and just make it a
7:57
Speaker 1: nice fact interest margin. So the law all rules which
8:00
Speaker 1: prevailed perhaps before the pandemic aren't really happening. That how
8:03
Speaker 1: banks hedged themselves and setting the net amounts then needing
8:06
Speaker 1: to hedge, it's almost evaporated, which is one of the
8:09
Speaker 1: reasons not to get to come to get here. While
8:11
Speaker 1: the swat curves dropped dramatically and got it inverted. Because
8:14
Speaker 1: there's so much less pressure on keeping interst rate hedges
8:17
Speaker 1: up as in banks buying protection for higher rates, they
8:20
Speaker 1: don't need to as much. Therefore rates have fallen, so
8:22
Speaker 1: it's all feeding in on itself. And I just think
8:25
Speaker 1: that what's fascinating to me is that we know throughout
8:28
Speaker 1: them but the start of pandemic, we had a massive
8:30
Speaker 1: credit spread whereby it looked was really difficult to get
8:32
Speaker 1: a mortgage six seven percent. Sometimes that evaporated quickly. It
8:37
Speaker 1: came back again after this. Gilts crisis where the banks
8:40
Speaker 1: panicked and yanked all their sort of best buy rates
8:44
Speaker 1: and started posting mark to make believed rates in just
8:48
Speaker 1: to avoid business. Unfortunately, the media the then jumped on
8:51
Speaker 1: this and started saying average mortgage rates have gone from
8:53
Speaker 1: the moon and it's all disasters and the world's ending.
8:56
Speaker 1: With the practical realities, you could always get a best
8:58
Speaker 1: buy below six percent in the two year fix. Now,
9:02
Speaker 1: that's much, as Marion's pointed out, much harder and nasty
9:05
Speaker 1: than it was a few months prior. But basically people
9:08
Speaker 1: stop borrowing money, They stayed, they put hold on their
9:11
Speaker 1: mortgage and their house price purposes, and wait till the
9:14
Speaker 1: start of this year, where things have got a lot
9:16
Speaker 1: more attractive. You can get very aggressive tracker rates. You
9:19
Speaker 1: can get a two year fix now, which is probably
9:21
Speaker 1: with my sort of I think where the sweet spot
9:23
Speaker 1: is if you wish to borrow money and buy, how
9:25
Speaker 1: forced to remortgage or buy a house at the moment,
9:28
Speaker 1: I would look at a two year fix and then
9:31
Speaker 1: indeed of five year fixes, as we mentioned earlier, around
9:33
Speaker 1: four percent, which is a lot better than than they
9:35
Speaker 1: were a few months back, but still a lot more expensive.
9:38
Speaker 1: But people buy houses because there are a lot of
9:42
Speaker 1: other reasons than just where the mortgage interest rates are,
9:44
Speaker 1: and they can normally afford it quite comfortably, and markets
9:47
Speaker 1: just get back a bit. What can you get a
9:49
Speaker 1: two year fixed for at the moment around four percent,
9:53
Speaker 1: maybe a little bit over, but certainly four and a
9:57
Speaker 1: little bit of change. And five year you can get over,
10:00
Speaker 1: certainly below four percent. I mean co Op went a
10:02
Speaker 1: bit lower. They always tend to pull their offers very quickly.
10:06
Speaker 1: They'd like to get a lot of free headlines. But
10:08
Speaker 1: I mean I would say you could certainly get at
10:10
Speaker 1: your fixer just around just over four percent, and five
10:13
Speaker 1: year maybe a little bit below. But I would wait
10:15
Speaker 1: because I think interest rates are probably going to come
10:17
Speaker 1: down over the course of later on this year. If
10:19
Speaker 1: you can afford to wait, then great. I mean there's
10:22
Speaker 1: trouble with banks. They when they make a mortgage offers
10:24
Speaker 1: to you and you've got it confirmed, you've got six
10:27
Speaker 1: months and that's quite a long time for a bank
10:31
Speaker 1: to be exposed on interest rates. That's why they perhaps
10:33
Speaker 1: a little bit cautious and going lower in interest rates
10:35
Speaker 1: just yet, which rates, but I think they probably will. Okay,
10:39
Speaker 1: So the fact that house prices are still at actually
10:42
Speaker 1: I was going to say near record, but still at
10:45
Speaker 1: record ratios relative to incomes. That doesn't bother you, because
10:49
Speaker 1: you reckon that the people who want to buy houses
10:52
Speaker 1: right now can still afford those much higher levels of
10:55
Speaker 1: interest rate. You don't see any problem where people who
11:00
Speaker 1: were on two percent of the moment have to roll
11:02
Speaker 1: on to four percent or five percent, or any problem
11:06
Speaker 1: with people saying, well, do you know what I could
11:07
Speaker 1: afford to pay half a million pounds to that house
11:09
Speaker 1: when the interest rate was two percent? But actually I
11:11
Speaker 1: can only afford to pay three hundred and fifty thousand
11:14
Speaker 1: now it's four or five now. It hurts you in
11:17
Speaker 1: my soul. Don't get me wrong. I think this is
11:19
Speaker 1: an iniquitous way that the market works. But just as
11:23
Speaker 1: you know, in the brutal reality of the real world,
11:26
Speaker 1: it doesn't make any difference. If you can't afford, you're
11:29
Speaker 1: out the game. Very sorry about that, but you'll have to,
11:32
Speaker 1: you know, rethink and come back another time. There are
11:34
Speaker 1: plenty of people, and particularly it's interesting on how many
11:38
Speaker 1: cash purchases are being made. This is a phenomenon in
11:41
Speaker 1: the buy to let market where everyone leveraged themselves bought
11:44
Speaker 1: lots of properties and just look at capital values going up,
11:48
Speaker 1: and with very low interest rates, have been doing a
11:51
Speaker 1: very nice little retirement planning a part for themselves. Of course,
11:55
Speaker 1: we know the government has taken a lot of the
11:57
Speaker 1: fun out that they've taxed it, their regulating it, and
12:00
Speaker 1: now interest rates going up. There's clearly going to be
12:03
Speaker 1: some pain in the by tolet but there is plenty
12:06
Speaker 1: it seems of cash money coming in and picking up,
12:09
Speaker 1: particularly in the rental type properties and buying it outright
12:12
Speaker 1: and take them out of the market. And that's what
12:14
Speaker 1: squeezing house prices are empty imagine by to let markets
12:18
Speaker 1: because that seems to me to be one of the
12:19
Speaker 1: elephants in the realm of the UK housing market. You know,
12:21
Speaker 1: it's been one of the struts of the UK housing
12:24
Speaker 1: market for some decades now, and as you say, a
12:26
Speaker 1: lot of people who have been perfectly happy as expenses
12:29
Speaker 1: have risen and the tax regime has changed. They've been
12:32
Speaker 1: happy to barely break even on an annual basis, and
12:34
Speaker 1: for a lot of people to be cash flow negative
12:36
Speaker 1: on an annual basis, happy in the knowledge that they're
12:38
Speaker 1: making ten percent plus a year on capital gains. So
12:41
Speaker 1: it doesn't really matter now if those capital gains are
12:43
Speaker 1: gone and nominal terms at least, and their expenses are
12:47
Speaker 1: still rising because the whole raft of new legislation coming through.
12:50
Speaker 1: There's the energy performancetification, there's the oras down duty, etcetera.
12:54
Speaker 1: Except there's a lot of stuff going on here. You're
12:56
Speaker 1: losing money every year, every month, and you're not going
12:59
Speaker 1: to make the capital games either. If we all accept
13:01
Speaker 1: your premise that maybe prices will stay flat for a word,
13:03
Speaker 1: that looks to me like we may see a huge
13:07
Speaker 1: amount of additional selling coming into the market, and how
13:10
Speaker 1: many two bedrooms two bedroom flats can this market absorb?
13:15
Speaker 1: Plenty because cash buyers are coming in. It's the bank
13:18
Speaker 1: of mom and dad. Now, I hear what you're saying,
13:20
Speaker 1: and I think for some people in the margin that's
13:22
Speaker 1: clearly the case. However, it seems that there's a lot
13:25
Speaker 1: of capital gains built up over the years. If this
13:27
Speaker 1: is a long term strategy, as it is for most people,
13:30
Speaker 1: they will take the roof of the smooth for a
13:32
Speaker 1: year or two of higher interest rates with the expectation
13:35
Speaker 1: they'll probably come down a bit anyway. But what we're forgetting.
13:39
Speaker 1: Here is the other side of the equation, which is rents,
13:42
Speaker 1: and they're going up through the roof, up seventeen percent
13:44
Speaker 1: in London terms and close to thirteen or fourteen cent
13:47
Speaker 1: the rest of the country. This is softening the blow. Now.
13:50
Speaker 1: I don't think it means people are going to break even,
13:53
Speaker 1: but a lot of people look at this and say, okay,
13:56
Speaker 1: I'm losing a bit this year. This isn't quite attractive.
13:58
Speaker 1: Maybe I'll try and so when my rental agreement comes up,
14:03
Speaker 1: or I'll reduce a few of my properties either they've
14:05
Speaker 1: got several, but a lot will just say, you know what,
14:08
Speaker 1: I've had a great get run on this. I'm going
14:10
Speaker 1: to take a bit of a mark to market hits
14:12
Speaker 1: on it, but I'll carry it on. And it clearly
14:15
Speaker 1: seems that people who are are turning over the violets
14:19
Speaker 1: and selling, and there will be a few because obviously
14:20
Speaker 1: it will be expensive with these fixes when they're quite
14:24
Speaker 1: savvy and they can get better deals, and you'd be
14:26
Speaker 1: quite surprised. The bithlet markets still very aggressive. You can
14:29
Speaker 1: you can get fixes on bithlet terms really very attractive,
14:33
Speaker 1: certainly se five percent, So there isn't the pressure that
14:37
Speaker 1: perhaps might have been the last year on that, but
14:40
Speaker 1: there's plenty of cash buyers out there and that's what's
14:42
Speaker 1: going to take up the slack because literally people are
14:45
Speaker 1: getting bought flats for by their parents. You know one
14:49
Speaker 1: thing that you said that I know I'm possibly too pessimistic,
14:54
Speaker 1: but when you talk about brands going up seventeen thirteen percent,
14:59
Speaker 1: fourteen deca, do you know what I think? I think
15:01
Speaker 1: the rent controls, rent controls, you know, yeah, there is
15:05
Speaker 1: Goland already. I'd be amazed if in the current political
15:09
Speaker 1: environment you could have rent rising at that kind of
15:11
Speaker 1: speed in London and not see some controls put in place.
15:18
Speaker 1: You look at Berlin at least the Belgium there, but
15:20
Speaker 1: I'm sure they've got some bad expresses. Well, the Berlin
15:23
Speaker 1: certainly they're absolute disaster where there's some massive illegal mark
15:27
Speaker 1: secondary market whereby you can't rent everything because it's on
15:30
Speaker 1: rent control. The raticles do not work. They don't work,
15:33
Speaker 1: of course, they don't work. There are a total disaster.
15:36
Speaker 1: But politically they sound absolutely brilliant, which is why you
15:39
Speaker 1: get them all the time, and my people talk about
15:41
Speaker 1: them all the time. And I don't know how many
15:43
Speaker 1: blogs and articles I've written about the general disasters with
15:46
Speaker 1: rank control. There are enough case studies to make anyone
15:48
Speaker 1: with even half a sentient brain say rent controls, we
15:51
Speaker 1: must do that. But that doesn't mean it won't happen.
15:54
Speaker 1: That's not how politics works, how modern politics works. I
15:58
Speaker 1: don't think it's going to happen in England. Scotland is
16:01
Speaker 1: a different story. But I certainly think that they just
16:04
Speaker 1: the simple answers. We have to build more properties. Housing
16:07
Speaker 1: associations have to replace the things they sell off to
16:11
Speaker 1: the one ratio by building you you know, we know
16:14
Speaker 1: we've got a situation whereby big business, big insurers, the
16:19
Speaker 1: black rocks that legal in generals are ready to move
16:21
Speaker 1: in and provide build to rent houses. That's necessarily isn't
16:27
Speaker 1: a great development, but at some point that's what Michael
16:29
Speaker 1: go is got a very important job here and he's
16:32
Speaker 1: making some progress, for instance on Clauding. He knows this
16:35
Speaker 1: is the big existential risk for the Tory Party that
16:38
Speaker 1: they're not going to get reelected if they lose their
16:40
Speaker 1: entirety of their younger voters, who are not going to
16:44
Speaker 1: want to be able to vote for a party which
16:46
Speaker 1: won't allow them on the housing leader so into the
16:49
Speaker 1: mid to late thirties. Now that's the average. It's a disgrace,
16:52
Speaker 1: it's a shock. It's a horrible way our system works.
16:55
Speaker 1: But practically speaking, we've got four or five very large
16:59
Speaker 1: builders who dominate the building sector. We were at risk
17:02
Speaker 1: of letting that switch into the same for the for
17:04
Speaker 1: the rental market. We're not careful by by completely freezing
17:07
Speaker 1: out the private landlords. The government's got to get out
17:10
Speaker 1: the way of here. The planning rules have got to
17:12
Speaker 1: be changing, We've got to build more houses. None of
17:15
Speaker 1: that's going to happen in the short term. But I
17:17
Speaker 1: clearly think that the government and both sides of the
17:21
Speaker 1: of Commons need to think very, very careful about this
17:24
Speaker 1: because it's it's it's ruin us for our youth. I
17:26
Speaker 1: think this is kind of the point because you know,
17:30
Speaker 1: I guess my scenario of you know, thirty percent full
17:34
Speaker 1: in real terms and there is a quote in real terms,
17:37
Speaker 1: because that reflects improving affordability. I mean, yeah, affordability improved,
17:41
Speaker 1: and you get ready this kind of political and it's
17:44
Speaker 1: a massive political problem. I mean, you're right, because you know,
17:47
Speaker 1: hall ownership in the UK is now don't be you know,
17:50
Speaker 1: sub sexty five percent kind of levels, which is getting
17:54
Speaker 1: on FOT you know, I mean, gentleman, he's fifty percent.
17:56
Speaker 1: You know, we all bach fathered them again DOT having
17:59
Speaker 1: hardly any hollers an extremely insecure rental can a tenure.
18:03
Speaker 1: So I think this is the problem. It's that if
18:04
Speaker 1: the affordability doesn't improve this way, then really markets I
18:08
Speaker 1: guess what you're saying, or what it sounds like you're saying,
18:12
Speaker 1: is that we're on the road to a market where
18:15
Speaker 1: are the vice majority of the kind of younger population
18:20
Speaker 1: is stuck renting, and then anyone who does get on
18:23
Speaker 1: the mortgage kind of market ends up taking out the
18:26
Speaker 1: cost mortgage an average kind of you know, ten years
18:29
Speaker 1: of light over thirty years rather than twenty five years
18:32
Speaker 1: as it was when when we were buying. So it
18:36
Speaker 1: sounds it just kind of sounds quite dystopian, to be honest.
18:40
Speaker 1: You think there has to be a political tipping point, Yeah,
18:44
Speaker 1: and I think we're not far away from. I think
18:46
Speaker 1: Marion's right to point out that, you know, we start
18:48
Speaker 1: getting screams for rent controls, then then you know the
18:51
Speaker 1: fallout is going to be well far and wide Nonetheless,
18:55
Speaker 1: that's going to keep the house prices up, you know,
18:57
Speaker 1: not for the right reasons. We've already got an affordability
19:01
Speaker 1: ratio which is way above you know what perhaps it
19:03
Speaker 1: wants used to be. I don't worry at all about
19:06
Speaker 1: extended terms of mortgages. I think that's a you know,
19:09
Speaker 1: a red herring in the sense that's just people being smart,
19:13
Speaker 1: turning out their debt, keeping the payments as low as possible,
19:16
Speaker 1: shifting to interest only, whatever it may be, do what
19:19
Speaker 1: you need to do to get through the next year
19:20
Speaker 1: or two. And that's that's the smart sort of finances.
19:24
Speaker 1: And I think banks are very flexible and mature about that.
19:27
Speaker 1: I mean, that's the one good news we've got here.
19:29
Speaker 1: We've got a we've got a banking sector or a
19:31
Speaker 1: property lending sector which is keen to do business. And
19:34
Speaker 1: that's why I think the market is fairly active. We've
19:38
Speaker 1: seen sellers being far more you know so flexible on
19:42
Speaker 1: what the prices. Asking prices and between actual trader prices
19:46
Speaker 1: are down by somewhere around six percent. So yes, we're
19:49
Speaker 1: going to get a drop in mortgage approvals, particularly for
19:53
Speaker 1: first time buyers this year. That's just symptomatic of a
19:56
Speaker 1: much higher interest rates. It's a rough crawl market for
19:59
Speaker 1: those who can afford to go out on the first
20:01
Speaker 1: step of the ladder. But those on the ladder things
20:03
Speaker 1: are going to carry on as normal. I mean, I'm
20:05
Speaker 1: sitting here with with with well on ones renting, but
20:09
Speaker 1: two two sort of you know, early twenties children who
20:12
Speaker 1: I'd like to see how to my home in a
20:15
Speaker 1: rental properties, who literally are being priced out of the market,
20:18
Speaker 1: and that's that's hurting me because I'm having to support them.
20:21
Speaker 1: So I'm by them flats markets. But the parents are
20:26
Speaker 1: doing it. Why can't you? It's the obvious thing for
20:28
Speaker 1: a journalist to be able to forty two except work harder. Man. Listen,
20:33
Speaker 1: I don't know why your children are looking to rent.
20:35
Speaker 1: But let's talk about how we always talk about this
20:38
Speaker 1: market as being one market. We talk about the UK
20:40
Speaker 1: property marketing. Of course it's nothing. There are so many
20:42
Speaker 1: different markets and inside it it's very regional markets. So
20:46
Speaker 1: you know, I got prices down to seventeen percent in
20:49
Speaker 1: Southampton and prices up in Exeter. There ay an hour
20:51
Speaker 1: and a half drive apart. Are they I'm not found
20:54
Speaker 1: up on south of England anymore. How long does it
20:55
Speaker 1: take to drive from except Southampton? Two hours? I wouldn't
20:58
Speaker 1: start from there. They all don't be like that. Well,
21:02
Speaker 1: now you go Markers, where would you start from? Yeah,
21:05
Speaker 1: but I think your point it's exactly right. I mean
21:07
Speaker 1: it's it's you can't I mean potential London or to
21:11
Speaker 1: the environs further out is where my children were looking
21:13
Speaker 1: to rent. You know, probably, but that's a different market altogether.
21:17
Speaker 1: It's compared to certain parts of the rest of the
21:20
Speaker 1: country which are say to take extra here. As you
21:23
Speaker 1: said that, that's very much a localized economy and it
21:27
Speaker 1: works on different ways. However, price house prices have probably
21:30
Speaker 1: been doing better in cheaper areas over the last few years,
21:35
Speaker 1: and it rents work in a different way. But certainly
21:37
Speaker 1: the London upswing. Also we say urban centers, big urban
21:41
Speaker 1: centers are hit very hard during the pandemic. A lot
21:45
Speaker 1: of landlords took it on the chin, agreed much lower rates,
21:49
Speaker 1: and now we're seeing the flip side of it being
21:51
Speaker 1: super strong and they're they're now pushing rates up by
21:53
Speaker 1: as much as fifty or sixty percent on rent reviews.
21:56
Speaker 1: So you know, there's a very localized market. House price wise,
22:00
Speaker 1: it's becoming very much an unpleasant urban rental market. But
22:05
Speaker 1: still there is a paucity of houses to rent throughout
22:08
Speaker 1: the country and it's creating very strange effects. What hap
22:11
Speaker 1: happened for the idea that no one was ever going
22:13
Speaker 1: to have to live in a city center again and
22:15
Speaker 1: we could all move to the back end of Northumberland
22:16
Speaker 1: and it would be fine. Quite worked out, has it? Yeah,
22:20
Speaker 1: they want us back in the office. I think it's
22:22
Speaker 1: part of the problem, and people are realizing that it's
22:25
Speaker 1: it's all well and good, but it's actually much more
22:27
Speaker 1: expensive to live out the country than it isn't in
22:29
Speaker 1: the city center, and you know, people perhaps miss the vibe. Yeah, yeah,
22:34
Speaker 1: and they're getting really cold as well, I'm guessing yeah,
22:37
Speaker 1: of course. Yeah, eating heating is a problem. You know,
22:41
Speaker 1: John and I have caught about this before when we
22:43
Speaker 1: were talking about how much we thought prices might fall
22:45
Speaker 1: and which areas might fall most. We thought that it
22:48
Speaker 1: was those those detached houses in the country that would
22:51
Speaker 1: suffer the most in any proper house price crash. If
22:53
Speaker 1: they kape us on the country, they tend to go
22:57
Speaker 1: completely dead. And what happens there is that market just stops,
23:01
Speaker 1: as in you get a bit off a spread of
23:04
Speaker 1: ten or even twenty percent, whereby people aren't prepared to
23:07
Speaker 1: move unless they get what they thought was the high print.
23:09
Speaker 1: And no one is prepared to pay up and buy
23:11
Speaker 1: something they know it's going to cost them at king's
23:13
Speaker 1: ransom just to heat, let alone maintain, because it is
23:17
Speaker 1: much more expensive to live out, you know, leading extra
23:19
Speaker 1: cars and petrol and the whole, the whole rest of it.
23:22
Speaker 1: It is certainly what looked great perhaps in the pandemic
23:25
Speaker 1: everyone wants to flee that disease ridden urban centers is
23:29
Speaker 1: now turned around a bit on itself. But I think
23:31
Speaker 1: the other thing as well is there are definite younger
23:35
Speaker 1: moved back into other staid move back into into working,
23:37
Speaker 1: back into the office and trying to get back on
23:39
Speaker 1: with their lives. And that's what's driving the rental surge. Yeah, well,
23:42
Speaker 1: I mean the natural things interesting because last year, so
23:44
Speaker 1: during the pandemic, I actually knew quite a few people
23:47
Speaker 1: who mightaged to get absolutely fantastic deals on the London
23:50
Speaker 1: vents because you know, everyone moved though, and a lot
23:54
Speaker 1: of people were aile collecting move might quarter is wine
23:57
Speaker 1: for the same place the insects or whatever. You know,
24:00
Speaker 1: I've got a bigger police for the latest money. So
24:02
Speaker 1: I do think part of the you know, the rampingt
24:04
Speaker 1: for you boom. You know, it's just up an adjustment
24:07
Speaker 1: to the last couple of years in which rents actually fail,
24:09
Speaker 1: which is the other thing about the fun from working
24:12
Speaker 1: from holds. Yeah, I hope you're acty. What it all
24:14
Speaker 1: kinds of looks like, both in the rental market and
24:17
Speaker 1: in the buying market, is that everything is simply going
24:22
Speaker 1: back to where it was before COVID, and so post
24:26
Speaker 1: COVID prices are going to be almost identical to pre
24:29
Speaker 1: COVID prices. That twenty percent up lived and buying prices
24:33
Speaker 1: disappears the rent that went down a lot during COVID,
24:37
Speaker 1: and I'm going back up to where they were, and
24:38
Speaker 1: here we are like the whole thing never happened. I
24:41
Speaker 1: think house prices will remain twenty percent ish above where
24:45
Speaker 1: they were before pandemic. That's that's I think we're going
24:47
Speaker 1: to tread water. So I don't think we're going to
24:49
Speaker 1: go down and price very much, is my overall opinion,
24:52
Speaker 1: just because I think that the dynamics us supplying them
24:54
Speaker 1: are so strong. I think the rental push is going
24:57
Speaker 1: to soften the blow for those by a lead trying
25:00
Speaker 1: to people get out exits. I think they'll they'll, they'll
25:04
Speaker 1: all And the amount of cash kicking around, both in
25:06
Speaker 1: banks and people who are prepared to use its deposit
25:09
Speaker 1: is sufficient just to keep all of it, you know.
25:12
Speaker 1: I take and I hope John's right with it. As
25:14
Speaker 1: far as the rental uh, you know, calming down, I
25:16
Speaker 1: think he is right in the sense it's gone over
25:19
Speaker 1: overbought blown a bit, and then things will come down
25:23
Speaker 1: in rental price increases that may start to feed through
25:27
Speaker 1: into it. And it's a general calming and just a
25:29
Speaker 1: choppy market I think in in house prices overall, but
25:33
Speaker 1: it will become ever more localized. It's a stop picking market,
25:36
Speaker 1: you know. It depends on your on your sector stop pickers. Well, John,
25:40
Speaker 1: have you been convinced by markers that you are completely wrong? Oh?
25:44
Speaker 1: Of course, absolutely give in that easily. By it, I
25:50
Speaker 1: mean obviously everything you'll see it. All I would say
25:54
Speaker 1: is I think the view deference is that I and
25:57
Speaker 1: I think I think yeously down this. They'll wait change
26:00
Speaker 1: in interest rates much more heavily than you do markets,
26:04
Speaker 1: because I mean I hear you on all of these things,
26:07
Speaker 1: and you're clearly not desperately bullish on the house in
26:10
Speaker 1: market either. It's sort of like you're basically seeing Kina
26:13
Speaker 1: flat single digit nominal falls and I guess nominal terms,
26:17
Speaker 1: I'm probably saying about fifteen percent nominal fifteen percent inflation,
26:22
Speaker 1: So not actually you know, as far apart as it
26:24
Speaker 1: might sound umatistical sleight of fand here I do think
26:30
Speaker 1: that interest rates if you I think the other perhaps
26:35
Speaker 1: fundamental differences it. I think that we're in a secular
26:38
Speaker 1: regime of higher or more volatile inflation and therefore corrupt
26:44
Speaker 1: systemically higher interest rates. And even if they stick it
26:48
Speaker 1: three point five percent to four percent, that is a
26:51
Speaker 1: lot higher than they we have two or three years ago.
26:54
Speaker 1: And that's that just don't see how that's got to
26:56
Speaker 1: have an impact on property prices, and historically it's always
27:00
Speaker 1: hard and impact on property places and you don't even
27:03
Speaker 1: need because the other thing is, I'm not a particularly
27:06
Speaker 1: very show in the UK economy. You know, I think
27:08
Speaker 1: there's a good chance for skept of session this year.
27:10
Speaker 1: I mean, let's park who was going on with Bank
27:13
Speaker 1: sales on the world. But you know, we make it
27:15
Speaker 1: a we reord siasition, things may improve a lot. I
27:19
Speaker 1: still think that because of the higher mortgage rates, it
27:23
Speaker 1: just has to be some adjustment in places. It just
27:25
Speaker 1: doesn't need to be catastrophic for the way that the economy.
27:29
Speaker 1: But I think, yeah, I can of ten to fifteen
27:32
Speaker 1: percent nominal fall is very realistic. I agree with John
27:38
Speaker 1: oh well, you know, look a well for part and
27:41
Speaker 1: there was a banking crisis or indeed, you know the
27:44
Speaker 1: economy does go into a session, you may well prove
27:46
Speaker 1: to be right. I mean it's one of these things
27:48
Speaker 1: that you know, the housing market is clearly fragile. It
27:51
Speaker 1: had a nasty shop last year. It seems to recovered
27:55
Speaker 1: perfectly well, as if it never really happened. It really
27:57
Speaker 1: was the six weeks of badness and then you know,
28:00
Speaker 1: everyone shake themselves off and got back to what they
28:01
Speaker 1: were doing beforehand. That's my opinion. But you know that
28:05
Speaker 1: there's a fine line here. I mean, if interest rates
28:07
Speaker 1: where to go to, say six percent from the Bank
28:10
Speaker 1: of England, then I think your view might be proved
28:12
Speaker 1: more correct. I just think they're probably going to stop
28:15
Speaker 1: around four and I think the fact that banks are
28:17
Speaker 1: so keen to lend, and I think the fact that
28:19
Speaker 1: people have so much evident cash and prepared to get
28:23
Speaker 1: on with their lives and buy that flatter they want
28:25
Speaker 1: to the help of mom and dad. Maybe that the
28:29
Speaker 1: housing prices are probably set fairly stable and may chop
28:33
Speaker 1: around a bit, But I mean, come on, three or
28:35
Speaker 1: four percent, Morgues, I was used to fifteen. Yeah, and
28:38
Speaker 1: look how much lower and house prices were then. Yeah,
28:41
Speaker 1: I just don't let that fact right. Listen, you doube.
28:47
Speaker 1: We're gonna have come back this any year, I think, Marcus.
28:50
Speaker 1: Can we invite you back on this podcast in one
28:52
Speaker 1: year from today to have this conversation again a pleasure
28:55
Speaker 1: and they'll have to be a lunch or some some
28:58
Speaker 1: form of alcohol on are writing on this, John, So
29:01
Speaker 1: I'm sure we can work that out as well. Yes,
29:04
Speaker 1: I thought you had a bet going already, you two.
29:07
Speaker 1: It's basically a lunch. I want to double down on it,
29:10
Speaker 1: though I can. I can smell blood here. The only
29:15
Speaker 1: thing I would say to you, Marcus is statistically speaking,
29:18
Speaker 1: John and I have to be right one day, Yes,
29:22
Speaker 1: one day, we have to be right on the stop
29:24
Speaker 1: clock theory one day, there's got to be a proper
29:26
Speaker 1: housing crash in the UK. Listen. I wanted to finish
29:29
Speaker 1: with reading you a tweet from one of our one
29:32
Speaker 1: of our favorite property sources, Henry Pryor, who's a buying agent,
29:35
Speaker 1: who sent a tweet the other day that I thought
29:37
Speaker 1: was really good. Actually, and the mails seem obvious to
29:39
Speaker 1: lots of people, but I don't think it's obvious lots
29:41
Speaker 1: of sellers. Things that don't count when working out what
29:45
Speaker 1: your home is worth, what you paid for it, what
29:48
Speaker 1: you need, what your neighbor is asking for his, what
29:51
Speaker 1: your friends think, what your a state agent says, what
29:54
Speaker 1: it might cost to rebuild, and crucially, because we've all
29:58
Speaker 1: heard people complaining about this, what you've spent on it.
30:02
Speaker 1: The fifty grand you spent on your new kitchen did
30:04
Speaker 1: not add fifty grand for the value of your house.
30:07
Speaker 1: It just didn't. So I think that's all useful information.
30:10
Speaker 1: Anything to add to that that sounds spot on it.
30:13
Speaker 1: It's literally what someone's prepared to pay for it. Any
30:16
Speaker 1: of you are lucky, and the two people prepared to
30:18
Speaker 1: pay for it, then you're in jam. Yeah, yeah, and
30:21
Speaker 1: there we go, right, Marcus, we will hear from you
30:24
Speaker 1: again in one year. Thank you very much for joining us. John,
30:27
Speaker 1: I will be torturing you again next week. Thank you
30:30
Speaker 1: very much for joining us and all of you. Thank
30:32
Speaker 1: you for listening to this week's Marion Talks Money. We
30:34
Speaker 1: will be back again next week. In the meantime, If
30:37
Speaker 1: you like ours show, rate, review, and subscribe wherever you
30:40
Speaker 1: listen to podcasts, And by the way, do also get
30:42
Speaker 1: in touch and let us know how much you think
30:44
Speaker 1: house prices are going well. And I would be particularly
30:47
Speaker 1: interested to hear from buy to let infestors. Are you selling?
30:51
Speaker 1: Are you holding? Are you even thinking of buying more?
30:54
Speaker 1: Let us know I would be interested in that. This
30:56
Speaker 1: episode was hosted by me Marion Sumset Web. It was
30:59
Speaker 1: produced by Samasadi, additional editing by Blake Maples and Spectled.
31:03
Speaker 1: Thanks obviously, Duke Marcus and John. Finally, our weekly reminder
31:07
Speaker 1: to sign up to John's daily newsletter, Money Distilled, in which,
31:10
Speaker 1: by the way, if you send us in what you
31:12
Speaker 1: think about house prices, we will sum it all up.
31:15
Speaker 1: The link for that is in the show notes. I
31:17
Speaker 1: know I said finally I was wrong. That was not finally.
31:19
Speaker 1: Here is finally, this is your last chance to sign
31:22
Speaker 1: up to be in the audience of the live taping
31:24
Speaker 1: of the podcast. This is happening next week. Take it back.
31:26
Speaker 1: I won't be talk sing John next week. It's somebody else.
31:29
Speaker 1: This is that the Bloomberg invest event on the twenty
31:31
Speaker 1: second of March. It's called Strategies for Wealth Creation. If
31:34
Speaker 1: you're in London you can join in person. Everyone else
31:37
Speaker 1: can join online. Link is in the show notes for registration.
31:41
Speaker 1: Please do register. I'll be there on the day and
31:43
Speaker 1: John will as well. You are there, aren't you, John,
31:45
Speaker 1: damn them in the morning. Excellent, see you all there,
31:48
Speaker 1: Thank you very much.