UK’s Fake Housing Market Makes Fake Millionaires

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Even banks are fretting about record high household debt.

By Graham Vanbergen, United Kingdom, TruePublica:

“One in 65 people is now worth seven-figures after surge in the price of property and stock markets” the newspapers have been crowing. “The number of British millionaires has shot up by 40 per cent in the past five years”.

We are all being led to believe that a  “Surge in property prices and stock markets means there are now 715,000 millionaires in the UK alone”. Not only does this make the other 63,385,000 feel left out of this boom in inequality, it is also inaccurate, misleading and bathed in exaggeration.

The truth is that this is a UK mainstream media campaign instigated by a government with no new policy ideas to get the British economy working hard for everyone. To fill the void, an illusion of greater prosperity is constructed.

UK house prices may have risen 3% over the last year. But the UK-wide rate is utterly meaningless, thanks to an already immense and ever expanding North/South divide. Property prices in The City of London and inside the M25 massively increase the average property price not just in England but the UK more widely. The numbers for these areas also distort the time taken the sell, cash sales, mortgage numbers and general availability.

Contrary to belief, the volume of actual sales has crashed by about 35 per cent in just 4 years and 40 per cent in 8 years and that number is quite likely to increase over the next year or two to 50 per cent.

Part of the problem is that the middle-aged have accumulated money in the good times. They are, quite rightly, frightened to death of ‘financial consultants’, banks, ‘advisors’ and years of treasury plundering – all of whom seem to have a licence to steal hard earned, tax-paid money being saved for retirement. This savvy generation have taken matters into their own hands.

15-20 per cent of all property that comes to the market is now bought by buy-to-let landlords. These landlords have an average deposit of nearly £100,000. They are banking on driving down their mortgage debt over a number of years, paid for by rent and then end up with a tidy monthly income to cover the loss from the thieves who would have stolen their pension funds in the first place. The latter part of this ruse is government policy and it helps to drive property prices ever higher.

In the meantime, these new landlords keep their investment for an average 17 years – three times the average and therefore stemming supply and putting even more price pressure on the market.

Then we have the government backed schemes that is pouring literally billions of taxpayers money into what can only be described as sub-prime mortgage debt that is fuelling price inflation even further.

First, we had Funding for Lending, a scheme that dramatically achieved nothing, but did wonders at lowering mortgages rates.

Help To Buy, was Osborne’s next market-distorting scheme that effectively forces the already overcommitted taxpayer to underwrite £12 billion of mortgage lending to people who haven’t got an adequate deposit of their own, or who lack the income to have a go at producing one and who therefore shouldn’t really qualify for a mortgage at all.

Then we had Save-to-Buy where the taxpayer will pay £50 for every £200 saved if it is used as deposit. The new help-to-buy Isa means, if a first-time buyer can save £12,000 in a tax-free account, the government will add £3,000. Forget the £2 billion cost to the taxpayer – again.

In the meantime, over a quarter of us have absolutely nothing put away for a rainy day, and nearly 60% have less than £1000 of savings, with the Government pushing pension dates back and back. What the Independent recently called ‘the silent crisis’ is distressingly well documented.

Unsecured debt now stands at £10,000 per UK household – higher than ever – and this increases every month. An astonishing £4bn has been added to this debt in 2015 alone, when the inflation rate is almost nil. The debt charity Money Advice Trust (MAT) said in a report yesterday that councils sent in the bailiffs to collect debts from households on 2.1 million occasions in 2014/15.

Total household debt (including secured debt) to income ratio heads towards 172%  – exceeding its previous peak in the run up to the financial crisis – this is now a concern even to the banks.

A week ago, the Financial Times noted that secured (mainly mortgage) debt is now ‘a serious concern among lenders’. Two days ago, the Prudential confirmed that there has been a 19% rise in debt problems beyond either secured or unsecured loans, relating mainly to rent arrears: such arrears across the social and private rented sector rose by an average of 28% in 2014/15. And a staggering increase of 48% in rent-related debt in the private rented sector. The Bank of England has reported that half a million homeowners now face mortgage arrears with a very minor rate increase.

Considerable pressure has been put on the banks to hold off on repossessions. Ten years ago if you fell behind on mortgage payments by three months, you were evicted and repossessed – not so today.

All these incremental changes by government are market interventions designed to stop the inevitable happening. They are now unable to reverse out of this death spiral. It is clear, house prices are being driven up on dramatically lower volumes of sales supported only by financial devices that even paracitical bankers would be proud of engineering.

Governments, past and present, have continually approached the housing market as a barometer of wealth and economic success. They have excessively promoted growth in home ownership without sufficiently regulating the banks and other mortgage lenders that made bad loans.

A healthy property market is driven by some basic factors; sustained economic growth, full time – permanent jobs with wage growth keeping up with inflation, a price to earnings ratio that makes housing affordable, mortgage availability and stable interest rates, consumer confidence and supply.

Economic growth is unbalanced and poised to enter negative territory, full time jobs have collapsed in the UK since 2008 and now only account for 1 in 40 new jobs. Earnings have dived, affordability of an average home has vaporised, interest rates are now looking volatile and the supply of stock has nearly halved. Most of these new so-called millionaires are unable to get their cash. It’s tied up in over-inflated property.

There is a perverse and pervasive stupidity that allows bubbles to continue to extremes. When they escalate, investors get something for nothing. It’s like Santa scrapped the naughty and nice rule and started stuffing everybody’s sock with a huge heap of free cash. And everyone believes this fantasy will continue. No one wants it to end. Then everyone goes into denial and that further inflates the bubble — aggravating the extreme divergence in supply and demand.

Most people will be surprised when the UK housing market pops as every bubble in history has. And the government will blame international events – they always do. By Graham Vanbergen, TruePublica

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  10 comments for “UK’s Fake Housing Market Makes Fake Millionaires

  1. Ancient Brit
    Sep 3, 2015 at 4:15 pm

    Excellent comment. The government is being totally irresponsible and is adding fuel to the property fire to create a “feel good factor” and mask the underlying economic position.

    It has even singled out your residence for greater relief from death duty than any other asset. This is the first time, in a long life, that I have seen one asset being taxed for death (estate) duty, at a different rate from all other assets. It is an unwanted distortion and simply a political inspired vote gatherer.

  2. ML
    Sep 4, 2015 at 1:33 am

    The article (which is scaremongering for the sake of it) omits mention of all those that own their homes outright (no mortgage), also that about 2/3rds of credit card holders pay off the balance each month. There is a considerable amount of money held in cash savings. And while investing in buy-to-let, properyy and/ or stocks and shares, and other forms of alternative investment, such as art, classic cars, may seem risky, mostly it is money surplus to requirements that is used.

    The debt-loaded sector of the population is in the minority and always has been. Yes, Government interference in the market distorts but the interference is nothing new. Anyone else remember when it was possible for each borrower to get tax relief on their share of the mortgage interest, making it possible for two or more people to club together to buy a more expensive home.

    As for the number of millionaires having shot up, the Premium Bond jackpot is £1m a month and somebody wins. It only needs for that to be someone different every month to have another 12 millionaires each year. And every so often, someone in the UK wins more than £10m on the the Euro lottery.

    The UK may not be as economically well-off as the government likes to say, but it is in nothing like as much dire straits as this article would have you believe.

    • Gil Obrero
      Sep 4, 2015 at 3:41 am

      This article understates the entire debacle of the UK economy.

      If you really believe that the UK is doing just fine and that the most extreme and distorted numbers, and totally false and outright lies are not the new normal, and that politicians and banks and the crony corrupt civil servants the revolving door crowd in and out of the major corrupt PLC’s including every MSM are in fact telling it to you as it is and that there is really nothing to see here, and its all a conspiracy theory,…..
      ….. well what can I say,,, enjoy your delusions

  3. ML
    Sep 4, 2015 at 1:41 am

    PS – if you visit the author’s website and read the About, you’ll find that whomsoever wrote the content cannot spell its. Or rather doesn’t know the difference between “it’s” and “its”. Says it all really!

    • David V
      Sep 5, 2015 at 6:17 am

      Your writing isn’t perfect either. Starting a sentence with “or” says it all to me!

  4. night-train
    Sep 4, 2015 at 3:17 am

    Sounds familiar. Where have I seen this before? Anyone remember the guy on the Ed Sullivan show who would spin plates on sticks? He could spin up quite a number and keep them spinning——for a while. I think a lot of plates globally are beginning to wobble on their sticks. I look for a lot of broken dinnerware in our not too distant future.

  5. hidflect
    Sep 4, 2015 at 10:37 am

    There’s a UK show I watch here in Oz called “Homes Under The Hammer” or similar. Each week people buy a house at auction, do it up and usually rent it out. I’m amazed at the returns they make, usually between 8-10% PA on their total outlay. That’s decent money. Here in Oz you’d be lucky to pull 3% GROSS. Repairs, vacancies, taxes, agent’s fees. All make buying an investment property in Oz a losing bet.

    Which leads me to say that the speculation in Oz for capital gains is rampant and extreme. If the UK is overvalued then what does that say about the fibro board cr@pshacks going for $600,000+ even in a remote city like Perth? Oz is going to get smashed when this one pops. And judging by all the cement mixers parked on the lawns of houses in well-to-do areas, it’s the only industry they’ve got left.

  6. Yadubi
    Sep 4, 2015 at 1:11 pm

    Sounds like Vancouver, BC where everybody who has a property west of a certain longitude is a millionaire. Of course, these hot locations like London, Vancouver have a certain money laundering element to it, but these bubblacious property prices are mirrored to a lesser degree around the globe – the result of unlimited liquidity, financialization, debt culture.

  7. Chuikov
    Sep 5, 2015 at 11:08 am

    Hidflect says :
    “There’s a UK show I watch here in Oz called “Homes Under The Hammer” or similar. Each week people buy a house at auction, do it up and usually rent it out. I’m amazed at the returns they make, usually between 8-10% PA on their total outlay.”

    Just to let you know, and anyone else for that matter who doesn’t live in the UK, that episodes of these shows are from 2008 and before. They’re just repeats. I remember one episode a guy who bought a house was asked how many he has and he said a hundred!

  8. Cashboy
    Sep 6, 2015 at 1:11 pm

    I do not believe that there will be a crash in property prices in the UK and here is my explanation: It is down to supply and demand and there is too much demand for property in the UK due to (1) immigration; the UK is flooded with East Europeans who are inviting their relatives over when a vacancy comes up in the UK and they also understand the easy benefit system and are now becoming like the UK benefit scroungers that they came over initially to do their jobs. (2) There is the population growth from the resident muslims that have decided they do not need to fight the westerners but instead breed and claim state benefits and destroy the UK economically. (3) UKs growth, on paper, has been the best in the EC so more EC people are heading to the UK.

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