UK housing

Listen to this article

00:00
00:00

Set aside the nonsense about the return of gazumping in the UK. Ignore estate agents telling prospective homebuyers they will have to move fast to snap up the bargain that has languished unsold since last summer. For as far as “signs of stabilisation” go, the news from the Royal Institution of Chartered Surveyors, which may even have boosted sterling, was pretty unconvincing. The balance of surveyors reporting house prices drooping further rather than zooming off again is certainly falling, but it remains spectacular.

Dig into the numbers of Rics’s May housing market survey and it is clear that most valuers remain resolutely gloomy. The seasonally adjusted net balance of surveyors reporting falling prices narrowed again in May and is now almost half the levels it reached in June last year. But the latest reading of -44.1, still well in negative territory, is around levels seen during much of the early 1990s correction. Celebrate that if you like. True, some more forward-looking measures are picking up. The RICS survey also contains more definitive signs that the rebound in enquiries underway for the last seven months is now feeding through into increased transactions.

But the extraordinary jump in two-year swap rates – up 50 basis points in the last week – is pushing up bank financing costs. If lenders attempt to recapture the lost margin, particularly for the fixed-rate deals priced off swaps, many borrowers will find it difficult to make the maths work on purchases of a slice of Britain’s still overvalued housing stock.

Two-year futures for the Halifax house price index, which notched up an unexpected, and perhaps one-off, rise last month, no longer suggest a further fall of the order of 20-25 per cent, merely one of about 10 per cent. But as affordability ratios deteriorate because of higher financing costs, and as rising unemployment triggers more forced sales, would-be homebuyers have little reason to fear a return of the housing bubble. The correction still has further to run.

To e-mail the Lex team confidentially click here
OR
To post public comments click here

The Lex column is now on Twitter. To receive our daily line-up and links to Lex notes via Twitter, click here

_________________________________________

Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of FT.com available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.

Subscribe now

If you have questions or comments, please e-mail help@ft.com or call:

US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.