No, house prices are not falling

It's just a summer blip.

Time to don youy hard hats, cancel this winters ski trip and think twice about the kids school fees, house prices have dropped by 1.8 per cent compared to July. The time for panic though may be a little premature however: what the newly released figures from Rightmove, a property website, have shown is no more than the annual summer blip. In fact since January house prices have continued to rise by 5.5 per cent, the fastest rate since 2006 and that’s £20,000 on January’s average house price of £230,000.

But is a rise in house prices really something to be happy about? Even if we dismiss the much publicised concerns over first time buyers (hard to do I know) the rise in prices may have greater worries for us all. One of the areas for concern is the ability to deal with inflation, as almost any rise in house price will mean higher levels of debt among households.

Even at just 2.8 per cent inflation is outstripping wage rises by 1.1 per cent month on month according to the office of national statistics. That’s a real terms wage cut of 1.1 per cent per month for everyone compared to the price of things like food. Conventional logic dictates that the Bank of England (BoE) cuts inflation back by raising interest rates when that happens, poverty not being a popular condition in a democracy.

But the Bank of England is doing the opposite. They hope that by keeping the lending rate at 0.5 per cent banks will lend more, and in turn we will spend more, boosting the economy. But after four years the BoE has not changed its policy despite banks stubbornly refusing to lend ro all but the safest bets. So maybe there’s another reason to keep rates low?

Maybe the answer lies in the fears of a collapsing housing bubble, a housing bubble so huge it can’t be inflated away.

Mortgage default levels have remained low despite rising unemployment and lower wages. This has been because the main affect of the crisis was that the BoE cut rates to record lows of just 0.5 per cent.  This helped the overleveraged homeowner from defaulting when living costs rose but their wages didn’t. The new rates gave them a cushion on which to land softly.

Any rise in the BoE rate though will pull away that cushion and the bump will be a hard one. Politically a hard bump is unacceptable. Voters could suddenly be homeless or struggling to pay debts. Any government in power when this happens can effectively say goodbye to any chance of a return to power, no matter how independent the BoE is supposed to be.

Therefore the pressure on the BoE to keep rates low and let house prices climb must be huge, if unspoken. The problem is that it’s a short sighted policy. Even if the average homeowner is not likely to default today or tomorrow because they can afford the low repayments, those repayments will inevitably be squeezed by other rapidly rising costs of living. Sooner or later there may not be enough money in the house-holders pockets to pay for all their outgoings including their mortgage. And by holding rates low, the BoE has no room for manoeuvre. Raise rates and be seen to cause a property crash, or keep rates low, increase our daily costs and cause a crash anyway.

They are caught between the devil and the deep blue sea.

So maybe it is time to don our hard hats and cancel that holiday. Not because house prices are falling, but because they’re not.

Photograph: Getty Images

Mike Cobb is a reporter at Private Banker International

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How worried are Labour MPs about losing their seats?

Despite their party's abysmal poll ratings, MPs find cause for optimism on the campaign trail. 

Labour enters the general election with subterranean expectations. A "good result", MPs say, would be to retain 180-200 of their 229 MPs. Some fear a worse result than 1935, when the party won just 154 seats. Rather than falling, the Conservatives' poll lead has risen as the prospect of electing a government concentrates minds (last night's YouGov survey, showing the Tories a mere 16 points ahead, was an exception).

Though Conservative strategists insist they could lose the election, in an attempt to incentivise turnout, their decision to target Labour MPs with majorities as high as 8,000 shows the scale of their ambitions (a Commons majority of circa 150 seats). But as well as despair, there is hope to be found in the opposition's ranks.

Though MPs lament that Jeremy Corbyn is an unavoidable drag on their support, they cite four reasons for optimism. The first is their local reputation, which allows them to differentiate themselves from the national party (some quip that the only leaflets on which Corbyn will feature are Tory ones). The second is that since few voters believe the Labour leader can become Prime Minister, there is less risk attached to voting for the party (a point some MPs make explicit) "The problem with Ed Miliband and the SNP in 2015 was that it was a plausible scenario," a shadow minister told me. "It was quite legitimate for voters to ask us the question we didn't want to answer: 'what would you do in a hung parliament?' If voters have a complaint it's usually about Jeremy but it's not the case that he looks like he can become prime minister."

The third reason is the spectre of an omnipotent Tory government. MPs appeal to voters not to give Theresa May a "free hand" and to ensure there is some semblance of an opposition remains. Finally, MPs believe there is an enduring tribal loyalty to Labour, which will assert itself as polling day approaches. Some liken such voters to sports fans, who support their team through thick and thin, regardless of whether they like the manager. Outgoing MP Michael Dugher (who I interviewed this week) was told by an elderly woman: "Don't worry, love, I will still vote Labour. I vote for you even when you're rubbish."

Ben Bradshaw, the long-serving MP for Exter, who has a majority of 7,183, told me: "We're not anything for granted of course. On the current national polling, the Tories would take Exeter. But having covered five polling districts, although the leadership is undoubtedly a big issue on the doorstep, most people say they'll still vote for me as their local MP and we're not detecting any significant shift away from 2015. Which is slightly puzzling given the chasm in the opinion polls." Bradshaw also promotes himself as "the only non-Tory MP in the south-west outside Bristol": a leaflet shows a blue-splattered map with a lone red dot. The Labour MP warns voters not to be left in a "one-party state". 

As in 2010, Labour may yet retain more seats than its vote share suggests (aided by unchanged boundaries). But the fate of the Liberal Democrats in 2015 - when the party was reduced from 56 MPs to eight - shows that local reputations are worth less than many suppose. Theresa May has succeeded in framing herself as a figure above party interests, who needs a "strong hand" in the Brexit negotiations. At the very moment when a vigorous opposition is needed most, Labour has rarely been weaker. And when the public turn resolutely against a party, even the best men and women are not spared.  

George Eaton is political editor of the New Statesman.

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