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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Former Irish premier John Bruton on Brexit: "Britain should pay for our border checks"

The former Taoiseach says Brexit has been interpreted as "a profoundly unfriendly act"

At Kapıkule, on the Turkish border with Bulgaria, the queue of lorries awaiting clearance to enter European Union territory can extend as long as 17km. Despite Turkey’s customs union for goods with the bloc, hauliers can spend up to 30 hours clearing a series of demanding administrative hoops. This is the nightmare keeping former Irish premier John Bruton up at night. Only this time, it's the post-Brexit border between Northern Ireland and the Republic, and it's much, much worse.   

Bruton (pictured below), Taoiseach between 1994 and 1997, is an ardent pro-European and was historically so sympathetic to Britain that, while in office, he was pilloried as "John Unionist" by his rivals. But he believes, should she continue her push for a hard Brexit, that Theresa May's promise for a “seamless, frictionless border” is unattainable. 

"A good example of the sort of thing that might arise is what’s happening on the Turkish-Bulgarian border," the former leader of Ireland's centre-right Fine Gael party told me. “The situation would be more severe in Ireland, because the UK proposes to leave the customs union as well."

The outlook for Ireland looks grim – and a world away from the dynamism of the Celtic Tiger days Bruton’s coalition government helped usher in. “There will be all sorts of problems," he said. "Separate permits for truck drivers operating across two jurisdictions, people having to pay for the right to use foreign roads, and a whole range of other issues.” 

Last week, an anti-Brexit protest on the border in Killeen, County Louth, saw mock customs checks bring traffic to a near standstill. But, so far, the discussion around what the future looks like for the 260 border crossings has focused predominantly on its potential effects on Ulster’s fragile peace. Last week Bruton’s successor as Taoiseach, Bertie Ahern, warned “any sort of physical border” would be “bad for the peace process”. 

Bruton does not disagree, and is concerned by what the UK’s withdrawal from the European Convention on Human Rights might mean for the Good Friday Agreement. But he believes the preoccupation with the legacy of violence has distracted British policymakers from the potentially devastating economic impact of Brexit. “I don’t believe that any serious thought was given to the wider impact on the economy of the two islands as a whole," he said. 

The collapse in the pound has already hit Irish exporters, for whom British sales are worth £15bn. Businesses that work across the border could yet face the crippling expense of duplicating their operations after the UK leaves the customs union and single market. This, he says, will “radically disturb” Ireland’s agriculture and food-processing industries – 55 per cent of whose products are sold to the UK. A transitional deal will "anaesthetise" people to the real impact, he says, but when it comes, it will be a more seismic change than many in London are expecting. He even believes it would be “logical” for the UK to cover the Irish government’s costs as it builds new infrastructure and employs new customs officials to deal with the new reality.

Despite his past support for Britain, the government's push for a hard Brexit has clearly tested Bruton's patience. “We’re attempting to unravel more than 40 years of joint work, joint rule-making, to create the largest multinational market in the world," he said. It is not just Bruton who is frustrated. The British decision to "tear that up", he said, "is regarded, particularly by people in Ireland, as a profoundly unfriendly act towards neighbours".

Nor does he think Leave campaigners, among them the former Northern Ireland secretary Theresa Villiers, gave due attention to the issue during the campaign. “The assurances that were given were of the nature of: ‘Well, it’ll be alright on the night!’," he said. "As if the Brexit advocates were in a position to give any assurances on that point.” 

Indeed, some of the more blimpish elements of the British right believe Ireland, wedded to its low corporate tax rates and east-west trade, would sooner follow its neighbour out of the EU than endure the disruption. Recent polling shows they are likely mistaken: some 80 per cent of Irish voters say they would vote to remain in an EU referendum.

Irexit remains a fringe cause and Bruton believes, post-Brexit, Dublin will have no choice but to align itself more closely with the EU27. “The UK is walking away,” he said. “This shift has been imposed upon us by our neighbour. Ireland will have to do the best it can: any EU without Britain is a more difficult EU for Ireland.” 

May, he says, has exacerbated those difficulties. Her appointment of her ally James Brokenshire as secretary of state for Northern Ireland was interpreted as a sign she understood the role’s strategic importance. But Bruton doubts Ireland has figured much in her biggest decisions on Brexit: “I don’t think serious thought was given to this before her conference speech, which insisted on immigration controls and on no jurisdiction for the European Court of Justice. Those two decisions essentially removed the possibility for Ireland and Britain to work together as part of the EEA or customs union – and were not even necessitated by the referendum decision.”

There are several avenues for Britain if it wants to avert the “voluntary injury” it looks set to inflict to Ireland’s economy and its own. One, which Bruton concedes is unlikely, is staying in the single market. He dismisses as “fanciful” the suggestions that Northern Ireland alone could negotiate European Economic Area membership, while a poll on Irish reunification is "only marginally" more likely. 

The other is a variation on the Remoaners’ favourite - a second referendum should Britain look set to crash out on World Trade Organisation terms without a satisfactory deal. “I don’t think a second referendum is going to be accepted by anybody at this stage. It is going to take a number of years,” he said. “I would like to see the negotiation proceed and for the European Union to keep the option of UK membership on 2015 terms on the table. It would be the best available alternative to an agreed outcome.” 

As things stand, however, Bruton is unambiguous. Brexit means the Northern Irish border will change for the worse. “That’s just inherent in the decision the UK electorate was invited to take, and took – or rather, the UK government took in interpreting the referendum.”