Perfect storm hits housing
YOU can hear the screech of brakes being slammed on the housing market as it heads into what looks like a perfect storm. Whether we are heading into a full- scale slump is impossible to predict – but all the signs are flashing that we are in for a serious shake-out.
As the shock profits warning and dividend cut from Persimmon illustrated all too well, potential house buyers are staying at home.
Its order book is about 30pc down year on year, the weekly sales rate is half of what it was and now it expects to build only around 8,000 homes this year rather than 14,868 built last year.
Persimmon is not the only housebuilder to feel the squeeze: mortgage approvals for home purchases fell to 39,600 in January, down from 40,500 in December, and the fifth consecutive month of decline.
House prices are beginning to tail off too, not by much but enough to see that the slowdown in the housing market over the last few months has now taken grip.
Nationwide’s latest survey shows that UK house prices fell at their sharpest annual pace for a decade last month – down by 1.1pc from a year ago. It’s the first decline since 2020.
There’s no mystery as to why this is happening: buyers face higher interest rates and uncertainty about the future.
The average two-year fixed mortgage rate, offered to those buyers who are able to give a deposit of 25pc, is 5.8pc, compared to 1.5pc a year ago.
Coming with higher prices for just about everything, the end of the ridiculous Help to Buy scheme and stamp duty breaks, that’s a huge cost to take on for those without above average income or big savings.
More simply, most houses are now unaffordable. Halifax reckons prices are up 68pc since 2013 while wages have risen 31pc.
This takes the average UK house price today to £281,684 while the average annual wage is £32,760. As the Leeds Building Society recently reported, such high multiples of house price to wages have not been seen since the Victorian era.
If firms like Persimmon continue to cut back, it’s unlikely the Government will hit its 300,000 target for new homes this year.
The Competition and Markets Authority doesn’t think so either.
It is one of the many reasons why it launched an investigation this week into the quality and affordability of new homes – along with the probe into the rented sector. An interim report is due this summer.
It can’t come soon enough.
Revolut red flag
WHAT extraordinary goings-on at Revolut. Auditors to the ‘neobank’, which hopes it is close to getting a UK banking licence, have warned that a big chunk of the fintech’s revenues may have been ‘materially misstated’ because of problems in its internal IT systems.
Indeed, BDO was unable to establish the source of some 75pc of its revenues for 2021: that’s a cool £477m out of £636m.
No wonder the accounts have been so delayed. BDO also says its internal systems were ‘not able to provide sufficient appropriate assurance’ over revenue streams from foreign exchange to crypto trading.
Instead, the auditors had to verify cash balances and cash in client accounts because it couldn’t rely on the systems.
It’s not the first time the fast-growing British-Lithuanian firm – said to be worth £27bn even though it is only just in profit – has been caught in crossfires.
It’s been caught out by EU regulatory breaches and fines, and in the dock for filing late returns.
BDO’s qualification is a whopper of a red flag, one which the banking supervisors must scrutinise in far more detail before they go ahead with a licence.
Savers deserve better
TOUGH talk from Harriett Baldwin MP, chair of the Treasury Committee, which is questioning why our biggest banks haven’t passed on higher interest rates to savers, preferring to increase chief executive pay.
In retaliation, she says, consumers should take their money elsewhere if the banks don’t put up savings rates, which are still offering 1pc when rates are 4pc. Baldwin is right, of course.
Yet the problem is that new entrants – like Revolut – are still at the teething stage.
It’s the big banks like HSBC, Lloyds, NatWest and Barclays with the biggest share of deposits which should be punished if they don’t push up savings rates to match. Threaten to revoke their licences perhaps?