大象传媒

Housing hazards

• Robert Peston
• 2 Sep 08, 02:12 PM

Probably the best things that can be said about the increase in the stamp duty threshold are:

1) that it removes the uncertainty about the costs of buying a property which has been a blight on the housing market (as if another one were needed) since the earlier in the summer;

2) that it will help beleaguered housebuilders rebuild their profit margins, since some will simply increase their selling prices by 1%;

3) that the cost to the taxpayer will be minimal, because property transactions in the current fiscal year are running at a fraction of what the Treasury expected (or to put it another way, the public finances will be horrible this year, partly because property-related tax revenues are collapsing).

But otherwise, most economists and bankers see the reform as a bit of a yawn-inducer, a non-event.

How so?

Well a 1% saving for prospective purchasers is neither here nor there when they daily hear prognostications from credible forecasters that house prices may fall a further 15% in the coming year.

Here's the big point: the tax change is totally irrelevant to what is driving the generalised fall in house prices, which is that banks are much less willing to lend than they were and are no longer offering super-cheap fixed rate loans.

Why was the number of approvals for house purchase down by a staggering 71% year-on-year in July? Did it have anything much to do with stamp duty?

No.

The incredibly shrinking housing market and squeeze on house prices is the consequence of banks' scything their balance sheets and rebuilding their capital ratios. Or to translate, they are lending less and demanding vastly bigger deposits as a condition of the loans they will provide.

In that context, today's package of subsidies from the Communities and Local Government Department for overstretched borrowers and first-time buyers may do a little to lift the gloom at the bottom end of the market.

That said, although it may provide priceless succour for those who fear they may be thrown on to the streets, it can't possibly change the negative trend in the trillion-pound housing market.

How could it do so, given that the Treasury is providing no new money to the communities department?

If the cause of the problem is that the banks are lending too little, any solution would need to encourage them to lend more.

And that in turn would probably require an incentive for global investors to deliver the precious moolah to banks which in turn could be transmitted to homebuyers in the form of mortgages.

At the moment, those global investors are boycotting our mortgage market, for the blindingly obvious reason that it doesn't look too healthy.

Which is why the Treasury is looking at providing some kind of guarantee to investors - which could just be other banks - that they won't lose a bundle if they finance our banks to provide mortgages.

It would be the kind of evasive action that can't be done lightly. It could, for example, increase the national debt by tens of billions of pounds.

And the governor of the Bank of England has already said he hates the idea, because he fears it could encourage reckless lending of the sort that got us into this mess in the first place.

But here's why Mervyn King's objection may be theological rather than practical: lending to our banks is already underwritten by the Treasury, in the sense that in these febrile times it dare not allow bank depositors to fear that they could lose a bean by keeping their funds in the smaller more vulnerable banks.

And if the fall in house prices were to gather momentum, the consequence for spending, investment, employment and the health of our banks could be quite troubling.

So here's the important calculation for the Treasury: should it temporarily underwrite the mortgage market, to pre-empt the risk that otherwise it will end up as the owner of more banks than just Northern Rock?

UPDATE, 17:18PM: Ministers acknowledge that the widespread falls in house prices are unlikely to be stemmed.

The tax change, and a package of housing market subsidies announced by the communities department, have two main aims: to help first time buyers who have been forced out of the housing market by banks' insistence that they put down a substantial deposit; and to help financial stretched families starve off painful reposession.

But given the Treasury's acknowledgement that it can't and won't stop house prices decreasing, should the Government be encouraging the young and homeless to take a step on to the housing ladder at this juncture?

Wouldn't that be putting them on the fastest possible route to lose money?

Wouldn't it be more rational to rent right now, and wait for the market to stabilise before diving in?

So, after the unpropertied have followed the Prime Minister's implicit advice and have bought, will they then expect him to make good any future capital losses they suffer?

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The football bubble

• Robert Peston
• 2 Sep 08, 08:18 AM

What's happening in the is a microcosm of the bubble that precipitated the credit crunch.

The massive financial surpluses being accumulated in the fast-growing, exporting nations of the Middle East. Russia and Asia need to be spent, lent or invested.

For years the transfer to the West of these surpluses was in part responsible for all that ludicrously cheap liquidity or cash which put dangerous rocket-fuel into our housing and property markets.

And to state the bloomin' obvious, that boom led to a bust that has touched all of us.

But there's one related boom still raging - at the top end of the football market.

Yesterday's farce of the and transfers shows that the bubble in the price of top-class players continues to be pumped up, to perhaps dangerous levels.

The desperate last-minute negotiations for the Bulgar and the Brazilian are not redolent of a rational market.

It's simply that there's a new big spender in town, this time one from Abu Dhabi, for whom 拢30m is the kind of loose change that can be lost with impunity down the back of the sofa.

Just like what happened in the UK and US markets for property and companies, the price of these ball-juggling assets is being driven up by the sheer weight of money chasing them, rather than by rational analysis of the long-term rewards to be had from them.

And when prices soar on the back of cash-fuelled emotion, the risk increases exponentially that bust will follow boom. Think dotcom, or subprime or (going back a few years) tulips.

This frenzied trade in the human capital is also undermining the basic economics of the game - because the spend-spend-spend imperative on players makes it well-nigh impossible for a top club to make a conventional profit.

In that context, performance this year could be a watershed, in that it continues to boycott the super-pedigree cattle market, and retains a quaint old-fashioned view that the club should stay in the black.

But if the Arsenal were to win nothing for a fourth consecutive year, its conservatism would be harder to sustain.

The problem for Arsenal is that although it may not wish to be a crazy buyer, retaining its existing assets - its players - becomes harder and harder. Because the assets can walk to the clubs where they soak in Krug after each game.

In this context, the relevance of the Berbatov deal is as a further demonstration of how power has been transferred from even a substantial club like to an individual player and his agent.

A Spurs director was not far from tears of frustration when he described to me how Berbatov's long-term contract was only useful for the club in generating a spectacular fee, but meant nothing in respect of retaining his services.

The only ties that bind seem to be pay deals that run to eight figures. And for that to be sustainable, all our major clubs would have to owned by the plutocrats and princelings of the new economic superpowers.

Even the US sports billionaires at and wouldn't have deep enough pockets.

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