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You can hear the screeching of the brakes being slammed on the housing market as it heads for what looks like a perfect storm.
It’s impossible to predict whether we’re headed for a full-blown slump, but all signs point to a serious shakeout.
As the earnings shock warning and Persimmon’s dividend cut illustrated all too well, potential homebuyers are staying home.
Slowdown: Shocking earnings warning and Persimmon’s dividend cut all illustrate that potential homebuyers are staying home
Its order book is down about 30 percent year over year, weekly sales are half what it was and now it expects to build only about 8,000 homes this year instead of 14,868 last year.
Persimmon isn’t the only homebuilder feeling the pressure: Mortgage purchase approvals fell to 39,600 in January, down from 40,500 in December, marking the fifth consecutive month of decline.
House prices are also starting to fall, not much, but enough to see the slowdown in the housing market of recent months now rearing its ugly head.
The latest research from Nationwide shows that house prices in the UK fell last month at their strongest annual rate in a decade – 1.1 per cent lower than a year ago. It is the first drop since 2020.
There’s no mystery why this is happening: buyers face higher interest rates and uncertainty about the future.
The average two-year fixed mortgage rate, offered to buyers who can put down a 25 percent down payment, is 5.8 percent, compared to 1.5 percent a year ago.
With higher prices for just about everything, the end of the ridiculous Help to Buy scheme and stamp duty interruptions, those are huge costs for those without above average incomes or big savings.
Simply put, most homes are now unaffordable. Halifax estimates prices have risen 68 percent since 2013, while wages have risen 31 percent.
This brings the median house price in the UK today to £281,684, while the median annual wage is £32,760.
As the Leeds Building Society recently reported, such high house price-to-wage multiples have not been seen since the Victorian era.
If companies like Persimmon continue to cut spending, the government is unlikely to meet the target of 300,000 new homes this year.
The Competition Authority also thinks not.
It is one of the many reasons why this week – together with the research into the rental sector – they started a study into the quality and affordability of new-build homes. An interim report is expected this summer.
It can’t come soon enough.
Red flag of Revolut
What an extraordinary turn of events at Revolut. Auditors at the ‘neobank’, which hopes it is about to get a banking license in the UK, have warned that much of the fintech’s revenue may have been reported ‘materially incorrect’ due to problems in its internal IT systems .
Indeed, BDO was unable to pinpoint the source of some 75 per cent of its revenue for 2021: that’s a whopping £477 million out of £636 million.
No wonder bills have been delayed so much. BDO also says its internal systems were “unable to provide adequate appropriate assurance” about revenue streams from currency trading to crypto trading.
Instead, the auditors had to verify cash balances and cash in customer accounts because they couldn’t rely on the systems.
It’s not the first time the fast-growing Anglo-Lithuanian company – reportedly worth £27bn even though it’s only just turning a profit – has been caught in a crossfire.
It has been caught in violations of EU regulations and fines, and in the dock for late reporting.
BDO’s qualification is a whopper of a red flag, which banking supervisors should examine much more closely before proceeding with a licence.
Savers earn better
Tough talk from MP Harriett Baldwin, chairman of the Treasury Committee, who wonders why our biggest banks have not passed on the higher interest rates to savers, but would rather increase top executive pay.
In retaliation, she says, consumers should take their money elsewhere if banks don’t raise savings rates, which still offer 1 percent when interest rates are 4 percent.
Baldwin is right, of course.
The problem, however, is that new entrants – like Revolut – are still in their early stages.
It is the big banks like HSBC, Lloyds, NatWest and Barclays with the bulk of the deposits that should be penalized if they don’t raise savings rates accordingly. Maybe threatened to revoke their licenses?
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