State of the Housing Market June 2007

The National Housing and Planning Advice Unit (NHPAU) report sponsored
by this government estimate that houses will be worth 10 times average
earnings by 2026. This compares with 7 times average earnings in 2006.

The clear reason for this projection is the shortage of housing stock
and the expected number of new houses to be built in future years.
Stephen Nickell the chairman of NHPAU claims that even if 190.000 new
homes are built annually as predicted then ‘the housing crisis is
likely to deepen’.

To put this into prospective over 800.000 new homes were built in
Spain last year and there are dire warnings of a house price crash in
that country unless this figure is cut drastically in the immediate
future. There is a happy medium but planning authorities need to be
relieved of their personal fiefdoms. (defined as : something over
which one dominant person or group exercises control) !

Despite fears that The Bank of England would increase interest rates
this month rates were held at 5.5%. This decision may have been
influenced by the fact that a large percentage of fixed rate mortgages
are coming to the end of their life this year and home owners require
to re mortgage to avoid falling into the trap of paying up to 30%
higher monthly charges any time soon.

Interest rises over the last 2 years have led to increasing numbers of
re possessions and were at a three year high in 2006 at 17.000.

Although Gordon Brown gave The Bank of England complete power over
interest rates in 1997 there is no doubt that he will not want to see
re possessions increase any further. The steady increasing cost of
mortgages and the subsequent misery experienced by of thousands of owner
occupiers of the John Major years in the 1990’s was the single biggest
factor in the Tory party being ousted from power by the Labour party.

We are edging closer and closer to the time when Brown must decide to
call an election and one cannot imagine that he does not have ‘behind
the scenes’ power over The Bank of England’s monetary policy committee.
If he has not then his decision to hand over interest rate policy to
The Bank of England will come back to haunt him and he will follow Jim
Callaghan (the last unelected Prime Minister) to a very early exit
along with his Labour colleagues.

Kenneth Taylor
21 June 2007

(Kenneth Taylor is a non executive Director of Caduceus Investments Ltd the sponser of this web site. Caduceus is an investment company operating in the UK but based in Scotland).