COMMENT by BEN LAURANCE: Pricking the housing bubble

By BEN LAURANCE FOR MAILONLINE
Updated:

Evidence on the trajectory of house prices seems to point in the same direction. True enough, there's no consensus on the speed of any slowdown; indeed, there's not much agreement on the amount by which prices have risen in the past 12 months.

But yesterday we saw figures from Hometrack which suggested that in June, prices have inched up by a negligible 0.1pc. and the Land Registry reckons that prices actually fell in May. Back to a housing boom? Scarcely.

Hence the timing of the gentle suggestion about regulation of home loans from the Bank of International Settlements (BIS) might not seem entirely appropriate. But the BIS's annual report yesterday put forward the thoroughly sensible idea that we should consider some cap on the size of loan that can be raised against a property.

house prices

Small rise: House prices increased by 0.1pc in June, according to Hometrack figures

Over the past four decades, controls on mortgages have become more lax. there was a bout of deregulation in the Seventies, followed by a boom and a bust.

The Thatcher government upped the ante after it came into power, the Eighties boom followed - and the inevitable bust after it. and then, in the past decade, we saw banks come up with ever more 'innovative' devices such as the securitisation of mortgage books. 

Cue the invention of bizarre and dangerous financial products such as Northern Rock's 125pc mortgage. the big boom - and the mini-bust that came in its wake - are still fresh in our memories.

And so what is the BIS saying? Tucked away in yesterday's report, under the snappy title Macroprudential policy and addressing procyclicality, it points out that capping loans as a proportion of property value can be a useful way of damping down cyclicality in house prices.

The scope for speculators to indulge in highly-leveraged property investment is reduced. And lenders are less exposed when property values fall.

Some countries such as Hong Kong, Korea, Malaysia and Singapore already impose these loan-to-value (LtV) limits. and here in the UK, the idea has its high-profile supporters.

In the spring, Lord turner, chairman of the Financial Services Authority, ruefully suggested that interest rates are little use in trying to control Britain's property market. Old-fashioned as it may seem, we ought to consider the idea that people buying a property should be obliged to put down a chunky deposit to do so.

Sensible? It certainly seems so. and despite the fact that the idea is being floated again by the BIS at a time when British house prices are looking a bit wobbly, it should be given serious consideration.

But, of course, there is the small problem of mustering the political support for such a move. the British-at least those who already own their own homes, like house price increases. (They seem to be remarkably good at obliterating the busts from their collective memory). a politician who suggested making it more difficult to buy a house - in a move that could actually bring a short-term fall in house prices - would be brave indeed.

But isn't courage just what the political class is meant to be demonstrating at the moment?

Hayward under fire

There was something about yesterday's comments by Russia's deputy prime minister about the likelihood that BP chief executive tony Hayward would soon be resigning.

We needn't read too much into the fact that Russians were sounding off. Let's face it, there is plenty of history between BP and the Kremlin. that Russia's Igor Sechin is happy to take a casual swipe at the man in charge of the British oil major is no great shock. No great importance can be read into it.

What was more interesting was that BP felt obliged to push out a rebuttal. Hayward is, without doubt, a man under pressure. It is only too plausible that he will be gone in a few months. And his comments and behaviour over the past two or three weeks have looked suspiciously like those of a man who knows his time will soon be up.

Indeed, BP's rebuttal yesterday stopped short of an outright denial. In essence, it merely said Sechin knows no better than anyone else when and if Hayward will quit.

Speculation about Hayward's medium-term future is, for now, pretty pointless. It seems inevitable that he will stay at the helm until the leaking Gulf of Mexico well is killed. How long will that be? How long is a drill string? Wait until the well is tamed. then let the speculation start afresh.

Comet tale

Knight Vinke's decision to buy a stake in Kesa, parent of Comet, is distinctly puzzling. Knight Vinke is not renowned for buying holdings in companies and then sitting back. It likes mixing things up.

Yet the investment group's allies insist the Kesa shares were bought simply because they offer good value. Let's see where things stand in six months.

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