The UK Housing Bubble Created by The UK Government & BoE

Housing Bubble

The scale of the Doomsday Bubble that has been created in America, is of such a magnitude that it was inevitable that its dynamics would spill over into other areas of the Western economy. Whilst in the UK in contrast to the US equity bubble, the FTSE has only rallied in a correction and remains some 10% below the peak before the pandemic hit (in January 2020). However, bubbles are tricky things and, like water, they find unexpected paths to flow along such as in Britain through the Housing Market which over the past months has become frenzied.

Mortgage lending is a very good indicator of house transactional activity and as such, this graph demonstrates that some major bubble action taking place.

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Uk Mortage Lending

Net mortgage borrowing in the UK hit £11.8 billion in March, the strongest since the series began in 1993, according to Bank of England data. The previous peak was in October 2006 (£10.4 billion), when the UK was in the grip of the pre-financial crisis bubble. The UK’s biggest lender HSBC  provided more mortgages in March than in any other month of more than 40 years of offering home loans. The result has been a significant price surge as reported by mortgage lender Nationwide. In April the average UK house price jumped 2.1% compared with March, the biggest monthly rise recorded in 17 years.

The rationale that has driven this activity is as follows

  1. The exodus from the cities to the villages of rural England, even as London’s population is shrinking for the first time in 30 years and rents have been falling for 13 straight months.
  2. The support provided by the Bank of England and the UK government to property buyers and investors during the pandemic
    1. The BoE slashed the UK’s base interest rate from 0.75% to 0.25%, then a week later to 0.1%, the lowest ever.
    2. The government introduced a stamp duty holiday that was supposed to end at the end of March but was extended at the last minute until the end of June. This has driven much of the recent surge in new mortgages.
    3. The Help to Buy scheme was introduced last month, the Chancellor announced the launch of new government-backed mortgages with 5% down-payments for first time buyers for houses up to £600,000. If borrowers default on the mortgages, then taxpayers rather than banks will carry the default. Meanwhile Banks such as Lloyds, Santander, Barclays, HSBC, and NatWest are already offering plentiful access to mortgages whilst also slashing their mortgage rates to be competitive. So presumably, they have also loosened their lending standards, which has fed the frenzy of housing buying through greater  leverage.

However, whilst this is government-fuelled, this UK housing Bubble is in the opinion of Global Forecaster, is just another sub bubble on the trailing edge of the Doomsday Bubble. (Meaning that it will be one of the last to fall). Thus it too will reach its apex and fall from levels that are not far from here. When it does, the default rates will skyrocket and the UK government will have been responsible for creating a destructive housing bubble that will take a decade to work through the system.

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