Money Week Article

[vwphil]

This makes interesting reading

http://www.moneyweek.com/file/10354/why-in...a-bad-move.html

There’s been a lot of upbeat talk on the property market recently. And the latest surveys seem to back it up.

Property group Hometrack reckons house prices rose for the fourth month in a row in March, by 0.5%. Prices rose by 0.1% on last March - the first annual increase Hometrack has reported since the start of 2005.

And the British Bankers’ Association reports that the number of new mortgage approvals for house purchase came in at 57,585 in February. That’s up 22% on a year ago. So is the property market firmly back on the upward path?

We don't think so - and we're not the only ones...

Think tank Capital Economics points out that February’s 22% annual increase in the number of mortgage approvals “is nothing to write home about, because late 2004/early 2005 was the trough for mortgage demand.”

And BBA figures aren’t seasonally adjusted – in other words, they don’t make any allowances for the fact that certain times of year are generally busier for house sales than others. After adjustments, CE reckon “new approvals actually fell 5% in February. Moreover, they have fallen 11% since November.”

And in fact, the February figure was the weakest since July last year. “With affordability remaining stretched, it is looking more likely that mortgage demand has now peaked.”

But if mortgage demand has peaked, why has Hometrack recorded a rise in prices? That seems pretty straightforward. The group said the growth was mainly fuelled by rising London prices. Houses in London are much more expensive than anywhere else in the UK. If a larger proportion of sales are being made in the capital, that would push up the average sale price, even if the number of sales remained static or even fell.

And the "Christmas bonus effect" can only boost the sales of bachelor pads in Mayfair for so long. Even City bankers have a limit to the number of glass and chrome penthouse flats they want in their portfolios.

Things aren’t much better in commercial property. Although Gordon Brown delivered a boost to the sector with his relatively benign tax treatment of Real Estate Investment Trusts, the cracks are appearing.

Martin Allen, property analyst at Morgan Stanley, pointed out that “all the Reits provision does is return property companies to the position they were in prior to the erosion of dividend tax credits that started in 1992”, says The Telegraph.

“I’ve been a property analyst for 18 years and this is the fourth property share bubble in that time. I know a property share bubble when I see one and it doesn’t matter whether we’ve got Reits or not. Property shares are overpriced.”

But despite the UK public's almost supernatural fear of falling house prices, there are upsides to declining or static home values. And one of those is that Gordon Brown might not get his hands on your money when you die. House price growth has far outstripped Mr Brown's miserly increases in the inheritance tax threshold, leaving many more people potentially subject to the tax.

And of course, as the Chancellor widens his net, he has also made it much harder to avoid inheritance tax. Budget 2006 contained more such widely-anticipated "loophole closures". He has introduced rules to stop people using various types of trust to leave money to their heirs without having to give 40% of it to the Government.

The really nasty thing about these new rules is that they apply to trusts that have already been set up, not just to ones that are being set up this tax year or in the future. So many people who have spent a lot of time and money trying to plan for their children's futures have seen it all go to waste.

In effect, Mr Brown has outlawed tax planning. By deciding that it’s acceptable to make retrospective tax laws, he can effectively confiscate any amount of wealth he likes, at any time he likes.

The philosophy of the laughably-nicknamed Iron Chancellor seems to be that all private sector wages generated in the UK belong to the State, except the proportion which the State generously allows you to keep so you can buy food and shelter. So it’s only fair that the State should be able to demand it back any time that it likes, even if that means rewriting tax law.

[Converted Lurker]

That`s so yesterday

[CrashIsUnderWay]

anyone got any idea what the state of play on 'retrospective laws' is viz EU regs? Or Int. Law?

[spline]

The relation between HPI and the mortgage approval rate is important in the HPC debate because it provides a timely indicator of current HPI and hence of future prices.

Analysis of the February figures and their proper context on this thread together with some discussion of the correlation and graphs:

http://www.housepricecrash.co.uk/forum/ind...ndpost&p=333847

Edited March 29, 2006 by spline