To judge by the number of worried questions I keep getting from friends and
readers, there is still plenty of interest in the apparent financial crisis
that has been dominating the business news since early August. One aspect
that has not received much coverage so far is its impact on the British
economy and the London housing market – and the political implications of
those for Gordon Brown.
The latest twist, which focused my attention on the local repercussions of
this international saga, occurred on Wednesday, when Mervyn King, the
Governor of the Bank of England, sent an open letter to the House of Commons
Treasury Committee. Mr King’s letter, characteristically lucid and
dispassionate in its intellectual analysis of the crisis, had a more
controversial subtext, which the Financial Times reflected in the
opening sentence of its front-page report: “A clear divide between the
world’s leading central banks over how best to respond to the credit squeeze
emerged yesterday after Mervyn King warned that efforts by his counterparts
in America and Europe to shore up the financial system could sow the seeds
of a future financial crisis.”
In the collegial and understated world of international central banking, Mr
King’s letter represented an almost unprecedented public critique of the
European Central Bank and US Federal Reserve Board for having poured
hundreds of billions of dollars and euros into their banking systems since
early August to try to ameliorate the consequences of the financial
blunders.
After weeks of intense lobbying for comparable action in London, Mr King’s
message was defiant and blunt: whatever special treatment financiers may
extract from New York or Frankfurt, the Bank of England would be no soft
touch. It would stick to its normal procedures and would leave private
lenders and borrowers to clear up the mess they had created. Unless the
safety of money deposited in the banking system itself were threatened – and
so far, there hasn’t been the slightest evidence of any such threat –
Britain would ensure that the costs of the present crisis fell squarely on
the shoulders of bankers and their shareholders, who could expect no help
from the public purse.
There is much to be said for this tough approach from both a political and
economic standpoint. As Mr King argued in his letter, the world economy will
become less efficient in the long run if governments provide “ex post
insurance to institutions that engage in risky or reckless lending”. But
rather than debate the fine points of economy theory and business morality
that US and European central bankers can present, with almost equal
conviction, to justify their more supportive approach to troubled banks, I
want to look at two potential economic consequences of the summer financial
crisis.
The first is a general slowdown in economic growth resulting from tighter
lending conditions, especially for mortgages. This slowdown was going to
happen anyway because the Bank of England was increasing its base rates, but
it will be intensified by the financial pressures faced by British banks.
The second is narrower, but will probably turn out to be more important. This
is the decline in bank profits and shrinkage of financial bonuses and
employment that will inevitably result even if the world economy stays on a
decent growth path, which I think it will.
Britain is far more dependent on finance and related businesses than any other
advanced economy. The implication is that Britain will probably suffer more
than any other country, including America, from a combination of tougher
lending conditions, lower bank profits and fewer jobs for highflying
financiers.
The impact on the London economy is likely to be particularly pronounced.
According to the Centre for Economics and Business Research (CEBR),
wholesale finance and related activities have been adding 10,000 jobs
annually to the 340,000 highly paid professional financiers, lawyers and
accountants who between them account for about 20 per cent of the gross
value added in the London economy.
But according to Jonathan Said, of CEBR, instead of this annual growth in jobs
that London has been able to take for granted since 2002, the year ahead
will probably bring a reduction of 5,000. To make matters worse, the incomes
of these well paid workers are likely to decline sharply. Mr Said’s best
guess is that the bonuses of £6.6 billion paid to London financiers last
year will shrink by about 15 per cent. My view is that the figures on both
employment and incomes will turn out to be considerably worse than these
estimates. This is because many of the complex international deals hit
hardest by the present shakeout are ones in which London specialises. The
damage to financial employment and incomes in the capital is likely to be at
least as severe as it was in 2001 and perhaps a lot worse.
The upshot is that London, which in the past few years has become the world’s
richest city largely through its dominance in international finance, is
about to suffer a big knock. And this setback will be even more severe, at
least in the short term, if Britain takes a tougher line against financial
bail-outs than the authorities in Europe and the US.
This does not mean that the Bank of England is wrong to oppose bank bail-outs
or that London’s leading position in international finance will be lost in
the long term. It does mean, however, that having been unremittingly bullish
about the British economy and property market for most of the past 15 years,
apart from a brief wobble in the summer of 2004, I now believe that house
prices are likely to fall, especially in the highest priced areas in the
centre of London.
With around half the marginal seats in the country concentrated in and around
London, and the Treasury’s tax revenues eroded by vanishing bonuses and
declining bank profits, this also means that 2008 will not be a good year
for Gordon Brown to try his luck with the voters.
It's this country thats the problem. House prices went up cause of lack of property in this country .. Why ? cause every empty property was given away to every foreigner that came into this country, single women with kids or people on the dole. Then after a few years they bought the property from the council at a ridiculously low price !! What makes me mad is all the tax and National insurance thats taken out of my hard earned wage so they can pay for these house's. Why doesn't this country stop paying so much attention on being politically correct and start to look at way's in helping people that have been born in this country.
rob, birmingham,
We were first time buyers the last time this happened and the reality then was when prices stagnated there was very little supply of good property. People with the nice houses simply sat and waited. As did we, in our rented accommodation until things picked up. I think we will again end up with a 2 tier market: the houses in leafy streets, near the good schools, the parks and the transport links will continue to rise slowly. And the less desirable housing where prices will flounder. Not a great prospect, I know. We just postponed buying until next year.
S Lawrence, London,
I remember at the end of the 80's many people argued that "Japan is different" and gave 5 million reasons why the equity and property bubbles wouldn't burst (short supply of real estate, 2 generation loans, stock prices backed by property etc.). In the end the bubble burst, and so it will be with london (which is similar to tokyo in 1990). Every bubble has ended in a crash, despite the fact that there are always plenty of people who will argue "this time it's different". Remember abby cohen in goldman sachs who argued taht that record equity valuations in the late 90''s were justified because of a "lower risk premium"?
Ralph Feldberg, milan, italy
A friend of mine left school when I did and as far as I can see he has smoked dope for 10 years - although he did buy a house with a morgage from an insane bank, which he just sold and netted £80k. I just repaid my university debt and am now saving a deposit for a house, maybe in ~4 years when my friend gets back from his world-wide surfing holiday the market will have bottomed out enough for us both to get on the next housing wave together...
Kevin , warrington, UK
Much needed correction is coming and will affect every homeowner. No sacred cows! Looking to buy in UK
Simon , Toronto, Canada
The suggestions here that a drop in price cannot last because everyone will want to buy another property seem to miss two basic points.
1) Who will lend the money for these purchases since the days of 90-100% mortgages are coming to an end. Once we are back to 2-3 times base salary then see who can get a second mortgage .
2) Everyone wants to buy in a market when the price is guaranteed to rise. You see who fancies buying a house when they can wait 3 months and buy for £5,000 less.
The easy money days are over - it's starting to rain and your friendly lender wants his umbrella back!!!
Paul, London, UK
My advice: First-time buyers - Sit tight and wait for house prices to plummet. Existing homeowners - if you're thinking of selling, do it immediately. If you're staying put, then no problem - in a few years prices will shoot back up.
Mr Willbee, Middlesbrough, UK
Anatole-have you considered the alternative to a house price drop?
If the answer is a bit hard to fathom,it is a house price increase,which we need like a hole in the head!
Nic, Royan, France
This is not bad news this is absolutly fantastic news. A house market crash cannot come fast enough IMHO. And hopfully it may clean out all those nastly anti social Buy to Let xxxxxs.
Paul, York,
Nigel, wimbledon. This is economic nonsense. Property prices have more than doubled in the last decade, far outstripping wage rises. In this time there has been immigration and emigration to and from the UK. At its core the number of people looking to buy property hasn't risen to such a degree to justify the price rises we have seen. Therefore, the most logical explanation is that this is a speculative bubble which is about to burst. How far prices might fall I don't know, but they will fall. If you want to see very close variations to the arguments you put forward look back a few years to the justifications given for the dot.com bubble before it burst - this is a new economic model, old economics don't apply etc etc. All rubbish, burst it did and anyone who borrowed to buy dot.com shares is probably still paying the money back now(or has gone through bankruptcy). The property bubble will be no different.
Clive, Sussex, UK
I'm afraid to say that there will be NO softlanding. This is the lull before the storm. This is going to be a massive economic meltdown. Fuel, housing, council tax, rents have all risen sharply over the last 10 years, this has, in my opinion, given rise to the largest bubble that the UK has ever seen!
The worse thing is it's always the innocent that get hit first. By that I refer to joe bloggs, who all he wanted to do was own his own home with family etc, or the new kids on the block who bought in a mad rush fearing greater house price rises. Another rate hike and I think even the buy to let investers and going to start dropping properties back onto the market.
The higher this goes, the harder it's gonna fall! And boy is it gonna fall!
Mario, London,
You can stop saying if if if...
House prices are plunging, the credit on which this house bubble has been built off
In response to the US reader, things are different here... much worse! London's economy depends on the highly levered transactions that have come to a grinding halt in August. Layoffs are around the corner and bonuses will be razor-thin this year.
Can you picture anyone wanting to pay 1.4 million dollars for a one bedroom in South Kensington (or a rent of 1,200 dollars a week for it)? Yeah, but it s got a nice en suite bathroom... Madness, isn't it?
Michele, Richmond,
surely, house prices are dropping already? unless the numerous 'New price' tags i have seen for months now in Estate agents windows means otherwise. We are searching south Uk for a property -many have been reduced by tens of thousands-i.e. New price!
the recent financial turmoil will have a far greater effect on the economy than the additional 1/4% rise which was anticipated with national dread- such an increase supposedly promised a breaking point for the hse market in particular but now in comparison will be benign.
mike, oxford, england
The London property market (especially zones 1 and 2) is a curious beast. I think it will take more than a correction in the credit and equity markets to result in a fall in prices. I forecast a dramatic slowing in growth, but not a fall. Simple economics would point to a limited supply of good housing stock, in a limited area, with rising populations, inflow of human capital and (assuming there is no financial meltdown), continued inflows of financial capital. London remains the centre of the financial world (blinkered perhaps, but my opinion nevertheless) and this is unlikely to change. So there will always be demand for houses in London, especially from cash-rich nations (middle east, Russia etc). I think these factors affect the London housing market much more than the appetite of lending banks to fund people trying to buy properties at the low end of the London price range. Property outside of Zone 2 might suffer, but I cannot see supply exceeding demand in zone 1&2.
Neil, London, London
To the time where you are able to rent bed in london for araund 50 65 pounds per person per week.
And squize between 6 and 12 people in to house
(8 people times 55 pounds week = 440 pounds times 52 weeks in year = 22880 pounds a year
from 3bed property in zone 3)
DONT SEE ANY MAJOR PRICE CRUSH
Prices may drop but only little if bank of England increse intrest rates but on my point of view dey will take them down to
5.25-50% by the end of year
Conclusion Imigration influx is keeping prices high
unles economic criisis
ONE WARNING price of OIL over $100 a barrel=economic crisis. And with oil we got problem of tight suplay high demand and DEPLETION of this natural resource is incrising rapidly . look at Indonesia UK Mexico .
furman, luton, uk
Yeah, Russ, Sheffield, a definite possibility, but suppose James has plenty of savings rather than lots of debt and has a secure public sector job - a crash would be the ideal scenario for him.
asadachi, Tokyo,
London property has been floating on a raft of money for 10 years now, created by the finance boom and capital flight from Russia [and elsewhere] following the collapse of communism. The latter should not be ignored. The money laundering rules in the UK are simplistic - big players only have to 'identify' themselves. The London property bubble is thus being supported from more than one direction, but mortgage rate increases will hit the provinces, as affordability is low. 'Buy to let' is finished and should there be a scramble to sell local crashes could happen. But the last major low in the market was due to the Luftwaffe, not interest rates or liquidity.
m clarke, london, uk
Anatole-have you considered the alternative to a house price drop?
If the answer is a bit hard to fathom,it is a house price increase,which we need like a hole in the head!
Ah you might say,what about a house price stand still? Life is not like that!
Nic, Royan, France
Bailing out the bwankers again.If I go into the bookies;plave a bet and my pony loses,should I now I expect my money back?
THese people are paid fortunes to get it right( 14 BILLION last year and that just in bonuses-Let them hang!!!!
RichardBarter, Cherigne, France
James Robertson of Skipton has it about right, I'd say. When I bought my first house in 1975 at the age of twenty four, it cost me three and a half times my annual salary. The same house would cost my sons of about the same age, at least seven times their salary. This hike in house prices has contributed an insidious and quality of life destroying inflation to the prospects of our children. Combine this with the almost universal demise of half way decent pensions and Blair's Labour party have presided over the greatest loss of living standards that I have ever seen take place in a decade.
Tony Volpe, Newcastle upon Tyne, UK
Read Fred Harrison's book "Boom Bust"; we are now entering the tail-end of eighteen year cycle which he has traced over four hundred years, and heading towards decline in house prices as of 2008; dipping the economy into recession by 2010. He predicted 1992 recession. Be ready!
Andew Johnston, Lyon, France
The simple economics of supply and demand seems to have escaped Mr Kaletsky's attention. There is a massive lack of housing in the UK and a huge demand for it. This is the reason it has been rising at such a rate for decades and will continue to do so. The rate at which it rises may not be as steep but this is not the same as house prices falling.
Laurie Dean, London, UK
Rain will fall. I cannot say when and by how much, but rain will definitely fall. Oh yes, and it will get colder. I believe it is called winter.
Mark Lyndon, London, UK
I'm amazed that some replies to this piece are still trying to see light at the end of a very long tunnel. 'It's different here compared with the US', the market will always rise in the long term. No it isn't and no it won't (or at least not in the timeframe needed by those who believed their property portfolios were going to fund a lucrative retirement). Banks are on the rocks - BoE bailing one out today - everyone with any sense is now realising just how empty of real substance the property boom has been. Just like the bursting of the dot.com bubble, except this time hoards of people have each borrowed hundreds of thousands, even millions, of pounds to speculate. Instead of comfortable retirements, we're going to see plenty of people paying off massive debts for the rest of their lives.
Clive, Sussex, UK
I agree with Mr King and would be amused to listen to a discussion on monetary management between him and Sir 'Easy-Al' Greenspan. Greenspan whenever a crisis loomed hit the 'print it' button...rather like giving in to the children at the supermarket checkout.......
Inflation we are told has been c. 20% since 1997 but house prices have risen 200% so just like in any stock market boomlet they can come down again- as in Tokyo etc...
Perhaps we will have to have disclaimers attached to Estate Agents property prospectuses and HIBS...."Property prices can go up & down etc......"
As the Authorities (PM, Chancellor etc) are so confident in their control of the UK deposit takers (banks etc) perhaps they should raised the insured element from £2000 (100%) to £100,000 and even place the ordinary depositor ahead of HMG's Inland Revenue etc...
DM, Eastbourne,
Anatole, do you still think devaluation of the dollar is a good thing for the US? After you said this I never thought I would agree with you, but you do have some sense!
The vested interests in the housing market, such as the "economists" we here spouting from time to time, are leading a shocking lie. The whole concept of prices being supported by a lack of supply is nonsense - Economics 101 tells you that an inelastic supply curve makes things worse when demand falls off.
My worry is consumer spend. c,75% of our economy has been driven for the past few years by "equity " (really debt) release. This is about to fall off a cliff, and times will be hard. The sound economy referred to by the vested interests is built on a house of cards.
People are quickly going to learn that Plasma's and 4x4's have to be paid for by real wealth, not a credit bubble.
paul, london,
This economy of smoke and mirrors cannot carry on for much longer.
Anyone who borrowed recklessly deserves all they have coming to them as do the reckless lenders.
Their greed has led to the incredible increase in property prices putting a home out of reach for people not willing to stretch their finances to the limit to get on the 'property ladder'.
What was the 'property ladder' has changed into a 'property hamster wheel'......
Steve Short, Berlin, Germany
Sir
Housing is now running at seven times average earning whilst in the past has never run above a maximum of five. Five being the peak of the housing cycle with 2.5 being the trough. The banks are awash with margin lending serf certified mortgages and buy to let loans.
The interbank markets have been crippled for 3 weeks now due to liquidity concerns and worries that on the crediability of their counterparties and a high street name is applying to the Bof E for emergency funding.
All this when the country is at the peak of the economic cycle whilst runnig the fourth largest trade deficit in the world.
With all of this the estimate is of a mere five thousand job losses
It reminds me of the Government estimates of only 15,000 expected immigrants from Eastern Europe from the opening up of the EU
Anthony Brennan, Hong Kong, Hong Kong
Does this mean that some Londoners will no longer be able to keep their second home in the country, so they will have to sell up and people like me will be able to buy homes in our own villages? If so, bring it on.
Trofim, Birmingham, UK
I think it's fair to say in light of Northern Rock bailout by the BoE this morning that much of the analysis in this article is now effectively defunct. Also, although there is no escaping the fact that city bonuses have a material correlation to London high-end property prices a 15% retrenchment in compensation will not deter these high earners. Fundamentally, the london market is determined by limited supply and ever increasing demand. The demographics of an influx of wealthy foreigners (fiscal fugees), bouyant financial industry, and economic migrants from new EU accession countries mean that, in the medium term, price equilibrium is still much higher than current levels.
Conor, London,
Mr Kaletsky, you once said 'Go on, buy a property' so now is it 'Sell, sell, sell'?
CWW , Ipswich,
At last the Bank of England has an effective Monetary Base control which should be much more effective than raising Base Rates. This liquidity shortage is just the lever that the Corset and SSDs were supposed to give us over credit expansion before the deregulation fetish flooded the country in credit
TomTom, Leeds, England
Russ, Sheffield. You're right, but that doesn't change the position that no government in history has ever controlled markets in the long term. Had Brown and the BoE taken a tougher stance sooner the pain would have been less and more bearable. Instead, we have the rubbish about the boom-bust cycle being over etc - politicians rarely look further ahead than the next election or further back than the last one. Unless the whole banking infrastructure collapses, the prudent amongst who have saved (spreading our savings between different banks) and taken advantage of low interest rates to overpay on our mortgages should be able to weather the storm. In contrast, those who have flung themselves headlong into the supposed economic miracle by borrowing up to the hilt, investing unwisely in property etc etc may well experience bankruptcy and poverty. It will be a painful lesson for many - but that's central to free market capitalism.
Graham, Oxford, UK
How can the finance sector be in such trouble and yet still be paying out any bonuses at all?
Bankers used to be prudent.
Jon Roberts, Nottingham,
I am an OAP and have my savings in a Northern Rock 'Silver Savings' account. As of now I cannot access my savings online and will shortly run out of money. I dont know what to do about it other than to keep trying on the internet probably along with thousands of others.
S.Hoare, London UK,
Anatole Koletsky is right to say the crunch will have an effect, but the underlying facts of the matter are that demand outsrips supply and will do for a number of years to come. The credit crunch will be temporary and short lived. Property prices will suffer and the market may get jittery, but it will shake it off and then surge ahead
Abid Bashir, Shipley, United Kingdom
I am glad I am not an American or German taxpayer. Though maybe not technically a subsidy, those billions are coming from somewhere.
The long term prospects for London, if the Bank of England keeps its nerve, might be very rosy indeed. In boom times other countries can prop up uncompetitive financial sectors. When things turn nasty this sort of intervention becomes far too expensive. In the short term city bonuses will be cut, the dodgy loans that have been supporting the bottom end of the housing market foreclosed, and there will be a certain amount of contraction.
Malcolm McLean, Bradford, UK
The Bank of England has played this right and the ECB utterly irresponsible. The economic system has been drunk on excess liquidity and loose lending standards. Throwing more money at the problem is just the same as giving a drunk the hair of the dog to make the pain go away.
Bankers have long being saying how loose credit was and telling large companies to borrow while the going was good as something would have to give (personally heard by speakers at business functions). Inevitably something has.
The credit crunch is still being portrayed as fallout from the US subprime market, such as last night's Newsnight. Far from it - subprime lending was just the most extreme example, but it is part of a global problem of lending too much money too cheaply. Wave goodbye to your sub-base rate fixed mortgages that we rely upon, they will not be coming back, not without fees that make them meaningless.
Henry, London,
Where is the FSA lynch mob to string up the negligent bankers and fund managers who have recklessly hoisted on board this US waste paper? Where is the enquiry into this apalling failure of judgement? Why should Mervyn be bailing out Institutions when what everybody needs is a half point cut? Why has the BofE been behind the curve since it received autonomy and CONSISTENTLY over estimated inflationary pressures keeping UK rates artificially high? Why should British consumers put up with this RIP OFF which stems directly from the cosy arrangement between High St banks and BofE ?.
Michael, Lincoln, UK
The new Chancellor has started lecturing the City on it's loose, not say disastrous, lending attitudes. Can any one tell me how much the current crisis has been made worse by the amount of extra liquidity pumped into the economy by his predecessor
Richard, Newcastle,
If the economy falls apart, you will not be buying a house, unless you happen to have the money in cash now, wishing for that is like wishing for nuclear war.
http://www.marketoracle.co.uk/images/nadeem_walayat_22_8_07d.jpg
A nice picture, see the 1988 "collapse" as it was billed?
Looks more like stagnation everywhere but London, which, true, takes a beating.
Houses price trebled and held then, they will treble and hold now.
Not a time for instant super profits, but long term, its still fine,
Dominic, Manchester, UK
It is amazing the extent we all go to justify why prices will not fall after a huge run up. Shortage here/immigrants moving in/no more land etc etc etc. A slump in housing will correct all these imbalances very quickly. the talk then will be when we have bottomed! The bottom will be hit when no one expects it and it could be quite a while before the UK wrings out the previous decade of excesses and credit creation.
Simon, Guildford, Surrey
Everybody always says that property prices are going to fall.They always tend to forget two basic things:-
(1)there is always high demand with more people chasing a limited number of properties.Just look at the number of properties that the government is saying have to be built due to that demand.
(2)We have an underlying problem that we are an island with limited land that can be built on.Therefore the land that is available to build on is worth a lot.In the South East for instance just look at the price of an acre of building land and then look at the same building land in Northern Scotland,.
This is not going to change.
OK there will be a slow down but large price drops-I don't think so.
Nigel, wimbledon, UK
James, your statement is exactly the reason why there will be no crash. Ask anyone what they would do if house prices halved tomorrow. The answer is go out and buy two houses. Its not clever economics its supply and demand.
HRT, Forfar, Scotland
James O'Brien, Singapore. Have you looked at property prices in Tokyo over the last couple of decades? I don't think someone there having had negative equity for 15 years or more would be as optimistic as you. In the very long run you're probably right - my grandmother used to tell me that it cost one old penny to go to the cinema when she was a girl! That doesn't change the fact that this boom has been been on an unprecedented scale and the bust in depth and length is equally likely to be unprecedented. To gain in any real profit from property price rises requires both buying and SELLING at the right time. Any property investor who doesn't get out very soon may find themselves waiting an awfully long time before they can cash in on their investment.
Graham, Oxford, UK
Japan has experienced 15 years of droping house prices, down to 50% of their peak.... How bad will it be over here? In Spain, where I live, it's even worse. Its the recent buyer can't stand high interest rates who's going to have it bad. Selling now for a lower price, not enough to pay off the mortage. How many are there? It sounds like CRISIS.
Lorenzo, Madrid, Spain
As James said, a lot of younger Londoners are praying the crisis gets worse. I was happy to hear that Northern Rock was in trouble, anything that brings house prices back into a sensible range for first time buyers is a good thing.
William Thomson, London,
Anatole - you previously said this was a storm in a tea cup. Now its serious...
Terry, London,
Ricardo,
Lewis Hamilton will win the world championship.
Name Withheld, London, UK
If I had a fiver for every financial prediction by a highly educated economist that has gone wrong during my working life, I wouldn't need to worry about financial downturns in the economy.
Tam Earl-Aine, Cheltenham,
2 Words: Northern Rock
Richard Moore, Chesham,
Impeccable reasoning but for one qualification. Plenty of foreigners are known to want to buy houses at the top end of tjhe market.The Chinese with all their dollar assets may well want to make a beeline if prices become attractive?! This would halt the predicted fall.
The English seem to have different considerations at the back of their minds when buying a house than the Europeans who tend to regard it as a residence first and an asset afterwards, the reverse of the English buying psychology. Prices have therefore become unrealistic and painful especially for first time buyers. Maybe a correction will bring some sanity in this field run by overpaid estate agents and greedy customers looking to make money without effort.
I shall not complain. Having been driven away from England by the actions of a vicious partner and an unfeeling woman judge this may well be my opportunity to regain my place in the English sun!!
LAKSHMAN PARDHANANI, GOA, INDIA
James, Skipton... you are being naive and simplistic... if a crash occurs, and we suffer a loss of confidence, reduced consumer spending and a massively weakened economy, you may very well end up being an unemployed single dad. How are you going to buy the house your family needs then?
Russ, Sheffield,
So what are we saying, London house prices may fall, what permanently? Never get back to these highs? Dream on! House prices in London have been rising for 50 years and will rise for the next 50 years. A year of slowdown or fall here or there won't change that. Price of a three bedroom house in London in 10 years time will be twice what it is today. And before you all chat on about 89-92 that was a temporary dip, if you'd bought a house in 88 you'd be super rich now. So Long term there is only one way barring some kind of global economic implosion!
James O'Brien, Singapore, Singapore
I think that Mr Kaletsky's analysis is good, all things being equal. But suppose they are not? Suppose the Dollar falls faster than expected; then the City could benefit from a flight to Sterling. Suppose, even more likely, that mortgage lending has actually been more conservative in the UK than in the US - and by the way I live in the US, and some lending here has been perfectly insane - then the fallout should be a good deal less.
But I think the real giveaway here is that BoE has not been forced to take the same steps as the Fed and the ECB. The latter two have not been pumping out liquidity for fun, but because they had to. That suggests that there is something intrinsically more stable about the London situation, even if we cannot identify it as yet.
I think the outcome for London looks more like a soft landing, but of course Mr Kaletsky does have a pretty good track record, doesn't he.
jon livesey, Sunnyvale, CA/US
As ever, it will be the gullible amateurs who are hit the hardest - the smart money having got out in good time. Won't be long before the smug BTL investors who talk about their property portfolios being worth millions will be talking about their negative equity at similar levels. This must be the first time in recent history that so many men and women in the street have been allowed to borrow so recklessly that the effectively unsecured part of their debt may run into the millions.
George, Brighton, UK
bad news???? Bring it on!!! This is what virtually everybody under 30 have been waiting for!!! As a young (working) single dad, I am relishing the prospect of finally being able to put down some roots for my family nby buying a house (after the crash of course!!).
James Robertson, Skipton, North Yorkshire
I am contracter for an IB in the City.
To be honest we all knew it was not sustainable. A lot of us got out in time.
Ricardo , London Village,