Monday, June 11, 2007

UK Housing; The Mother of all Bubbles

What goes up.....

The Economist has a scary graph for UK homeowners to ponder over their morning Cornflakes.

They cite three reasons for the boom that has soared past its nearest Western equivalent, France.

i) Housing supply has only crept up

ii) Net immigration is running at a record breaking 185,000 per annum.

iii) More people are living alone driving up the need for more homes.

I would add three more;

iv) Globalisation has made the country an awful lot wealthier

v) Due to 9/11, the rapid development of the Credit Derivatives market and the Sarbanes-Oxley Act, The City of London has now overtaken New York as the world's financial capital. This is acting as a magnet for wealthy foreigners and is spreading wealth across the country.

vi) Interest rates are way, way too low. Central Banks, in focusing solely on (increasingly massaged) goods inflation data have ignored rampant asset price inflation. The bond market is just waking up to this fact as ten year gilt yields have increased 100 basis points since the start of the year to now stand at 5.32%.

Wanna a buy-to-let on a 100 year interest-only 110% mortgage?