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There’s lies, damned lies, and then statistics – or so the old cliché goes.
But this is unfair. A decent set of statistics can tell you a great deal – statistics get such a bad press partly because so many people, across all walks of life, are basically frightened of numbers.
A better cliché to bear in mind when viewing statistic-heavy press releases or news reports is comedian Frank Carson’s catchphrase – “It’s the way I tell ‘em.”
Because the truth is, even a bad set of statistics can yield a great deal of information. The main thing you have to remember is – who is telling me this and why are they presenting the information in this way? What do they want me to believe?
All of this was brought to mind by a particularly informative little press release we read last week, proclaiming that all was well with the buy-to-let market, despite rising interest rates. Who was it from? Why, buy-to-let lender Paragon Mortgages, of course…
Paragon Mortgages, buy-to-let specialists, sent out a press release last week proclaiming that all‘s well with the buy-to-let market.
Apparently, in a recent survey, “almost a third of landlords said they were reacting to rising borrowing costs by increasing rents, while another 43% reported they are taking no specific action as a result of the interest rate rises.”
That’s not all. “As further evidence of their confidence in the future, in the survey 12% of landlords said they were increasing their involvement in buy-to-let as a reaction to the rises in borrowing costs.”
Wait a minute. Did we miss something here?
So “almost a third” of landlords – that’s less than 33% – are trying to push through rent increases to protect their profit margins against rising interest rates. Meanwhile, 43% – that’s nearly half, if you want to be really rough and ready about it – aren’t going to do anything. And that leaves at least another 25% – a quarter – who presumably have been unable to raise rents either.
In other words, more than two thirds of landlords aren’t going to raise rents, even though interest rates are rising. That can’t be good news for the buy-to-let market – particularly when so many recent entrants to the landlord market are already stuck with negative yields (in other words, their rental income doesn’t cover the payments on their interest-only mortgages).
The second quote is even more telling – 12% of landlords are taking rising interest rates as a cue to buy more property. This is “further evidence of their confidence in the future.”
There’s a few bits of twisted logic to untangle here. For a start, if 12% are buying more property, that leaves 88% of landlords who don’t feel confident buying more property when rates are rising – which strikes us as sensible.
Thinking charitably, the “confident” 12% (that’s just under one in eight, by the way), have decided that rates won’t rise much further. That could mean this is a good opportunity to drive down selling prices as others panic about the prospect of a 6% base rate by the end of this year. Or less charitably, it suggests that one in eight landlords don‘t really know what they are doing and have fallen for the whole “property prices never fall” hype.
In any case, it certainly shows that the providers of landlord mortgages are rattled. And that’s unsurprising. Even the mainstream press is catching on to the idea that interest rates haven’t peaked – high profile columnists Roger Bootle (The Telegraph) and Anatole Kaletsky (The Times) are both calling for rates to hit 6% or more.
And at the weekend, the Sunday Times, for example, ran a piece on why householders need to be planning for a base rate of at least 6% – that would put the typical standard variable rate at 8%.
None of this bodes well for buy-to-let or the wider market. In a recent issue of MoneyWeek, property writer Fred Harrison warned of a housing crash beginning in 2008 – for more, subscribers can read the piece here: Is the global property market about to crash?
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Turning to the stock markets…
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In London, the FTSE 100 neared a seven-year high on Friday as bid rumours involving BP and Royal Dutch Shell boosted sentiment, whilst Vedanta topped the FTSE risers as miners made strong gains. The blue-chip index added 61 points to end the week at 6,640, and the broader indices were all higher. For a full market report, see: London market close.
Elsewhere in Europe, the Paris CAC-40 jumped 74 points to close at 6,101, its highest level since November 2000, as M&A activity boosted French stocks. In Frankfurt, the DAX-30 closed 108 points higher, at 7,607 – the first time the 7,600 level has been breached since the year 2000, with electronics heavyweight Siemens leading the risers.
On Wall Street, US stocks were also boosted by takeover activity. The Dow Jones hit a new record high of 13,556 – a 79-point gain. The broader S&P 500 closed near its all-time high, adding 10 points to end the day at 1,522. And the tech-heavy Nasdaq closed 19 points higher, at 2,558.
In Asia, exporters including Sony were helped by the weaker yen, leading the Nikkei to a close of 17,556, a 157-point gain.
Crude oil had risen to $65.11 this morning, whilst Brent spot was at $69.51.
Spot gold had edged up to $661.75 from $660.90 in New York late on Friday.
In the foreign exchange market, the pound was trading at 1.9724 against the dollar and 1,4601 against the euro. And the dollar had fallen to 0.7401 against the euro and 121.28 against the yen.
And in London this morning, a report from Rightmove revealed that UK house prices rose at their slowest rate since December this month, climbing 0.4% compared with 3.6% in April. The average asking price is now £237.361. Rightmove director Miles Shipside commented that increased supply and higher interest rates were starting to dampen down the housing boom.
And our two recommended articles for today…
Have UK interest rates peaked?
– The Bank of England’s Quarterly Inflation report provided a severe jolt to anyone who thought 5.5% was the highest we’d see rates go, says Jeremy Batstone of Charles Stanley. To find out why he thinks rates may have to hit at least 5.75% in order to dampen down inflation, read: Have UK interest rates peaked?
What US protectionism means for financial markets
– The US is moving full-steam ahead with anti-China protectionism but financial markets around the world still aren’t discounting the risks involved. For more from Stephen Roach on why investors are burying their heads in the sand, click here: What US protectionism means for financial markets