This mortgage market would have appalled even your grandparents

 

Outlook: Amid all the recent froth about the housing market it’s worth remembering that by historic standards mortgage activity is still relatively muted, and was so even before the recent measures taken by the Bank of England to deflate the apparent creation of a house price bubble.

At the height of the market’s recent revival mortgage approvals still came nowhere near to the 90,000-plus-a-month they were running at prior to the financial crisis. April saw the third consecutive monthly fall with the final number coming in at just below 63,000.

So the market – at least in terms of transactions – is still actually rather quiet, but that hasn’t stopped a surge in prices.

To cool that off, the Bank has forced tighter mortgage lending criteria on banks and building societies. Some had already taken action of their own in anticipation. Responsible lending is now the watchword. Look, see, what good little children we are now. Honest.

The market’s price problems – largely in London and the South-east – are being attacked with a blunt stick, a short term measure designed to ease just one of the consequences of a complex set of problems that aren’t being addressed with anything resembling strategic thought.

Those problems include a lack of new homes coming on to the market, which is most often tagged as the cause of the recent bubble and is behind the enthusiasm among some for concreting over greenbelts.

But there are other issues too. Existing stock is poorly utilised. Too many people look goggle-eyed at price rises and rental yields before falling over each other to join a dangerous property investment stampede. Renting can be horribly insecure, encouraging people to over-stretch themselves to buy. I could go on. 

All these problems will still be around despite the Bank’s drug of choice for dealing with the current price fever.

Meanwhile the side effects will be brutal. There was already a bottleneck of frustrated would-be buyers before this and it’s only going to get bigger. Those whose ambitions are thwarted by the new policy won’t thank the Bank’s Governor, Mark Carney, with his £600,000 salary and sumptuous accommodations, for telling them that it’s for their own good as they battle through a tangle of red tape and form filling and try to explain their spending habits to sceptical mortgage advisors.

Against this backdrop, should you still decide that you’re still willing to brave the banks you’d be best to first get used to buying your clothes at Primark, and your food at Aldi. If you travel, take easyJet and leave your luggage at home. Don’t, whatever you do, gamble. Put the savings you make from your personal austerity drive with your lender of choice, and accept the shoddy rates you’re offered. Having fun of any kind? Forget it if you want to hear a “yes” from them.

You will, of course, still need to obtain a credit history. So by all means use a credit card, but sparingly, and only for essential purchases. You can take out a loan for a modest car if you like but that’s about it, and don’t, whatever you do, miss a payment. This isn’t your mother or your father’s mortgage market. It’s one even your grandparents might have been appalled by. 

Sudden deal frenzy won’t fix the big pharma problem

The dust has barely settled from Pfizer’s failed tilt at AstraZeneca and the market’s in a tizzy again. To be fair, Shire Pharmaceutical’s reported interest in the American NPS Pharmaceuticals is something of an after thought by comparison.

All the same, it’s yet another sign of a sector in ferment and just part of of what has become a rather tangled web.

Shire, which has already pulled off one deal this year to buy an American bio-pharma company, with the $260m purchase of Lumena, is seeking to fry a much, much bigger fish in the form of NPS, although the two both specialise in developing treatments for rare conditions. NPS, for its part, doesn’t appear to be overly keen to play footsie.

Undaunted Shire has secured a line of credit to fund a deal. NPS is just big enough to serve a dual purpose. It will naturally provide an interesting pipeline of treatments. But it could also help Shire to bulk up with the aim of warding off unwanted suitors of its own.

One of which, Allergan, the maker of Botox among other things, Shire has already fended off once. Could Allergan break up the NPS Party? Hold your horses a moment. Right now Allergan is itself trying to see off a bidder in the form Valeant, a Canadian based rival.

Which brings us neatly back to Astra and Pfizer. Because Valeant has just taken a step that Pfizer shied away from. Having had its approaches rebuffed it’s gone hostile, taking its bid direct to Allergan’s shareholders.Phew.

It seems that the whole industry is involved in an ultra high stakes game of poker, but the real winners will be investment bankers and the executives of ambitious young biotech firms with treatments that might just catch the eye of one of the big boys.

Critics say all this is symptomatic of a deep malaise in the business models of big and lumbering pharmaceutical firms.

This should worry us. According to the Share Centre, pharmaceuticals account for 7 per cent of the FTSE 100 in terms of weighting, 8.6 per cent of the pre tax profits, but just 2.8 per cent of revenues. That’s because it is a high margin business which throws off huge dividends. Dividends that are highly valuable to our pensions.

At least some of them might have been better invested in R&D.

But they weren’t and now big pharma has a problem and so do we. A deal frenzy will conceal it. It won’t fix it.

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