What will a no deal Brexit on the horizon, the end of the stamp duty holiday in March, mortgage payment holidays coming to an end, unemployment set to rise after furlough and ongoing on/off coronavirus restrictions do to the St Neots property market and the value of your St Neots home?
In the late spring of 2020, every man and his dog were forecasting impending doom on the British property market. Drops of 10% were considered optimistic as we all held our breath after lockdown was relaxed. Yet, the property market didn’t listen to the forecasters. UK property values today are 2.5% higher than they were a year ago, and more locally,
St Neots house prices are only 1.9% lower than a year ago
(and most of that loss occurred at the back of 2019).
So, what exactly is going to happen to the St Neots property market in 2021?
Well, with the end of furlough and 1.7m people still on the furlough scheme at the start of October, a number of economists are saying that unfortunately many of those furloughed will become unemployed. Unemployment currently stands at 4.5% in Q3 2020 (compared to 3.8% in Q3 2019). The Government’s independent Office for Budget Responsibility believes the unemployment rate will peak at 9.7% in early 2021, and then return to pre-coronavirus levels in 2022. In the past recessions of the early 1980’s, early 1990’s and Credit Crunch of 2009, when unemployment went up, the property market went down.
Yet, in this recession, the link between unemployment and property values may not be so direct.
So why is the link between unemployment and house prices potentially broken? It comes down to interest rates.
The reason St Neots house prices have gone up by 381.76% since the middle of the 1990’s isn’t because the labour market has got so much sturdier, nor that the economy has outperformed every G8 country, or that the UK has had less boom and bust economic cycles than the previous decades. Instead, it’s because of the fundamental and underlying decline in the Bank of England (BoE) interest rates.
High BoE interest rates equal high mortgage payments which holds everything back regarding the property market. In the 1980’s, the average BoE interest rate was just over 11%, making mortgage payments very expensive and keeping property prices dampened. In the 1990’s, the average BoE interest rate was a little over 6%, in the 2000’s just over 4%. However, in the 2010’s, it had been a really low 0.5%. Now with interest rates down to 0.1% because of coronavirus and the BoE threatening negative interest rates, there appears little threat of an eruption in mortgage repayment costs.
With mortgage payments at an all-time low of just under 30% homeowners' disposable income (compared to 48% in 2007), those middle-aged people lucky enough to still be in a job (who are mainly made up of workers whom are spending a lot more time working from home), they could be more inclined to dedicate more of their monthly income to mortgage payments than they did pre-coronavirus for a bigger garden or a move out of the big cities?
So, if unemployment isn’t going to make a huge difference to the St Neots property market, what is?
Most commentators believe a no deal Brexit will have hardly any short-term effect on the property market (apart from certain upmarket parts of central London).
The Stamp Duty holiday ends at the end of March 2021 and that certainly will reduce the number of St Neots people moving (as many moved their plans forward to beat the deadline) meaning there will be less St Neots people moving in 2021, yet that will curtail the supply of property for sale and hence keep St Neots property prices higher.
Next, the Help to Buy scheme, (started in 2013 and where the Government underwrites part of the mortgage for the first time buyer, meaning they can obtain a 95% mortgage) ends in April next year, yet the Tories indicated at their conference last month they would probably create ‘Help to Buy - Part 2’.
The bottom line is in the early 1980’s and 1990’s recessions, when interest rates were over 15%, obviously homeowners couldn’t afford to keep up the mortgage payments when made redundant or on reduced wages, so many handed in their keys to the banks and homes got repossessed, thus exacerbating the issue with falling property values.
However, with interest rates so low, this will not be the case. I envisage that UK property prices will be between 4% to 5% higher by December and St Neots values just behind that at 2% to 3% higher, before levelling out in 2021 (although we might see a modest dip in certain sectors and types of St Neots homes depending on location and condition).
My advice to St Neots buy to let landlords is to wait on the subs bench until April 2021. Something tells me there will be some St Neots landlords who will be looking to exit the rental market after having their fingers burnt after the eviction ban has been lifted.
I also suspect those St Neots first time buyers, eager (and able) to break free the rental-rat-race will want to take up the anticipated ‘Help to Buy - Part 2’ scheme, particularly if the BoE base rate stays low. The other winners in 2021 will be low mortgage/equity rich households upsizing to the countryside or leafy suburbs to test out their boss’s promise of ‘flexible-working’.
Yet the losers will be the 18yo to 29yo renters … most likely to be made redundant and least likely to buy a home.
My advice to the Government for this cohort is to not ignore them once the country is out of this coronavirus situation. It’s all very good keeping the Home Counties Tory voting Baby Boomers happy with green belt policies and other policies to keep their property values higher, yet as the Generation X and Millennials get older and take over as the largest demographic to keep happy (for the polls), the hitherto inconceivable action of the Government levying Capital Gains Tax on your main home may come to fruition.
I mean, we have £400bn to pay back because of coronavirus … it has to be repaid and it has to come from somewhere. Those denied real access to buying their own home in the last 10 years, because of massive house price gains over the last 25 years, could vent their anger via the ballot box - if not at the 2024 General Election, maybe in 2029, when they realise that the futile housing policies of both Labour and Tories of the last 23 years have left them with enduring financial diffidence.
Maybe we should all look to the grocer’s daughter from Lincolnshire who in 1979 set out a bold vision of home ownership for everybody. Whichever political party picks up the truly batten and reframes it for the current 2020’s generation and comes up with the goods, will be the ultimate winner in this game.