UK House Prices Remain Turbo-Charged
A buoyant private sector housing market is one of the key building blocks of economic activity. That’s the view inside the Treasury and nothing in the last 50 years – not the widening wealth gap, nor the risks that come with increasing dependency on an unstable asset market – has happened to shake that view. After every recession, even when a property crash has been the cause, officials in No 11 dip into their toolkit of recovery measures and opt for a tried and trusted method to get the economy back on its feet. Ministers use the incentive of higher house prices to kickstart more transactions. Chancellor of the Exchequer Rishi Sunak reacted to the pandemic by cutting stamp duty on house purchases to zero on homes worth under £500,000. The effect can be seen in the latest Nationwide house prices figures, which show the average UK house price hit £252,687 in November, up 10% on a year earlier. Sunak’s mission was supported by high street lenders that cut their margins to the bone, with the aid of ultra-low interest rates from the Bank of England, to maintain market share. It worked to pull forward transactions and save from hardship a financial system that depends on mortgage sales, but at the cost of the same continued reliance on a mortgage-dependent financial system and widening an already yawning property wealth gap. Some commentators expected the direction of travel for prices would moderate or even reverse. The Office for Budget Responsibility, the Treasury’s independent forecaster, predicted in October that house price growth would fall once the stamp duty subsidy was phased out in the autumn to just 0.5% in 2023. It may be too early to call, but a 10% annualised increase in November would indicate this forecast is flawed and the market has adjusted quickly to life without subsidy. Sales were 28% down in October from the previous month and likely to remain depressed in November and at least until the threat from Covid has lifted.
Tags : INTERNATIONAL Stamp Duty Transactions UK House Prices Bank of England Treasury Mortgage Sales