A future beset by ‘known unknowns’ - David Alexander comment
Probably the last occasion many people in this country felt as apprehensive as today was October 1962 when the Cuban missile crisis involving the US and the Soviet Union threatened to start World War Three with the UK right in the middle. Well, that’s what I was told later; being a toddler at the time I don’t remember much about it.
Despite the recent rise in coronavirus infections the outcome in terms of hospitalisation and fatalities is tiny compared to the consequences of a nuclear attack. However the Cuban crisis was, mercifully, short-lived; and once it was over life quickly returned to normal, albeit after a huge, national sigh of relief. Distressingly the current crisis has gone on much longer and there is still little end in sight.
So given the circumstances, why has the country experienced something of a property boom?
The latest figures issued by the Nationwide shows that the average house price in the UK in October was £227,825, compared to £216,092 in February, which was the last full month before lockdown. Now in themselves these figure are unremarkable; I have seen much bigger average rises take effect between the months of February and October in past years.
However it is nothing short of a miracle that prices did not actually drop like a stone during that period given mass redundancies and a continuing atmosphere of uncertainty for business owners and those still in work in the private sector.
Well, let me correct that. I don’t really believe in miracles but the stamp duty holiday introduced by the chancellor, Rishi Sunak, came pretty close. His action probably saved the property market (and the thousands of jobs and livelihoods directly or indirectly associated with it) from a collapse that would have made the financial crisis of 2008 look like a Sunday school picnic. Yes, I realise this largesse will have to be paid back (in personal, corporate or consumer taxes) at some later stage but the sector was in dire need of swift action – and got it.
Sunak applied the exemption on transactions up to £500,000 in value, which enabled individual savings of up to £15,000 in England and Wales. This made the Scottish Government’s effort on LBTT appear pretty mean in comparison; here the exemption applied only up to £250,000, meaning the biggest saving was £2,100. This is despite the fact that parts of Scotland – e.g. Edinburgh, East Lothian, Glasgow’s outer suburbs, Aberdeen – have price levels approaching that of hotspots south of the Border.
Even so, the Scottish market has performed much better than was expected back in the spring. The LBTT “holiday” certainly helped. But other factors came into play, such as a desire for more space, especially outdoor space, which has seen smaller houses being swapped for bigger ones, flats for houses with a front and back door. And, of course, we still saw a measure of the seasonal uplifts that traditionally apply, to varying degrees, every year to late spring, summer and early autumn.
To be fair to the Scottish Government, it recently announced an extension of its Help to Buy scheme to March 2022; this is not confined to first-time buyers but applies only to new-build properties priced at no more than £200,000. The process involves the government taking a stake of up to 15 per cent, thus reducing buyer outlay and, by implication, also the deposit – opportune given that lenders appear to be asking for bigger deposit on conventional mortgage schemes. If the buyer eventually wishes to own the property outright then he/she will have to source funds in the future to “buy out” the government’s stake. But at least it should reduce the time some have to wait to get a foot on the property ladder and there may be savings compared to the cost of renting.
It is, however, worth bearing in mind that employment uncertainty means many people – whether existing or would-be homeowners - may not wish to make that commitment just now. This is especially true of the hospitality industry, perhaps the sector most badly affected by full and partial lockdowns and which employs a significant amount of young people (and potential first-time buyers).
Where it will all end I cannot yet imagine. The infamous quote from the former US defence secretary Donald Rumsfield about there being “known unknowns”, though widely ridiculed at the time, perhaps best sums it up.
- David Alexander is managing director of DJ Alexander
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