By MidLyfe Editor: Property listings were held back by vendors last month because of lockdown restrictions, according to the Royal Institution of Chartered Surveyors.
February saw, for the second month in a row, its monthly survey showing that the number of properties being listed for sale fell. New buyer inquiries also fell, albeit by less than in January.
The current lockdown restrictions along with waiting for clarity about Rishi Sunk’s stamp duty holiday extension as for the reasons behind the fall in appetite.”
The RICS forecast that property sales would pick up in the next three months as lockdown restrictions were eased and said “upward pressure on prices showed no signs of easing”.
It said 52 per cent of respondents to its member survey reported an increase of property prices in February, up from 49 per cent in January, which was “indicative of house price inflation maintaining momentum”.
However, slightly less (46 per cent) were confident about prices continuing its current momentum.
Rishi Sunak, the chancellor – announced last week that the stamp duty holiday on the first £500,000 of purchases in England and Northern Ireland would be extended until June, then taper off with a holiday on the first £250,000 until September.
“The measures announced last week by the chancellor should help support the housing market over the coming months with concerns around a cliff edge end to the stamp duty break eased” – Simon Rubinsohn, chief economist at the institution, said.
Rubinsoln also warned that there was a – “very clear message emanating from the survey that more needs to be done to address the shortfall in supply with price and rent expectations very evidently continuing to accelerate.”
The survey also found an increase in tenant demand in the three months to February and that 37 per cent of its members predicted rents rising in the coming three months.
The RICS also said that over the coming year, rents were projected to rise in all parts of the UK except for London where they would stay the same.
State-supported prices
Property in England in particular is currently supported by all sorts of state interventions into the mechanics of the market. There are various tax-efficient schemes to save and then buy property, government-backed mortgage schemes, including 95 per cent mortgages to borrowers who would not be able to support the total cost of buying and then paying for a property without it.
The stamp-duty holiday is a tool to artificially prop up the market to keep transactions moving that then contributes to money moving into the economy. Each transaction requires a conveyancer, a surveyor, removals and the usual spending that we all do such as paint, carpets, curtains, kitchens and so on.
As Covid restrictions are lifted and billions of saved up cash comes into the economy, the Chancellor may well be thinking that the stamp-duty holiday can end. However, as the economy settles later in the year a number of problems will start to come to light. Unemployment is expected to rise quickly as the furlough scheme tapers off. The amount of residential and commercial rent debts will be exposed (Commercial property debts have ballooned £4.5billion in the last 12 months alone), so will the holders of these investments – and the banks that fund them (source).
Without wishing to mention the ‘B’ word – the economy is expected by the OBR to lose 5.2 per cent of GDP as a direct result of lost business with the EU over the next fifteen years. This, in turn, will increase unemployment, which is not good news for the property market.
The Chancellor is also playing a dangerous game with stamp-duty. Some of us are old enough to remember another property intervention by the government that ended in disaster. The then Chancellor Nigel Lawson’s decision to abolish MIRAS (Mortgage Interest Relief At Source) in 1988 led to a housing crash in 1989. That was a crash that lasted five years where property prices fell on average 20 per cent (source).
MIRAS helped an entire generation get on the housing ladder, but when it was pulled, with six months notice, millions ended up in negative equity and debt – and record repossessions were going through the system. Tens of thousands of property were very quietly held from the market because the government offered huge tax breaks to property companies to acquire and then rent repossessed properties for five years.
MIRAS was a tax break scheme for property buyers. They got tax relief for paying mortgage interest. However, property prices were artificially inflated because of it. When unemployment rose, house prices were out of reach without MIRAS and the entire property market went into free-fall when it was withdrawn. Tens of thousands of transactions in chains collapsed overnight.
The stamp-duty holiday is a self-imposed trap the Chancellor has backed himself into. If he withdraws it in June, it has the potential to pull the carpet on transactions, just as MIRAS did in 1988. Property prices have never been higher and unemployment is rising – just as they were in 1988.
I suspect the 95 per cent government-supported low deposit scheme is an attempt to shoulder some of the weight of withdrawing the stamp-duty holiday in June. Mortgages with a 5 per cent deposit had largely disappeared because lenders were not prepared to take the risk (which heavily contributed to the 2008/9 financial crisis). This latest market intervention is a taxpayer-funded liability just as the Help-to-Buy scheme was that came to being under David Cameron’s government.
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