Since the Brexit referendum of 2016 it is fair to say that the UK property market has faced more than its fair share of challenges. Even though news over the last week or so has been mixed there are reasons to be optimistic in the short, medium and longer term.
Bank of England base rate cut
With the UK facing the biggest financial threat in more than a decade on the back of fears the outbreak could cause a recession, the bank said the measures will help to support business and consumer confidence, bolster the cash flows of businesses and households, and reduce the cost and improve the availability of finance.
The US Federal Reserve reduced US base rates by 0.5% last week in an attempt to shore up the economy ahead of the challenge of the coronavirus. There is also talk that the G7 are currently considering a concerted effort which would likely see a reduction in base rates across an array of different countries. While we would not necessarily see a like-for-like reduction in UK mortgage rates, if there was a base rate reduction, it would certainly soften mortgage rates. This could prompt more buyers to return to the marketplace as well as those looking to refinance their homes on more competitive terms. Interest rate reductions alone will not bring an end to the coronavirus but they could help to support property markets in the short term.
Strong UK rental market
A recent report by the body representing letting agents, ARLA Propertymark, highlighted growing demand for private rental property and reduced supply. The majority of letting agents have seen an increase in new tenant registrations yet a reduction in private rental stock. It is estimated that around 500,000 properties have been taken out of the private rental market as a consequence of government tax changes. It appears that some private landlords are switching to short term leasing through companies such as AirBNB. Many expect this trend to continue which would indicate an extension of the current favourable environment for the UK rental market.
It would be remiss of us not to cover the subject of Brexit which while once a dark cloud over the UK property market is now more of a grey lining. However, a quick flick through media coverage would suggest that UK/EU trade talks might not even begin but history shows that both the UK and the EU like to lock horns in the press before entering negotiations. Since the general election of December 2019 we have seen confidence returning to the UK property market which has been reflected in UK property prices. Whether we may see a pause in the short term ahead of trade talks remains to be seen but there is still strong underlying demand for UK housing.
The coronavirus was initially a footnote in the worldwide media when the Chinese authorities announced the outbreak. Fast forward just a few weeks and we see Italy in lockdown, dozens of countries reporting growing infections and the UK government holding a COBRA meeting. Figures show the virus has already hit Chinese property prices and the rental sector. Until the issue is under control there are concerns about the potential impact on the worldwide economy and as a consequence UK property prices. While investors should be cautious, the announcement of potential measures by the UK government should not be seen as a sign of panic but more a sign of preparing for the challenges ahead.
Landlords expected to pick up coronavirus tab
In a bizarre rant by an antipoverty campaigner the idea that private landlords should offer rent-free accommodation to tenants infected by the coronavirus has been floated on the Internet. The suggestion is that all infected private tenants should have a statutory right to a minimum three months of rent-free accommodation if their income is impacted and they are not able to pay their rent. Some people may be sympathetic to this idea, but there was more!
In what would appear to be a straightforward attack on capitalism, the antipoverty campaigner suggested that some private landlords may go under but their assets could be “recycled” by the economy. We will leave that one with you….
New Chancellor of the Exchequer
When Sajid Javid sensationally quit as Chancellor of the Exchequer, after disagreements with Boris Johnson, there were initial concerns and some confusion. The appointment of relatively inexperienced/unknown politician Rishi Sunak did initially raise eyebrows across the UK business and investment scenes. However, it would appear that the new Chancellor is appreciative of the challenges facing investors in UK property. Currently under pressure from various lobbying groups looking to reduce the tax burden on property investors/private landlords, there are reasons to be hopeful. Could we finally see an end to the ever-growing tax burden on the UK property market?
House price growth
It is always good to end on a positive note and it is fair to say that the recent Nationwide UK housing market report is extremely encouraging. Annual UK house price growth to the end of February 2020 came in at 2.3% which compares favourably to the 1.9% figure in January. Indeed, this is the fifth consecutive monthly growth in UK house prices and the recent rate is the highest for 18 months. A strong UK employment market, together with continued historically low borrowing costs and more confidence in the political scene would appear to have injected a degree of confidence into the housing market. We know there are challenges ahead but there is a strong backbone of support for UK property.
Surge in mortgage approvals
On a more positive note, official data shows there was a surge in UK mortgage approvals in January with 71,000 mortgage applications approved. This was an increase from 67,000 approvals in December 2019 and many estate agents believe there is more good news to come. Relief that the U.K.’s political impasse was brought to a close with the December election, and there is finally movement on Brexit, would appear to be central to the surge in mortgage approvals. The ongoing issue of the coronavirus will certainly temper confidence in the short term but there is growing support for the UK housing market.
Mansion tax rethink
Many people were surprised to learn that Boris Johnson was apparently considering the introduction of a mansion tax in the forthcoming budget today. More recent rumours suggest this idea has been put to one side but there continues to be intense speculation amongst property investors. When you consider that Ed Miliband lost an election partly because of his plans for a mansion tax, and John McDonnell, the shadow chancellor, thought it was too radical for the 2019 election, why is Boris Johnson even considering such a move?
It could be an interesting play to new Conservative voters as well as long term core supporters. Former Labour supporters who have switched to the Conservative party may appreciate him even considering a mansion tax. Property investors may also appreciate “their opinions being respected” and Boris Johnson deciding not to introduce this new tax. Who knows?
Chinese property developer defaults on bonds
Privately owned Macrolink Holding Co, which takes in property and retail activities, has this week defaulted on principle and interest payments on a $144 million bond. The company cited the freeze on home sales, falling retail activity and a shutdown of the Chinese industrial sector as the reason for the default. It would appear that the company is currently experiencing significant “liquidity problems” leading to urgent discussions with bond holders. The company has also been forced to consider an array of short-term fundraising options.
While this is an issue occurring many miles away from the UK property market, it does highlight the potential impact of the coronavirus the longer it continues. Bond defaults could have a knock-on effect to banks, money markets, investors and other corporate shareholders.
It will be interesting to hear what the Chancellor, Rishi Sunak’s 2020 Budget will reveal today
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