ALEX BRUMMER: The housing market is on the mend… but reforming stamp duty would really rekindle the dream of a property-owning democracy
The narrative surrounding UK housing has been negative since the mini-Budget in September 2022.
A sudden rise in the cost of fixed rate mortgages to above 6 per cent reversed a trend to ever surging residential prices.
Upholding their reputation as keepers of the dismal science, economists polled by Reuters predicted a 5 per cent drop in house prices in 2023.
Mortgage relief: Month-by-month fixed rates have dropped below 6% and those borrowers who avoided hasty refinancing should eventually be rewarded for patience
Analysts at Nomura went further, projecting a 15 per cent decline by mid-2024.
Housebuilders added to the gloom with Persimmon and Barratt cautioning that there was a notable slowdown in the fourth quarter as consumers battled higher mortgage costs.
All of this fed through to lower sales rates, rising cancellations, and a hefty drop in forward orders.
It is hard to keep Britain’s residential market down. A chronic lack of supply, bottlenecks, especially at the higher end, and a conviction that bricks and mortar are a more reliable asset class than other choices such as stocks, shares and crypto, mean that positive attitudes towards a home-owning democracy are hard to hose down.
The dire housing outlook was reinforced by the Bank of England’s forecast of a recession stretching over two years and the squeeze on real incomes.
The surprise lift in output in November, together with a healthy holiday season for retailers, reinforced by Marks & Spencer’s near-£500million store investment plans, has cleared some economic clouds.
The most recent Halifax house price index is worth a second look. It shows annual price growth slowing to 2 per cent, the lowest since the summer of 2021. The 1.5 per cent drop in December house prices was substantial.
Yet prices were still rising year on year in spite of all the negativism. The EY Item Club of economists observes that a relatively modest rise in employment should avert a ‘significant fall’. It does more worryingly suggest average prices could fall by 10pc over the next 18 months.
Nationwide notes that market interest rates have fallen back since the mini-Budget although mortgage rates are taking longer to steady.
Nevertheless, month-by-month fixed rates have dropped below 6pc and those borrowers who avoided hasty refinancing and reverted to standard variable rates should eventually be rewarded for patience.
Indeed, after the temporary shock of Trussonomics, agents Rightmove report an increase in asking prices in the December 4 to January 7 period.
It seems that it is not just shoppers regaining their confidence. Reports of an impending subsidence in residential values could well be overdone.
If the Government really wanted to rekindle the dream of a property-owning democracy, it should pay attention to Institute for Fiscal Studies boss Paul Johnson writing in The Times.
He argues the way to boost access to the housing market is to abolish the distorting effects of stamp duty on housing, encouraging more transactions.
There is something for Chancellor Jeremy Hunt to ponder as he limbers up for his March Budget.
Hunt will doubtless still be wary of adverse reaction from the financial markets before loosening the fiscal strings.
The latest intervention from Bank of England Governor Andrew Bailey should be reassuring.
He told the Commons Treasury committee the ‘risk premium’ – otherwise known as the ‘moron risk premium’ – engendered by the mini-Budget has vanished.
He reiterated that it might take time to convince everyone, but the UK’s international partners seem to understand that matters have normalised.
There may be no better sign of this than the Bank’s ability to sell £19billion of the gilts it bought as part of its emergency programme in the aftermath of Liz Truss’s unaudited going-for-growth Budget.
In fact, Bailey says the UK ended 2022 – generally viewed as disastrous – with the best market conditions in a number of years. Finally a shard of light from Threadneedle Street.
The confidence of billionaire tax exile Jim Ratcliffe in manufacturing knows no bounds.
His latest swoop is on the global concrete ingredient facilities of Swiss group Sika for £615million after they were dislodged in a UK competition inquiry.
Even more impressive, the Ineos tycoon came out top in an auction where private equity was favoured.
At a time when so many UK boards don’t stand up to overseas takeover ambition, Ratcliffe is a rare example of a Brit creating an industrial colossus. We need more of those.