With ongoing Brexit negotiations seemingly pointing to a no-deal outcome, predictions arising for the upcoming Autumn budget, various pandemic support schemes coming to an end, as well as the US election- buyers will need to exercise caution and keep an ear to the ground before making investment decisions in the coming months.
Predictions of large-scale unemployment, tax increases and volatile currency markets sit on the economic horizon - but what are the implications for the property market and how can investors prepare? We sat down with Tom Bill, Head of UK Residential Research at Knight Frank, and Victoria Clarke, Economist at Investec, to find out more.
It’s only been in the last few months that we’ve seen how the broader economic backdrop has impacted the housing market as Government restrictions have eased. As we have come out of lockdown, and the stamp duty holiday has taken effect, there has been a sweet-spot in the housing market which has seen activity recover, and optimism over house-prices increase.
A sweet-spot in the market
At the onset of the pandemic, like most sectors, much of the initial shock saw the property market’s attention drawn towards how profoundly the virus would impact people’s lives. On top of this, many concerns also arose about how business operations would continue to function under this ‘new normal’.
But in the ensuing months, thanks to various Government measures and policy changes - such as the job retention scheme, business loan schemes and the recent stamp duty holiday - the full economic impact has yet to be felt for many in the property market
Commenting on this Investec Economist Victoria Clarke notes, “It’s only been in the last few months that we’ve seen how the broader economic backdrop has impacted the housing market as Government restrictions have eased. As we have come out of lockdown, and the stamp duty holiday has taken effect, there has been a sweet-spot in the housing market which has seen activity recover, and optimism over house-prices increase.”
Tom Bill adds to this saying, “The market is in a very strong position at the moment because of pent-up demand built up over lockdown, but also because of demand that formed due to Brexit uncertainty and successive tax changes in previous years, which left the market subdued.”
“As we approach the end of the year, we’ll see opposing forces begin to clash. On the one hand you have the momentum of a very strong property market, on the other the furlough scheme will come to an end and there is the potential for a second wave of Covid. Because of these competing factors, I expect we’ll see fairly modest, single-digit growth from a house-price perspective,” He adds.
The implications of the Autumn Budget
As we approach the expected date of the Autumn budget, the news agenda has begun to surface predictions of policies it could contain and the implications for the wider economy as a result - this includes increases to corporation and capital gains tax, as well as creative interventions to encourage national spending.
Victoria argues that while predictions have suggested tightening measures around tax, it's unlikely the Chancellor will press ahead with these immediately given the challenges the economy continues to face.
“I suspect that what will come through are commitments to policy changes that will happen further down the line. With the furlough scheme soon coming to an end, I doubt we’ll see the Chancellor throwing further headwinds at the economy in these difficult times. Especially when the economic outlook still remains largely uncertain.”
“With regards to property - if by the time of the budget the market outlook is still relatively positive and stamp duty support remains, it seems more likely that the Chancellor will revisit any further steps later, perhaps in the Spring Statement.”
“The market is in a very strong position at the moment because of pent-up demand built up over lockdown, but also because of demand that formed due to Brexit uncertainty and successive tax changes in previous years, which left the market subdued.” - Tom Bill, Head of UK Residential Research at Knight Frank
Brexit & US Election
Looking further afield, the two impending political events of Brexit and the US election are also set to have significant repercussions on both the national and global economy, though still largely remain in the realms of speculation.
With regards to Brexit, Tom Bill believes that despite recent developments beginning to point toward a no-deal outcome, the potential effects are still uncertain.
“Brexit is not really having the impact on the property market that it was at this point last year. I think people have become used to tuning out the ‘rhetoric’ and, for now, the market is still in post-lockdown recovery mode.”
From Victoria’s perspective however, this outcome could see widespread economic ‘shock’ impact both ends of the housing market.
“A no deal Brexit could have significant ramifications for the housing market - from the low-end with unemployment being a significant driver, but also in the upper echelons where sentiment and confidence of access to the UK market could be affected.”
Turning our attention to the US election, the presidential race between Trump and Biden could see polarising implications take effect depending on the outcome. An increased volatility of currency, Tom notes, could be one significant factor. “Depending on the outcome of the election, it’s likely the strength of the Pound against the US Dollar will be a major consideration for investors in the UK property market - particularly for overseas buyers, as many global currencies are pegged to the Dollar. On top of this, overseas buyers will have to factor in a 2% stamp duty surcharge from next April.”
Regardless, Victoria comments that while each result may have varying consequences, it will be crucial for investors to understand the unique political nuances of each, what implications these will have on the global economy, and in particular, how these may affect their investment choices.
Preparing for looming economic uncertainty
With the world still reeling from the impact of the Coronavirus, the next few months only further paint a picture of economic uncertainty and political disruption for those involved in the property market.
For investors, this means preparing for anything, says Victoria. “They will need to understand that the range of economic outcomes is much wider than in ‘normal’ times – not only because of the pandemic but also with key tax and spending decisions ahead, on top of two very significant political events.”
“For any investment opportunities that they are looking at, they must be confident of them in the current sphere of economic uncertainty, and ensure they seek the right partner to help them make the right decision.”