In this week’s market update: The UK housing market is in focus; employment figures are due on both sides of the Atlantic; and is the Chancellor looking for ways to claw back the cost of Covid rescue measures?
There is no doubt that the stamp duty holiday introduced by Chancellor Rishi Sunak was just what the housing market needed during the pandemic.
That’s not to say that the ill-effects of the enforced lockdown have been wiped out by the subsequent surge in sales volumes, but the release of pent-up demand can only have been spurred on by the Chancellor’s decision to waive stamp duty holiday on properties worth up to £500,000 until the end of March next year.
The Nationwide House Price Index reported 1.5% growth in July, while Halifax showed 3.8% growth. Nationwide this morning reported a further 2% growth for August, which marks the highest monthly rise since February 2014.
The question for the likes of Barratt Developments and Berkeley, both reporting this week, is whether they will have enough stock to meet demand. Downtime during lockdown saw the sector lose close to two months’ work - we’ll soon see what the knock-on effects to the balance sheet have been so far.
And, while a two month shutdown is not as bad as other sectors have seen, initial analysis predicts a 20% fall in overall UK property volumes for 2020.
This all comes at a time when demand has certainly gone the other way. The latest Rightmove survey shows the housing market has had its busiest month in a decade. Agreed sales in August were up 48% year-on-year and were even 20% above the previous monthly record set in March 2017.
What’s interesting here is that Rightmove is insistent the surge in demand is not just down to the stamp duty savings, with sales agreed higher across all sectors of the market. In fact, while they’re up 29% in the first-time buyer sector, sales to so-called ‘second-steppers’ are up 38% and there has been a 59% rise in sales for far more expensive, “top of the ladder” homes, it said.
With the government’s Help to Buy scheme due to be phased out by March 2021, the sustainability of the housing market is going to have to rely on movement throughout the entire sector, if the surge in sales is to be sustained in any way. Investors will be looking for initial signs of looking beyond Help to Buy among the UK’s housebuilders, starting with Barratt and Berkeley this week.
But prices need to stay firm too. Asking prices across the UK were up 4.6% in August, topping the 3.7% rise we saw in July. But, while the hunt for space and especially gardens, has had buyers house-hunting in far flung parts of the UK that they probably wouldn’t have looked at pre-pandemic, London has seen the other side of the story.
Properties in London have seen price falls of 2%. And that has taken overall UK prices down slightly.
Turning to tax, investors have been warned to brace for a slew of potential tax rises this autumn as Chancellor Rishi Sunak looks for ways to claw back some of the huge cost of Covid-19 rescue measures.
The past weekend brought reports that the Budget set for November may contain tax increases aimed at the wealthy and business, including hikes to Capital Gains Tax, Corporation Tax and a raid on pensions.
If true, it would represent one of the largest tax raids in memory. On Corporation Tax, the current 19% rate could rise to 24%, reports say.
Capital Gains Tax could be overhauled to match the same rates as Income Tax. That means the tax rate on liable gains would rise from 10% (or 18% on gains on second homes) for basic rate taxpayers to 20%, while CGT would jump from 20% (28% on gains from second homes) to 40% for higher rate payers and 45% for additional rate payers.
The Treasury is also reported to be looking at changing pension tax relief to make it less generous to higher earners, who currently get the greatest potential benefit from the system.
A further potential change could make the State Pension less generous in the future. Currently, the ‘triple lock’ policy means the payment rises by at least 2.5% each year, or by the rate of inflation or wages rises if those are higher. The Chancellor may look to replace the triple lock, meaning future rises to the State Pension are potentially lower.
History suggests tax rises of the kind talked about over the weekend will probably not materialise, or at least not to the extent speculated. It has become traditional ahead of Budgets for the government to ‘fly kites’ on tax reform to lower expectations and to scope the possible reaction to potentially unpopular announcements.
But that doesn’t mean some of these changes won’t make it onto the statute book eventually. The Chancellor is that rare thing - a popular politician. He has been the front man for several well-received stimulus measures during the pandemic, including the furlough and ‘Eat out to help out’ schemes.
He won’t want to dent that popularity but will also be aware that if there’s any moment he would be forgiven for raising taxes, it’s now. Huge bills from extra government borrowing are mounting and he will be keen to balance the books if he can.
And finally, US and European employment data due this week should give investors some indication of how jobs markets on both sides of the Atlantic are faring. US Nonfarm payrolls out on Friday are expected to come in slightly behind July figures, which marked the third consecutive month the gauge was in positive territory after crashing in April.
Europe’s unemployment rate has been relatively stable in comparison with the sharp rise in US job losses, mainly due to government-subsidised furlough schemes across the continent. The unemployment rate for the bloc increased from 7.2 per cent in March to 7.8 per cent in June. The schemes are expected to bring that figure back slightly to 7.7% for July.