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UK housing’s ‘mini boom’ masks the cliff’s edge

The UK housing market has experienced an unexpected resurgence since confinement rules were lifted earlier this summer, with the government’s announcement of a stamp duty holiday in July spurring rising house prices and new buyers re-entering the market after seven weeks of mandatory quarantine. But while Chancellor Rishi Sunak may be patting himself on the back for a job well done, the reality is that this “mini boom” is nothing more than a mirage.

The government’s emergency measures – like the eviction moratorium and unemployment support – will soon lapse or shrink, even though the virus is nowhere near conquered and a second wave is already sweeping across Europe. With the moratorium set to expire this week, there could soon be a homelessness and housing crisis on the horizon, while the end of the government’s furlough and self-employment grant schemes may mean that it will be nigh-on impossible for countless Britons to haul themselves back up off the looming cliff edge.

A false dawn fraught with perils

After officially falling into a recession with a 20.4% contraction in GDP in Q2 2020, the UK economy – and its housing market – have finally started to show some green shoots as lockdown measures have eased over the last couple of months.

The number of people moving home in the first half of the year fell by almost 50,000 compared to 2019, but the government’s decision to pause stamp duty until March next year has since seen house prices rise in every region of the UK bar England. Construction companies also experienced an increase in orders, with companies like Persimmon, Redrow and Crest Nicholson Holdings all enjoying bumps in their share prices in recent weeks.

That may be encouraging in the short term, especially after such a gloomy start to the year. But while the most pessimistic predictions from the Office for Budget Responsibility may not come to pass, a contraction in the market is still overwhelmingly likely to happen. That, coupled with the expiration of the government’s various emergency COVID-19 support schemes, is likely to leave hundreds of thousands of Britons in the lurch when it comes to clambering onto the property ladder, paying their mortgage or – worse still – even managing the pay their rent.

Until now, the government has managed to keep the UK economy afloat and avoid 9.3 million job lay-offs with an unprecedented raft of economic support packages. Business loans, self-employed grants and furlough schemes have kept something of a lid on the economic damage so far, but nonetheless the UK has still seen its sharpest increase in unemployment claims in over 100 years since the outbreak began. With all three of those support measures set to come to an end in the coming months, that concerning statistic is at risk of becoming a full-blown catastrophe.

The homeless and the helpless

Worse still, research from 2019 revealed that 2.5 million people were already unable to afford their rent or mortgage before the pandemic struck. Given the grim economic forecast outlined above, it’s highly likely that those figures are set to swell. Widespread evictions have been sidestepped until now thanks to the imposition of a blanket ban on possession hearings in England and Wales in March.

While the Scottish government has extended the moratorium until March 2021, and Wales has doubled the eviction notice period to six months, England does not have any such fail-safes in place. As a result, a YouGov poll has indicated that 225,000 renters could be evicted once the ban expires, while tenant campaign group Generation Rent estimates that 45,000 households could become homeless as a result. That’s a threefold increase on the same tally from 2019.

Quite aside from the horrors of what Labour have called a “self-made homelessness crisis”, the housing market is looking similarly bleak for other members of society, as well. While the number of new mortgage cases has risen in Q2, the percentage of those reaching completion (59%) is far lower than Q1 (79%) or Q4 of last year (85%), demonstrating the difficulties in getting deals over the line.

What’s more, influential thinktank the Resolution Foundation predict that first-time buyers will still find it highly challenging to get onto the property ladder even if prices fall, due to the fact that their incomes are likely to be adversely affected and credit conditions tightened in tandem. Indeed, the organisation has revealed that an average couple saving 5% of their annual salaries would have to do so for 21 years to be able to afford a mortgage deposit today, compared to just four years in 1990.

The conspicuous absence of contingency plans

All this amounts to an increasing realisation that despite the short-term success of the government’s emergency job retention and eviction prevention schemes, in reality they have merely served to paper over the cracks of a broken system. As the UK capital, London is a microcosm of this problem: one in four London private renters struggle to stay out of arrears, while an average house price of over £650,000 makes entering the market beyond the reach of the vast majority of young people.

The coronavirus pandemic has only served to entrench such inequalities, while mismanagement of an eviction issue on the verge of implosion means that the future could soon become very difficult for millions of individuals across Britain. London Mayor Sadiq Khan (alongside a cohort of other opposition MPs) is right to suggest that instead of being out of the woods, the UK housing and rental market is far more precariously positioned in close proximity to the cliff edge. Most troublingly of all, the government has not as yet shown any signs that it is prepared to handle the fallout if, as seems almost inevitable, countless Britons tumble over into the abyss.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes

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