House price highs and recessionary lows

Even in this most unpredictable of years, widespread headlines proclaiming an all-time high for house prices aren’t the most obvious act to follow official confirmation that the country has entered its deepest recession since records began.

Then again, past performance suggests a property boom – even if short-lived – was likely to happen sooner or later. Successive Governments have made a habit of using special measures to prop up (or inflate according to critics) consumer confidence and the economy by giving the housing market a helping hand when times are tough.

True to form, the summertime stimulus of Rishi Sunak’s Stamp Duty cut has once more reignited the nation’s love for buying and selling bricks and mortar. The Treasury’s intervention has prompted the kind of rapid rise in house purchase activity that brings cheer to homeowners and temporarily confounds the economic clouds on the horizon.

Distorted realities

For some aspiring buyers, an overnight tax discount will have spared them months or even years of additional careful saving. But for those who lack the means to take advantage of the post-lockdown sales season, property prices remain symbolic of the distorted financial realities that younger generations continue to face. Three and a half years have passed since then-prime minister Theresa May hung a sign marked ‘Broken’ on the door of England’s housing market, with the average home costing almost eight times average earnings. That measure has barely improved in the time since.

It’s little wonder then, that short-term fixes to issues like affordability can end up becoming semi-permanent fixtures on the personal finance landscape. Successive extensions to the Help to Buy equity loan scheme mean it will have clocked up a decade of service to mortgage borrowers by the time it shuts in 2023 (assuming it does) – more than double the original timeframe announced in 2013 to aid the recovery from the last credit crunch.

With the Stamp Duty holiday season due to close in March 2021, time will tell whether this becomes another published end-date that passes without event. Either way, it seems inevitable that public and private sectors will need to find new ways to support the nation’s financial aspirations in the years of economic and social rebuilding that lie ahead. Radical and controversial planning reforms are in the pipeline, while this week’s plan to increase the number of affordable homes will surely not be the last Government pledge to be referenced at every opportunity to reassure the nation the matter is in hand.

Resetting conversations

According to the Resolution Foundation, the parameters of property ownership have shifted so far that even a 20% house price fall won’t mean a more accessible market for first-time buyers if the recession also reduces incomes and serves up another credit drought. Mortgages with small deposits are already in short supply, and even the Bank of Mum and Dad (BOMAD) found itself subjected to new lending restrictions last month.

Of course, BOMAD has its own balance sheet to think about in the current climate too. Pensions are rumoured to be on the table for potential tax reform and wealth managers are busy rewriting clients’ retirement plans on both sides of the Atlantic as intergenerational support needs shift from forward-thinking aid (house deposits) to preservation (paying the bills).

The far-reaching effects of the pandemic are resetting conversations across multiple generations, geographies and areas of financial services. In a topsy-turvy climate of house price highs and recessionary lows, questions of who to support, how best to do it and who will ultimately pay on the road to recovery will run and run for weeks before the Chancellor plays his next hand.