When house prices started to rise in the summer of 2020 there was an easy explanation. Potential buyers, it was said, had been deterred by the tough lockdown imposed when the Covid crisis began and so there was a burst of pent-up demand as restrictions were eased.
When property inflation continued during the autumn and winter it was put down to Rishi Sunak’s stamp duty holiday for all properties up to £500,000. But pent-up demand no longer looks a convincing reason for the house price inflation of 10.9% reported by the Nationwide building society and anyone trying to take advantage of the chancellor’s tax break would have needed to have had an offer accepted before now.
The stamp duty holiday becomes less generous at the end of this month and ends altogether at the end of September, but the Nationwide thinks the housing market will continue humming along for some time yet and it is almost certainly right.
Three big factors are currently supporting the market. The first is the race for space, a pandemic-induced desire to find a property which has a garden and a room from which it is possible to work from home. There is a limited supply of these sorts of houses and in a sellers’ market prices are heading in only one direction: up.
The second factor is that borrowing money is cheap and likely to remain so. Dave Ramsden, one of the Bank of England’s deputy governors, says Threadneedle Street is closely monitoring house prices for signs of a more generalised inflationary threat, but there is no immediate prospect of borrowing costs being raised.
With official interest rates at a record low level of 0.1%, lenders have some tempting offers for potential buyers. It is not hard to find three year 60% loan-to-value mortgages at just below the current inflation rate of 1.5%, which means people moving to a bigger home are effectively borrowing for nothing.
The final factor helping to prop up prices is the diminished threat of unemployment. Unemployment is likely to peak at between 5% and 6% later this year, but that’s considerably lower than the forecasts produced this time last year. The people who are looking to sell up in London for a bigger place in the country are not those most at risk of losing their job.
Rather, it is the young and the low-paid who are facing a double whammy: a higher risk of being laid off and forced to continue renting because house-price inflation makes it impossible to get a foot on the property ladder.
Eventually, the lack of first-time buyers will slow the market down but not yet. House price inflation will go up further before it starts to come down.
A TfL funding deal motivated by ideology
The Government’s latest £1bn rescue package for Transport for London comes with plenty of strings attached. Ministers have demanded that TfL agree to start work on driverless tube trains and cut pensions in return for a six-month cash injection. The requirements to make savings and raise revenue will inevitably mean fare increases.
Given that Whitehall controls the purse strings, it was perhaps inevitable that the transport secretary, Grant Shapps, would strike a hard bargain. It is hard not to feel sympathy for London’s mayor, Sadiq Khan, because this is a short-term fix for a long-term problem.
TfL’s financial problems are a reflection of how hard hit London has been by Covid. Office workers are still thin on the ground as are visitors from overseas. Londoners have obeyed government advice to minimise use of public transport where possible.
Ignoring all this, Shapps is arguing that TfL’s financial problems predate Covid and that there have to be changes in return for the £4bn of taxpayers’ money that will have been spent by the end of the year. Yet the new funding deal appears to be motivated by ideology, the hostility of Whitehall to devolving power and the desire to punish London for voting Labour.
The government is well aware of the importance of London to the wider UK economy. Shapps says he…