MNI INTERVIEW: Consumer Balance Sheets Underpin UK Property

The UK property market remains underpinned by healthy consumer balance sheets, despite uncertainties around the global economy, a leading mortgage lender senior economist told MNI.

"Even with the ongoing uncertainties in the global economy, underlying conditions remain supportive for potential home buyers in the UK," Nationwide’s Andrew Harvey said in an interview.

“Unemployment remains low, earnings are rising above inflation, household balance sheets are strong and borrowing costs should fall further if Bank Rate is lowered in the coming quarters as we, and most other analysts, expect.”

House prices grew an annual 2.2% in September, up from 2.1% in August. Prices increased by a seasonally-adjusted 0.5% month on month.

MORTGAGE APPROVALS

"Mortgage demand remains strong, even at the higher interest rates than say five years ago," Harvey noted. Last week, the Bank of England reported mortgage applications at a monthly pace of around 65,000, roughly similar to pre-Covid levels. (See MNI INTERVIEW: QT Raises Yields, BOE To Slow Sales- RF's Smith)

“Providing the broader economic recovery is maintained, housing market activity should pick-up gradually in the quarters ahead," he said.

"Household balance sheets are in a relatively strong place, so in a good starting point from that perspective, but we need to see how consumers react to things that may impact them in the budget," he added, amid speculation over potential tax increases in the Nov 26 budget.

"Strong savings remains a theme -- again emphasised in yesterday's national accounts data -- and that is certainly helping underpin household balance sheets," he said.

"If households adjusted their behaviour, we could see a boost from consumption if consumers feel a bit more confident and spend a bit more money, save a bit less, that could certainly lead to stronger growth going forward. Although at the moment, probably due to the uncertainties, people are opting to save more, spend less," Harvey said.

PROPERTY TAX

Reports have indicated that Chancellor of the Exchequer Rachel Reeves is considering potential changes including the abolition of stamp duty and its replacement by a national property tax, and Harvey said it could be worthwhile looking at an "overhaul of the whole system” of levies on real estate transactions. A "better-designed system could have important economic and social benefits,” he said. (See MNI INTERVIEW: UK Needs To Slash Spending Share Of GDP- Chadha)

"Currently, property taxes are certainly acting as a barrier to first time buyers. We would like to see the government hold a root and branch review of property taxes.”