20th August 2020

Things can only get better…?

Strong demand for housing relies both on the availability of money and on confidence. In this strange period where there are so many unknowns there are some reasons to be – if not cheerful – at least less despondent.

First is the general economic outlook.  Strange as it may seem, UK households currently have significant accumulated savings. Bloomberg’s estimate that the average household saving ratio now stands at 20% of disposable income – twice as high as in Q1 this year and over twice the average since 2016.

Of course many of us will be considering it prudent to hold onto savings in uncertain times, but Andy Haldane, Chief Economist of the Bank of England suggests that the vast majority of this accumulated money is down to “involuntary saving” caused by a simple lack of things to spend on during lockdown.  He also suggested that the recovery, both in the UK and global economies, was arriving “sooner and faster” than expected.

So if households have been able to hoard money in the last few months, what are they likely to spend it on?  Half yearly results announced by Kingfisher Group (owner of B&Q and Screwfix) in July, suggest that homes are a major focus for spending.  
The group saw sales grow by 15% in May, 25% in June and expects its half-year profit to be ahead of the same period a year ago.

There’s nothing like being confined to your home for several months to make anyone aware of its shortcomings, so perhaps it should not be a complete surprise that the property website Rightmove saw its busiest ever day at the end of May – with activity up 18% on the equivalent day in 2019.  

Thinking about it and actually buying a new home are very different things, of course, and the effective halt in the mortgage market during lockdown has led to over 350,000 stalled sales.

The Government’s announcement of a stamp duty cut seems to have encouraged the mortgage lenders, with several of the major companies returning to 85% or 90% loan to value mortgage offers during July.  

This, coupled with historically low interest rates on mortgages, provides the capacity for the housing market to pick up pace – and demand may yet prove surprisingly resilient.  A recent survey by Rightmove suggests that of those who had no plans to move house earlier in the year, over a quarter (28%) are now saying that they are actively considering it. This result seems amply borne out by evidence, with a surge in housing transactions in July, showing a 38% rise on the same month in 2019 .

And a final ray of light for the RMI market must be the Green Homes Grant. Providing the potential for £5,000 grants for homeowners (rising to £10,000 for poorer families) to spend on energy efficiency measures, this scheme should be up and running in September providing potential opportunities for the Home Improvement Sector.

I’m Scottish, and we’re not a race universally recognised for unfounded optimism, so I’m absolutely clear on the risks we face in the second half of this unprecedented year. No sector recovers fast from the 40% drop in output seen by construction in the first four months of 2020 and we have never been faced with so much uncertainty on which to plan.  However, amongst the turmoil there are definitely glimmers of optimism to be had.