Economic Update – October 2021

What next? (and no, I’m not talking about the fuel crisis!).

‘What next?’ is a question being asked by many at the moment, and particularly within the housing industry given the ‘triple whammy’ that arrived today.

The combination of the end of the Furlough Scheme, the end of the Stamp Duty Holiday, and the changes for Tenant Evictions, all came to an end overnight, and has left some wondering how it will impact the housing market and wider economy.


Having cost £70 billion, but saved over 11 million people from potential redundancy, the end of the furlough scheme has divided opinions on the outlook for the coming months, with some worried about job losses, and others taking a more positive approach, pointing to the record levels employment and shortages of staff (in itself causing a variety of problems across a wide range of industries).

Stamp Duty

The final savings available on Stamp Duty also ended last night, with the ‘nil rate band’ returning to the pre-covid rate of £125,000 (or £300,000 for first time buyers).

The government have claimed their initiative of ‘the stamp duty holiday’ both restarted the housing market and saved people millions of pounds, while others say the high volumes of transactions at certain times over the last year or so, were more down to job changes, and people reassessing their lives or choosing to make the move they had always talked about.

Whichever side of the fence you sit on, as a result of the covid restrictions and savings made by happy house hunters, there was a drop in Stamp Duty Land Tax payments to the government of almost 20% (or £3billion!) compared to the previous year!

Tenant Evictions

The pandemic also saw the introduction of extended notice periods for tenants, meaning they had to be given 6 months before their landlords were able to evict them.

As of the 1st of October, this has reverted to the pre-covid timescale of two months, which while for most won’t make any difference at all, it will come both as relief and concern in equal measures, to those few who have experienced problems.

The Media

The result of all this, in addition to the other ongoing factors, is that some sections of the media are already talking about ‘stagflation’, ‘another winter of discontent’ and ‘tax increases’, all of which would combine and push the economy into recession.

As usual, they are alarmist headline grabbing stories, based largely on incorrect interpretations of the data, and written by those who do not understand the bigger picture (and in some cases, written by people who hadn’t even been born in the last ‘winter of discontent’).

Economic Forecasting

Regular readers will know that we are members of the Property Academy, a group of agents from around the country, who meet regularly to share ideas, and help one another, and as members, we are privileged to receive regular economic updates from Roger Martin-Fagg, a behavioural economist, who regularly flies in the face of the prevailing noise from the media, more often than not, proving to be right, even when others think him crazy at the time!

18 months ago, Roger predicted the staffing issues many are now facing, the problems with supply chains, and the increase in house prices, all whilst the established ‘names’ were predicting doom and gloom, along the lines of house prices crashes and mass unemployment.

The future will of course tell us if he is right again this time, but in his latest forecast, just yesterday, Roger was upbeat and spoke positively, yet again contradicting various sections of the national press.

The Economy

The economy is currently on track to be larger than pre-covid levels by the end of the year, and has performed better than the Bank of England forecast.

The media and government are still placing great emphasis on supply shortages caused by covid, but in reality the port of Felixstowe, through which much of our foreign imports arrive, is handling the same volume of goods as before covid – the real issue is the excess demand, with too many people chasing too few products.

Many are also pointing to a drop in retail sales as a sign the economy is faltering, but in actuality, money is still being spent at the same rate, just on different things now that covid restrictions are easing, such as eating out, travel and leisure!

In fact, current spending levels are still way ahead of ‘the norm’, due in no small part to the excess money in the system.

Regular readers will again hopefully remember one of our previous updates explaining the ‘creation of money’ by the Bank of England, and that it normally sits at around £100 billion per year.

The measures taken over the last 18 months or so, have seen the creation of an additional £300 billion, and as the money doesn’t ‘leave the system’, but is passed from person to person, and business to business, as we go about our lives buying products and services from one another, the result is that much of it is sat in the bank accounts of UK households and businesses wating to be spent.

Indeed, the amount of money currently held in savings accounts is £173 billion more than normal!

Of course, large amounts have also already been spent, with a record £1.4 billion on mortgage repayments in July alone!

Whether this is down to worries over future interest rate increases or excess money, it is certainly a huge sum, and many will be feeling more financially secure as a result.

Future Outlook

In addition to his thoughts on the current situation with the economy, based on his interpretations of the data, Roger is predicting small rises in mortgage interest rates of perhaps 0.5%, although they might not materialise for several months given the competitive nature of the various mortgage lenders.

His longer outlook is for rates to increase further as we return to more normal levels of inflation over the next couple of years.

He is also predicting that house prices will continue to increase in line with normal levels by 5% over the next year as everything starts to even out again.

In line with this, the number of property sales per month should also even out after the highs and lows of the last year or so, and return to pre-covid levels of around 100,000 per month, although we are still likely to see some ups and downs over the next 18 months while things continue to get back to ‘normal’.

Of course, as the last 18 months have shown, we never truly know what is around the corner, but given Roger’s track record there are plenty of reasons to be positive!

As ever, if we can be of any assistance on anything property related, please do not hesitate to get in touch with one of the team!

Hackney & Leigh
Caring about you and your property.