Brandon Lewis said a cut was being considered following reports that suggested people were failing to follow the two-week quarantine rules.
However, Mr Lewis told the BBC’s The Andrew Marr Show that officials were now looking at whether there was scope for a cut to the period considering new information.
“It would be looking at whether we can assess that incubation period of the virus, how people are reacting once we know if they have the virus and making sure that people understand what the guidance is so they’re isolating for the right period of time to protect people in the community around them,” Mr Lewis said.
Reports on Sunday said ministers believed a cut from the current 14-day period to as few as seven days could produce an overall public health benefit because those told to isolate would be more likely to follow the imposed restrictions. There has been anecdotal evidence that people asked to spend two weeks away from others after contact with an infected person have quickly started disregarding the advice.
Mr Lewis referred, however, only to slight reductions in the period and insisted that no firm decisions had yet been taken and that the priority was to “follow the science”. The science had always assessed the necessary isolation period to be about 14 days, he said.
“It’s whether the science will allow us to narrow that a bit,” Mr Lewis added.
The review will take place amid continued controversy over the effectiveness of the UK’s efforts to trace the contacts of people who have tested positive for coronavirus and ask them to isolate.
Figures last week showed that just 15 per cent of people tested received their results within 24 hours. While the faltering NHS track and trace system managed to reach 80 per cent of people who recorded a positive test, according to the figures, the system managed to contact just 60 per cent of their contacts.
Bernard Jenkin, the Conservative MP who chairs parliament’s public administration select committee, on Sunday called for Dido Harding, executive chair of the NHS Test and Trace programme, to stand down.
“It is the sense that there is a lack of an overall strategy which I think is at the heart of the problem,” Sir Bernard told Sky News.
He called for Lady Harding to be replaced by a senior military figure.
Rosena Allin-Khan, a Labour health spokesperson, agreed with the call for Lady Harding to stand down, saying on Sunday the executive chair’s position was “untenable”.
Wealthy families with investment outlooks that span generations have traditionally followed a rule of thumb to manage their asset portfolios: one-third to stocks, one-third to art and one-third to real estate. More broadly, Asset Managers have been drawn to property’s attractive record. According to a study of asset performance from 1870-2015 by the National Bureau of Economic Research, real estate returned average annual returns of just over 7 per cent, compared with 6.9 per cent from equities.
In the wake of the global pandemic, however, investors should ask themselves if the case for their holdings is still compelling — or should they rein back on it? In particular, three factors put the long-term value of property assets at risk. First, the mass move to working from home has shown that remote working is viable, leading to less demand for commercial space as businesses close or scale-back offices. Already, big companies are extending homeworking beyond the autumn, with Google telling most of its 200,000 staff to stay at home until July 2021. Extending working from home means many people will give up expensive city accommodation to move to cheaper — suburban and rural — areas, driving down residential property values and eroding returns.
The shift has also accelerated digitisation, automation, robotics and the adoption of technologies that will ensure companies can operate effectively with fewer employees. This trend will exacerbate the reduced demand for physical premises. Second, after coronavirus, Governments will be looking for new sources of revenue. Stressed public coffers expose the real estate sector to higher taxes: the underlying asset (land) is immovable and politicians will favour taxing property over raising taxes on labour (income tax) at a time of high unemployment. That puts a drag on the value of real estate to the holder, again reducing returns. Removing tax incentives for owning property would also raise funds for cash-strapped Governments. The risk is that they will reverse tax relief on the interest paid on a mortgage, and restrict the scope for one generation to pass on property to the next that is currently provided by lower inheritance tax rates than is payable on other assets. This would increase the taxable base, but dim real estate’s attraction. Third, owning land and property has long been seen a good way of preserving wealth and protecting capital against inflation, because values and rents typically increase in times of inflation. However, investors today might question whether inflation will be a serious threat in the years ahead. After all, the US consumer price index has remained below 2.5 per cent from 2012 onwards, reaching a low of 0.1 per cent in 2015.
Although the huge Government stimulus packages in the wake of the pandemic could be inflationary, deflationary pressures exist too. Technology is driving many costs down, for example in transport and telecommunications. The shock to global demand has led to downgraded growth forecasts; this is likely to weaken consumer demand and cap price increases. And there is no sign of wage inflation in the near-term; higher unemployment is more likely to keep it at bay. There is a final long-term question hanging over the market — that of demographic shifts. As populations continue to age, there will be fewer economically active, younger people relative to retirees. This will leave fewer buyers for property, adding to downward pressure on prices. The market is so broad and deep that the way price and returns play out could vary materially across geographies and sectors. But Covid-19 has thrown up many questions about asset allocation, and as investors rethink their portfolios, they will have to weigh up whether exposure to real estate will protect, or erode, their wealth.
Barclays has been forced to withdraw mortgages for certain customers after coming close to breaching a regulatory limit on lending to higher-risk borrowers. The UK bank shocked customers last week when it reduced the maximum they could borrow from 5.5 times income to 4.49 times without notice. The change affected borrowers who had already agreed mortgages, putting some property purchases at risk of collapse.
The decision was made after Barclays came close to a limit imposed by the Prudential Regulation Authority, the banking regulator, stipulating that no more than 15 per cent of mortgages for each lender can have an income multiple of 4.5 times or above, according to people briefed on the decision. UK banks have been inundated with mortgage applications in recent weeks as the temporary cut to stamp duty has led to soaring demand for property, with UK house prices hitting record highs last month. Barclays said: “We recently announced some changes to our loan-to-income limits. As a responsible lender, we made this decision to ensure we continue to adhere to regulatory obligations.”
Brokers fear other lenders could be forced to take similar action in the coming weeks. NatWest made changes to its mortgages last week, reducing the maximum loan-to-income rate it offered self-employed customers from 4.9 to 4.25 times. Brokers added that the Barclays decision came as a blow to borrowers since it covered existing applications — those where an agreement in principle has been made and an applicant may have paid for a survey or legal fees and is waiting for the lender’s confirmed offer to exchange contracts. It may also have an impact beyond Barclays’ borrowers by holding up homebuying chains. Adrian Anderson, Director of Mortgage Broker Anderson Harris, said: “It is unusually brutal. The thing that shocked me was that it included pipeline cases.” “You could be in a situation where you’ve got everything ready and you’re anticipating getting an offer from the lender. Everybody else in a chain will have their offers and you’re almost back to square one. You could lose your purchase.”
One client who had been taking a £2m mortgage with Barclays found the maximum that could be borrowed reduced to £1.8m. “We may have to start again with another lender,” said Mr Anderson Barclays’ mortgages based on up to 5.5 times income were popular among higher earners, and brokers said demand had increased in the post-lockdown period as mortgage restrictions tightened in the wider market. Aaron Strutt, Product Director at Mortgage Broker Trinity Financial, said there was “massive demand for 5.5 times salary”, adding that Barclays had become “really popular” because no other lender was offering it on the same terms. Mr Strutt said one client on Monday morning discovered her mortgage, which had been agreed in principle, was no longer valid. “She’s looking for alternatives. The difficulty is there aren’t really any alternatives at the moment.” Many property deals were held up earlier in the year, while demand has intensified since the easing of social-distancing restrictions and the announcement of a nine-month stamp duty holiday from July.
In early August, Boris Johnson unveiled a “once in a generation” shake-up of England’s planning system. But the radical reforms have been criticised for failing to tackle the greatest housing challenge facing the younger generation: a lack of affordable homes.
“Thanks to our planning system, we have nowhere near enough homes in the right places,” said the prime minister. The proposed reforms would see more homes built, according to ministers, allowing supply to catch up with demand and making property more affordable to those most in need.
But a range of housing experts, developers and campaigners disagree.
“Broadly, building more homes is going to be good, but it won’t change overall affordability,” said Neal Hudson, an independent housing analyst. “The government won’t actually want to deliver so many houses that prices were to fall — that would be political suicide,” he added.
Low interest rates and easy access to mortgages have helped push up prices, while wages have grown at a slower rate. That — rather than undersupply — has made home ownership unaffordable for many, argues Ian Mulhern, chair of housing campaign group Generation Rent and an executive director at the Tony Blair Institute.
“The right has tended to take the view that getting supply up is the route to making housing cheaper. The problem is that is not true. A lack of supply is not the cause of high house prices; and increasing supply will not solve it,” he said.
While the number of new homes delivered each year has risen over the past decade, so too have prices in England. This trend was brought into sharp focus by Nationwide Building Society data this week that showed prices reached an all-time high in August against a backdrop of the deepest recession on record — in part due to the government introducing a stamp duty holiday.
Critics say that the government’s proposed planning shake-ups strip away the existing mechanism for supplying affordable housing without putting forward a clear alternative.
Roughly half of all “affordable housing” — defined as homes sold or rented at a discount to local market rates — is currently funded by developers, who agree a contribution with local authorities before they can start building.
But ministers have proposed scrapping those requirements, known as Section 106 agreements, which last year contributed £4.7bn towards affordable housing, and replacing them with a new “infrastructure levy”.
The levy will contribute as much if not more affordable housing, according to the government. But the proposals were “very light” on detail and were set out to please all parties — developers, councils, and homebuyers — said Judith Salomon, strategic planning director at Pocket Living, a small builder.
Sadiq Khan, the London mayor, has requested an urgent meeting with Robert Jenrick, the housing secretary, to discuss what the scrapping of Section 106 would mean for affordable housing, according to a senior official in the mayor’s office.
“These proposals could have a drastic impact on the number of affordable homes built in the future. What this looks like is a centralised power grab for planning control,” the official said.
The government’s paper is littered with references to affordability and describes planning as “a question of social justice”. To help answer that question — and to revive the country’s stuttering economy — Mr Johnson has pledged a building spree.
That involves doing away with the existing planning framework, which allows local people to air their opposition to new development at various points in the process and replacing it with a US-style “zoning” system.
Under the proposals, binding housing targets would be set nationally and handed down to local planning authorities, which would then be asked to carve their districts into distinct zones. Some zones would be protected from any construction, while in other developers would receive something close to an automatic green light.
The proposals showed “the right ambition”, said Rhys Moore, an executive director at the National Housing Federation, which represents housing associations.
But he warned that “simply building more homes would not help the 8.4m people currently hit by the housing crisis in this country. Instead, we desperately need more social housing that people on lower incomes can afford — and there are many unanswered questions about what effect the proposed reforms will have here”.
The planning paper makes no mention of social housing, which is rented out by local councils or housing associations to those on low incomes. Once a significant component of housing supply, the construction of new social housing has slowed over the last 50 years.
Between 1980 and 1984 local authorities built 220,000 new homes, a quarter of the total built. In the last five years they have contributed just 10,000 — roughly 1 per cent of total new supply. The number of homes built by housing associations has increased but not enough to fill the gap left by councils.
A government scheme offering to subsidise first-time buyers was welcome but risked prioritising one group of buyers at the expense of others, Ms Salomon warned. The “First Homes” scheme would give those buying their first property a 30 to 50 per cent discount on a new home. That would be locked in, with the property sold on to another first-time buyer at the same discount.
To make schemes viable, developers typically insist on selling most homes at market rate. By forcing developers to sell a portion of each scheme at a chunky discount to first-time buyers, it “will inevitably cannibalise the delivery of other affordable housing. All socially rented housing could be wiped out to give amazingly discounted homes for first-time buyers”, said Ms Salomon.
And while a higher supply of homes might gradually flatten house price growth, tearing up the planning system would not immediately result in a construction spike, said Ms Salomon. A lengthy legislative process, resistance from the opposition Labour party as well as some Tory councils, and the complication of devising new local plans based on the zonal system meant the reforms might not be in place by the next parliament in 2025. “The risk with all planning reform is you create chaos in the interim while it’s all being put together,” she said.
Private rents in some parts of London have tumbled by up to 20% as tenants quit the capital, the number of international students’ plummets, and companies put relocation plans on hold.
A glut of rental properties on the market means many landlords have had to slash rents to attract tenants. While leading estate agents say average rents in London are down by perhaps 4% on a year ago, or 6% to 7% in the so-called “prime” areas, these figures mask much bigger falls in certain locations as Covid-19 continues to wreak havoc on the lettings market.
Glen Cook, at the sales and lettings agent Hamilton Brooks, based in the City of London, said rents in and around the Barbican estate area had “probably dropped 20% since lockdown”, though he added that they were “now creeping up again”. Rents in Bloomsbury and Clerkenwell “have probably fallen by at least 10%” over the last few weeks, according to a local letting’s agency.
The sharp decline in overseas students is one of the main factors behind the current glut of rental properties in the capital
And the phenomenon is not restricted to London. Data released by estate agent Hamptons this month showed that demand from people looking to rent in city locations across Britain is down 23%. It said the average monthly rent for a newly let property in London was down nearly 4% on a year ago, but that monthly rental costs were also on the slide in cities in the Midlands and the north of England.
In London, it is not just prime locations that are seeing rents fall sharply: an analysis of Rightmove listings shows that Tooting in south London is one of the areas that has seen some big falls. A four-bedroom house in Upper Tooting that was listed at £2,850 a month in mid-July is now on at £2,500 a month – a reduction of more than 12%. Similarly, a one-bedroom property near Tooting Bec common that was listed at £1,450 a month in late July has been reduced to £1,285 – a cut of nearly 11.5%. Meanwhile, a two-bedroom flat in Tooting listed at £1,450 a month in early August has had £100 lopped off at £1,350.
The falls may come as no surprise after a multitude of surveys suggesting that many city dwellers have either moved out already or are planning to do so after concluding that home working is here to stay. Some have moved back in with parents or have relocated to places that are not only cheaper but offer more space or better access to the countryside.
Aneisha Beveridge, head of research at estate agent Hamptons International, said that with many people’s priorities changing, renters had joined homeowners in the “race to suburbia”. Other factors helping to push down rents are corporate relocations being put on hold in the wake of the pandemic, and Airbnb investors, starved of tourists, deciding to put their flats on to the longer-term rental market.
The sharp decline in the number of overseas students is one of the main factors behind the current glut of rental properties in the capital. The student market has become increasingly important to London landlords.
Chestertons, one of the capital’s biggest lettings agents, said that between June and September, 30% of its central London tenants were usually international students “with generous budgets”. This figure was even higher in areas most popular with international students or near major universities, such as Bloomsbury and Camden. But lockdowns and travel restrictions in the UK and around the world have had a dramatic impact, said the firm, which highlighted a report issued in June that warned of “a potential drop in international students of 50% to 75%” this autumn.
Cook, however, said Hamilton Brooks had seen a substantial number of overseas students arrive in recent weeks, many of whom were “very wealthy”. He said he had just let a studio flat at the Barbican that would have normally rented for £375 a week for £315 – amounting to a 16% cut. And earlier this month a student took a one-bedroom Barbican flat that would sell for about £1m for £550 a week unfurnished. “That would normally go to a businessman or woman. It was let previously at £625 a week,” said Cook.
The upmarket estate agent Savills said that in some London locations, particularly those with a lot of offices, such as Wapping and Canary Wharf, there were higher levels of stock, and average rents had fallen “by a few percentage points” this year.
However, Dan Parker, a director in the firm’s lettings team, added: “We’re seeing strong demand from people who want to walk to work. They see this limbo period before offices are fully back up and running as an opportunity to perhaps rent somewhere a little bigger or negotiate a small discount.”
Similar trends were being seen in other city markets, where properties with gardens or work-from-home space were most in demand.
“In Manchester, for example, we’ve so far seen fewer students checking in for the start of term, meaning softer rents as a result,” said Parker.
A summer surge in UK economic activity is unlikely to last, according to Bank of England rate setters who warned this week that the recovery could be slower and the long term damage to the economy greater than the central bank forecast in August.
Michael Saunders, an external member of the BoE’s Monetary Policy Committee, said on Friday that Government support had propped up spending over the past few months — coinciding with the relaxation of lockdowns and a drop in infection rates — but that this benign window “may now be closing”.
With Government wage subsidies and tax deferrals set to end, household incomes would fall during the next year and unemployment could rise at the sharpest pace for at least 50 years, he said. Moreover, structural changes — such as a contraction of the airline and restaurant sectors and a shift to homeworking — could create “a considerable number of losers”.
This made it “quite likely that additional monetary easing will be appropriate”, Mr Saunders concluded.
His comments echoed those made earlier in the week by Gertjan Vlieghe, another external MPC member, and by Dave Ramsden, the BoE’s Deputy Director for markets and banking.
Sir Dave told the parliamentary Treasury Committee that “all the risks” were pointing to greater long term economic damage than the BoE predicted last month, when its central forecast showed the Covid-19 shock would leave GDP 1.5 per cent below its pre-pandemic trajectory at the end of 2023.
He warned that people losing their jobs in shrinking sectors could struggle to move into growth areas, while it was an “open question” whether a shift from city centre offices would lead to a productive economy.
Mr Vlieghe told the Committee that in scenarios of greater structural change — with unemployment remaining high for longer — demand would be weaker, and the economy would “need more monetary and fiscal stimulus to get back to running at full capacity”.
Their comments suggest a split on the MPC over the state of the economy — with Andy Haldane, the BoE’s Chief Economist, having taken a far more optimistic view of its trajectory.
Andrew Bailey, the BoE Governor, told the Committee there were different views on how far “natural caution” would guide people’s behaviour in re-engaging with the economy. He said there were also differences over the likely extent of structural changes.
Mr Vlieghe argued in written evidence to the Committee that, although the economy had picked up faster than initially feared, “we also learned that the virus is likely to be with us for longer than we had initially hoped”. This made it more likely that some sectors would never regain their previous size.
