Berkeley warns of Hit to property market in the Spring

Berkeley has called on the government to make a cut in the tax on property transactions permanent, warning that the pandemic and Brexit still risked inflicting damage on a housing market that has so far emerged relatively unscathed from a year of economic turmoil.

The country’s homebuilders have been big winners from a reduction in stamp duty the government introduced in July to help the sector weather the economic disruption from the pandemic. However, the cut in the tax, which is paid by homebuyers, is due to expire in the spring.

“It’s proven that stamp duty is the most awful tax,” said Berkeley chief executive Rob Perrins. The holiday on the tax “should be indefinite”, he added.

The warning from Berkeley, which is a London-focused developer, came as the group forecast that its annual pre-tax profits would be about £500m, little changed from a year ago.

For the six months to the end of October, its pre-tax profits fell 16.6 per cent to £230.3m. The home builder’s revenues dropped 3.8 per cent to £895.9m, as it sold 1,104 homes in the period for an average price of £799,000.

Electrified by the reduction in stamp duty and enjoying a surge of demand that had been pent-up during the spring lockdown, home sales and prices have climbed at record rates in recent months.

Under the Stamp Duty holiday, buyers are spared from paying tax on the first £500,000 of any home or land purchase. The previous threshold at which the tax kicked in was £125,000, or £300,000 for first-time buyers.

However, some fear the market will tumble in March when that holiday is set to end.

“The coming months will see further evidence of the impact of Covid-19 on the economy, including the impact of the second national lockdown and tapering of government support and stimuli,” Berkeley said on Friday.

The company is “very conscious of the cyclical nature of the housing market, the stability of which is closely linked to consumer sentiment”.

As well as continued fallout from coronavirus the market was likely to be hit by Brexit in the coming months, said Berkeley, which is working with its suppliers to mitigate the disruption.

Nonetheless, Berkeley reaffirmed that it would return £280m to shareholders this year.

Berkeley is being “sensibly cautious, not overly worried”, said Aynsley Lammin, an analyst at Canaccord Genuity, who added that the company’s net cash of £954m gave it some protection against a sharp downturn in the housing market.

Mr Perrins said the company remained committed to London, despite fears the pandemic would lead to an exodus from the UK capital as working from home allows people to seek larger, more affordable homes elsewhere.

Berkeley invested £400m in three London development sites during the period.

Tony Pidgley, Berkeley’s founder and regarded as one of the most astute readers of the London property market, died in June. He had been chairman of the company until his death aged 72.

House prices rise in the UK

House prices in the UK rose sharply in September as pent-up demand and government measures to protect residential property from the economic shock of coronavirus led to a surge in transactions.

The average house price in the UK increased 4.7 per cent in the year to September 2020, up from 3 per cent in the year to August 2020, according to the Office for National Statistics’ seasonally adjusted house price Index.

The average house price hit a record high of £245,000 across the UK and £496,000 in London in September.

The rise shows the impact of the suspension of stamp duty — a tax on the purchase of homes — introduced by the government in July, as well as the release of pent-up demand after the spring lockdown.

“What began as a disastrous year for the property industry has been turned on its head by government interventions, creating a surge of demand,” said Paul Stockwell, chief commercial officer at Gatehouse Bank.

He noted the increase was the greatest in England and Northern Ireland, where stamp duty was suspended for transactions up to the value of £500,000 compared with £250,000 in Wales and Scotland.

The ONS said the pandemic may also have prompted buyers to “reassess” their housing preferences by looking to move to larger properties with gardens. Data showed the average price of detached houses rose 6.2 per cent, while flats and maisonettes increased 2 per cent.

September’s index, which because of a time lag between agreed and completed sales reflects transactions that began six to eight weeks ago, is the clearest indication yet that the stamp duty cut has succeeded in buoying house prices amid the economic turmoil of coronavirus.

But analysts warned that the boost could be temporary if unemployment continues to rise after the stamp duty break ends in March.

Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said prices would likely rise over the coming months, but economic weakness and rising borrowing costs would mean prices risked falling without further government intervention.

“High mortgage rates partly reflect lenders taking advantage of the surge in demand, but they also reflect a re-pricing in response to the deteriorating labour market, which will endure after demand has softened,” he said.

“Prices, therefore, look destined to fall back next year, if the stamp duty holiday ends in March as planned and no other government policies change.”

The prime minister last month alluded to vague plans for long-term fixed-rate mortgages, worth 95 per cent of a property’s value, which could be offered to first-time buyers to boost home ownership beyond the stamp-duty holiday.

But banks said the proposals risked exposing customers to unsustainable debt, while making it more costly for them to buy property by driving up house prices.

Heirs hit by inheritance tax

Families charged inheritance tax (IHT) on gifts has climbed for three years in a row, as more people fell foul of complicated rules.

HM Revenue & Customs this week revealed an increase in estates liable for IHT on gifts — up from 873 estates in 2015/16, to 920 in 2016/17 and 993 in 2017/18.

The tax charged on gifts rose from £135m in 2015/16, to £156m in 2016/17 and £197m in 2017/18, the latest year for which data is available. Altogether, £5.2bn was raised in 2017/18 from 24,200 estates.

The disclosure follows a grim projection from the Office for Budget Responsibility which forecast last week that the number of estates subject to IHT will rise due to the pandemic from 25,200 in 2019/20 to 30,400 in 2020/2021.

Becky O’Connor, head of pensions and savings at Interactive Investor, a platform, said: “Many families of older UK people who died from coronavirus could now face unexpected inheritance tax bills on their estates. Many of those who died unexpectedly will not have had time to plan their affairs.”

Zena Hanks, partner at accountancy firm Saffery Champness, which made the FOI, said rising asset prices and a decade-long freeze in the IHT threshold was drawing “unsuspecting” taxpayers into the tax.

IHT is charged at 40 per cent on estates worth more than a £325,000 threshold — a figure which has remained the same since 2009.

Many wealthy individuals are advised to give away assets during their lifetime to avoid facing a large IHT bill, as certain gifts can be entirely tax free. These include gifts between spouses, regular gifts made out of excess income or a £3,000 annual gift allowance.

Meanwhile, under a system known as the seven-year rule — assets gifted during an individual’s lifetime are excluded from IHT if the person lives at least seven years after making the gift. The IHT liability is tapered according to when the gift was given, with the maximum 40 per cent levied on gifts made less than three years before death, falling to 8 per cent on those made six to seven years before death.

The FOI revealed increasing numbers of beneficiaries are paying IHT on such gifts. Advisers said this was probably due to the complexity of the poorly understood rules and benefactors dying within seven years of making the gift.

“Many individuals who make gifts during their lifetime are unaware of the various available allowances and exemptions, let alone that their gifts could end up coming back to bite their beneficiaries in the form of a hefty tax bill,” Ms Hanks added.

She urged would-be benefactors to keep detailed records of the amounts they give away during their life to provide a paper trail for HMRC in case the gifts are investigated after their death.

Svenja Keller, head of wealth planning at Killik & Co, a wealth manager, said she was often approached by people in their eighties looking to manage their affairs to avoid a large IHT bill.

“You’re really running out of options by that point and it becomes almost too late,” she said. “The sweet spot [to take action] is if you’re in your sixties and seventies, although you can even start thinking about planning in your fifties.”

HMRC reported £5.2bn in IHT receipts in 2019/20, recording its first fall in receipts in a decade — partly due to an increase in an IHT exemption called the Residential Nil Rate Band.

Property Market Mini Boom – For houses

Ruth Baker has an urgent deadline. The graphic designer and her husband are desperate to buy a four-bedroom house they have found in Hitchin, Hertfordshire, by mid-January so they can apply for a primary school place for their three-year-old son. First, however, they need to sell their flat in Muswell Hill, north London.

“Houses in Hertfordshire are getting snapped up very quickly,” she says. “And we naively thought our flat would sell easily, too.”

Yet, after almost two months on the market, and despite reducing the asking price by £15,000 to £525,000, they have had five viewings and no offers. “[Our estate agent] hasn’t explicitly said our flat is struggling due to having no outdoor space, but I’m sure it is.”

While the UK property market has experienced a “mini boom” since reopening in May — by October, the average property price was up 7.5 per cent year-on-year, hitting a new record high, according to Halifax bank — the pandemic is causing an increasing number of buyers to shun flats.

In London, the average price of a flat went up by more than any other property type between 2011 and 2019. But over the past 12 months this has been reversed and flats have been the weakest performers.

This year is set to be the first time in more than a decade when flats make up fewer than half of all property sales in the capital, say estate agents Hamptons International. It adds that London flats are taking 70 days to sell on average, whereas houses are taking just 29 days. And that is if they sell.

Separate analysis by PropCast, which maps the housing market, reveals that only 27 per cent of all flats listed for sale are finding buyers, compared with 44 per cent of houses.

Part of this is because of a drop in first-time buyers, who almost always purchase flats. According to property portal Zoopla, the proportion of UK properties bought as first homes has fallen to its lowest level in five years thanks to the economic fallout of coronavirus, and the reduced availability of higher loan-to-value mortgages.

Apartments are losing their appeal at the market’s top end, too. Data company LonRes says the number of flats sold in prime London areas in August and September was 24 per cent lower than in the same period last year, whereas the number of houses changing hands increased by 3 per cent

Indeed, this year houses have made up a higher proportion of prime London property sales than in any year of the past decade. Values of flats sold in these areas are 1.8 per cent lower than a year ago, whereas house prices are 6.1 per cent higher.

The picture is echoed nationally, with houses selling faster than flats for the past six months in Britain’s cities, according to David Fell, senior analyst at Hamptons International. “This is the longest period on record that houses have outperformed flats,” he says. “Buyers are looking for more space in the event of further lockdowns and in order to be able to work more easily and comfortably from home.”

So, what does all this mean for the future of London’s flats? They make up just over half of the capital’s accommodation stock, more than double the proportion anywhere else in the country.

Andrew Groocock, regional partner at estate agents Knight Frank, says it is a matter of size and access to outside space.

“On the whole, flats are not falling out of favour in London,” he says. “But smaller studios or one-bedroom apartments without outside space are challenging in the current market, with the prospect of future lockdowns weighing on buyers’ minds.”

“Having a property with enough space — particularly for a home office — is the most crucial thing on buyers’ minds,” says Henry Sherwood, managing director of The Buying Agents.

As a result, some swanky London flats are being offered for sale with big discounts. A three-bedroom apartment with no outside space, now on sale for £2.2m in Knightsbridge, has been reduced by £1.05m since it was first listed in December last year. A five-bedroom flat in Chelsea is now £1.25m cheaper than its £4m first listing price. “There is still a lot of overpriced stock on the market,” Sherwood says.

One reason for the drop in popularity of pricier flats — such as those in London’s Knightsbridge area — is that Covid-19 is keeping away foreign buyers.

Another reason for the sharp drop-off in the popularity of pricier flats is the fact Covid-19 is keeping away foreign buyers, who have traditionally bought vast swaths of the capital’s new-build apartment stock.

“We are still selling off-plan to buyers from Hong Kong and China up to £1.5m to £2m, but if a property costs more than that they are going to want to look at it in the flesh,” says Ed Lewis, head of residential development sales at estate agents Savills. He adds that sales over £2m to the international market are down about 25 per cent.

Once the pandemic is over, demand for London apartments is expected to return. With the UK government planning to roll out vaccination doses from as early as next month, many hopes that will be sooner rather than later.

Hamptons’ data show that some landlords have already been buying flats — overall London sales to investors were up 65 per cent between June and October, compared with the same period last year, of which almost half were flats

However, Phil Hubbard, professor of urban studies at King’s College London, hopes Covid-19 will reverse the trend of investors and developers creating ever-smaller flats aimed at young professionals and students.

His department’s research shows that the proportion of new housing in London smaller than the government’s recommended national minimum space standard of 37 sq m increased from 5 per cent to 8 per cent between 2015 and 2019.

“Dense urban living may be more environmentally friendly and energy efficient,” Hubbard has said. “But if the price to pay is people living in smaller homes that preclude flexible working and home lives, and also encourage the transmission of Covid-19, or other yet-to-be-known viruses, perhaps the answer is not to continue the rush towards vertical living and micro-apartments.”

Ruth Baker, meanwhile, has asked her estate agent to start contacting buy-to-let investors in a bid to speed up her flat’s sale. “Surely there are people who do still need to go out to work in London and are looking for somewhere to rent?” she says. “Although many of our friends with kids want to leave, not everyone is trying to move out of London.”

Is this the end of the housing ladder?

Many people buy flats because it is all their budget will allow, of course, but are flats still effective as a first rung on the housing ladder?

Not according to Neal Hudson, an analyst at consultancy BuiltPlace. “The housing ladder is finished,” he says. “The idea that you could buy a flat in a city centre and then, after a few years, trade up to get a house in the same area doesn’t work now for the vast majority of people.”

In order to move from a flat to a house, a homeowner requires property-price inflation and the ability to borrow more because their income has increased.

That will not necessarily work, however, if house prices are growing faster than those of flats and incomes are not increasing at a significant rate. In the past year, the average price of a terraced house in London has risen by 5.84 per cent, according to Hamptons, whereas flat prices grew by only 1.74 per cent.

Mortgage broker SPF Private Clients has looked at what this might mean for flat buyers if current trends persist. If a first-time buyer wanted to purchase a two-bedroom flat in Kentish Town, an area of north London, for £450,000, would they be able to trade up to buy a house locally?

It is tricky. Assuming they could first find a 25 per cent deposit, then the £3,340 in buying costs (rising to £10,840 after the stamp-duty holiday comes to an end next March), they would need an annual income of £75,000 to qualify for the mortgage (assuming a 4.5 x salary maximum loan-to-income).

If they then held on to the flat for 9.4 years — which is the average time vendors who sold London flats this year kept them for — the property would be worth £529,218, assuming flat prices rose at 1.74 per cent a year.

Over that time, mortgage payments would be £1,431 a month, which is certainly cheaper than the current typical rent for this kind of property, which is £1,600 — though rents could increase over time.

If the buyer wanted to upgrade to a three-bedroom terraced house in the same area, its price would have risen from £950,000 to £1,619,690, assuming 5.84 per cent annual growth for the 9.4 years.

If they could take the equity out of the flat and pay the buying costs for the move (£108,112 in stamp duty plus total conveyancing and valuation costs of £4,550), then their annual income would have needed to nearly quadruple to £294,598 to qualify for the mortgage.

All this means flat owners hoping to trade up will have to trade out to a cheaper area instead, says Mark Harris, the chief executive of SPF Private Clients.

Trading out has been a big trend for London flat owners in recent years

and we expect this to become even more pronounced.”

Trillions to released by Hesitant investors

Despite the events of 2020 making investors exceptionally conservative this year, it is predicted that this in fact could lead to a post-pandemic boom in the real estate market.

Emma Hodges | Nov 16, 2020

“Let me just put this out there, we all know it – but COVID-19 has had a significant impact on not just the economy, but our most of our livelihoods,” said Pier Francesco Rocca, Associate Partner at McKinsey & Company, MENA, speaking at Cityscape’s Real Estate Summit 2020.

Indeed, with an estimated 400 million full-time jobs lost in Q3 2020 – a global GDP loss of -4% during the same period – and 67% of employers surveyed by McKinsey & Company maintaining that a WFH (work from home) policy will continue for the foreseeable future, it is easy to see the astronomical impact the 2020 pandemic has had, and will likely continue to have, at least in the short term, on commercial and industrial real estate market.

As a result, Rocca said, some business leaders have become “increasingly conservative about the ability of the economy to rebound… there is agreement that it will go back up, but there is uncertainty about what this path will look like.”

This is not something limited to commercial and industrial projects either, with private real estate transactions or evaluations also being affected. In Dubai, Q2 and Q3 saw a 33% decline in apartment prices, and a 32% decline in the number of transactions for both apartments and villas. Meanwhile, Riyadh was equally hit with -47% transactions for villas, while the prices for apartments saw a smaller decrease, with just -1% in value. Interestingly, however, perhaps in a nod to optimism about the future of the market, the same period saw an upturn in the price for private real estate transactions for villas and townhouses in both cities, with an increase of 25% in Dubai, and a more modest +3% in Riyadh.

STABILISATION OF THE REAL ESTATE MARKET

According to Rocca, this optimism is not misplaced. Due to the finite nature of the 2020 pandemic, he says investors should remember that “most fundamentals of real estate investment are expected to stabilise in the mid-to long-term,” he told attendees. “You look at China, and it is very interesting to see how both the commercial and residential markets over there took just a few months post-crisis to reach the same levels of transactions as before COVID-19.”

Indeed, there is no reason why the GCC real estate market should not experience the same rebound in the mid-to long-term.

“There are currently about one to one and a half trillion dollars of funds that institutional investors have and are ready to deploy,” Rocca concluded. “They just want to know where to put them and are waiting to figure out what happens.”

Fall in UK house prices will not help first-time buyers, think-tank predicts

Big house price falls are likely across the UK over the next 12 months, but first-time buyers will not find it easier to get on the property ladder because of tighter credit conditions and falling incomes, according to a leading think-tank.  With the UK’s economy falling into its deepest recession on record, and unemployment rising dramatically as the government’s furlough scheme for workers winds down, most analysts are forecasting that house prices will suffer. But according to the Resolution Foundation, even if average prices collapse by more than 20 per cent, in line with the most pessimistic forecast by the Office for Budget Responsibility — the fiscal watchdog, first-time buyers will still have a harder time buying a property than before the coronavirus crisis. “lining for principal research, and policy analyst at the Resolution Foundation. “Although prices are projected to fall — perhaps dramatically — in the wake of the pandemic-induced recession. falling incomes and credit restrictions will likely make home ownership every bit as difficult as before for many young people,” she added.

The economic fallout of the pandemic was also likely to deepen inequality of access to housing, said Neal Hudson, an independent property market expert. Those with an existing cash pile or access to the bank of mum and dad would be able to take advantage if prices fall, but a home would still be out of reach for first-time buyers without deposits in place. There’s no silver lining for [young people] when it comes to house prices Lindsay Judge “When the price falls do happen, they will be linked to a weakening economy and falling incomes. The house price-to-income ratio will remain relatively similar, possibly even worse,” he said.  According to the government’s most recent English Housing Survey, 34 per cent of first-time buyers use a gift or a loan from relatives to cover their deposit. A further 6 per cent use an inheritance.  According to the Resolution Foundation, it would take a young couple, both on an average salary, 21 years to save enough for a deposit if they put away 5 per cent of their earnings a year. In 1990, it would have taken them just four years.  First-time buyers without parental funding are also hamstrung by the withdrawal of higher loan-to-value mortgage products from the market, meaning they need to save a substantial deposit to buy. Almost every bank and building society pulled their 90 or 95 per cent loan-to-value mortgage products when the housing market was reopened in May.  Recommended Personal Finance ‘Bank of mum and dad’ less likely to lend One option for first-time buyers is to tap the government’s Help to Buy Equity Loan scheme, which allows them to purchase a house with only a 5 per cent deposit. Use of the loan has soared in recent months, according to some of the country’s largest housebuilders, in part thanks to the lack of other options for those without savings to put towards a deposit.  But the scheme is only available for newly built properties, which tend to be more expensive than second-hand homes.  “A crash is not the solution. The best solution is a period of recovery and economic growth, with house prices not growing as fast [as incomes],” said Mr Hudson.

Banks Increasing Interest Rates on new home Loans.

Banks are turning away mortgage business by increasing interest rates on many new home loans, as they struggle to cope with surging demand for borrowing in a buoyant post-lockdown housing market.

In a reversal of the cut-throat competition of recent years, lenders are putting up rates to deter potential borrowers, as coronavirus restrictions have left many staff working from home, limiting their capacity to process applications.

A temporary stamp duty holiday that offers purchasers a tax saving of up to £15,000 has fuelled a V-shaped recovery in the housing market since May. Buyers are hurrying to progress deals now so they can complete before the nine-month holiday ends on March 31, 2021.

An executive at one of the UK’s largest mortgage lenders said on some days recently it had been receiving more than double the number of mortgage applications it would normally be able to process.

“This is as busy as I’ve seen the market since 2008, just before the credit crunch,” the executive said. “Post-lockdown, in late May to June, we were busy, heading back towards [normal] numbers, but the stamp duty change, when that dropped, put a massive urgency into buying a home.”

Metro Bank this week temporarily halted registrations from new brokers looking to send clients to the lender, to allow it to process its existing workload. Dan Frumkin, Metro’s chief executive, said: “We’re continuing to see exceptional demand in the mortgage market.”

Halifax, TSB, Nationwide, NatWest, Barclays, and Yorkshire and Chelsea building societies are among the lenders to have raised interest rates over the past three weeks, even as the Bank of England base rate has remained at its record low of 0.1 per cent.

Virgin Money on Thursday raised its interest rates on lower-risk mortgages — where the loan is 65 or 75 per cent of the value of the property — by 0.3 percentage points, and those at 85 per cent by 0.6 percentage points.

On Tuesday, Santander increased rates on some of its 60, 75 and 85 per cent loan-to-value deals by up to 0.35 percentage points.

Aaron Strutt, product director at mortgage broker, Trinity Financial, said lenders were taking action to avoid being exposed as the cheapest deal in the market. “They are making big rate changes to make sure they’re not at the top of the tree”.

Banks had already withdrawn many of their deals on low-deposit home loans earlier in the year, hitting first-time buyers who typically put down 5 or 10 per cent of the house price as a deposit. But they have now widened the scope of their action on rates.

Hina Bhudia, partner at Knight Frank Finance, said: “What was a significant problem for first time buyers will now start affecting buyers at every level of the property ladder.”

As demand has surged, lenders have seen their service times slip significantly, said Andrew Montlake, managing director of mortgage broker Coreco. “They’re not looking at things for two weeks at least. There’s concern that as we start to get to the end of the stamp duty holiday a lot of people are not going to get their deals through in time.”

Ms Bhudia added: “If you’ve secured a rate with a lender, lock it in as soon as you can because there’s no guarantee it’s going to be there tomorrow.”

Average rates on two-year fixed mortgages at 65 per cent LTV — regarded as lower-risk borrowing — have risen from 1.66 per cent on July 1 to 1.96 per cent on October 22, according to finance website Moneyfacts. Rates on five-year fixed rates at 65 per cent LTV moved from 1.77 per cent to 2.19 per cent over the same period.

Raising rates is the most common method by which lenders control the volume of business they accept, but they may also toughen their credit score criteria to filter out more borrowers, raise minimum loan levels to deter smaller mortgage applications or restrict certain mortgages to houses, not flats. The most effective, if draconian, tactic is to withdraw mortgage products entirely, as Santander did this week for its 85 per cent LTV two-year fixed purchase and reportage products.

Raising rates allows banks to fall down the “best buy” mortgage lists watched by consumers, but when applied by all lenders leads to successive waves of rate increases. “If you price yourself slightly out of the market then others will take up the slack. The problem at the moment is that everyone is doing the same thing,” said Mr Montlake.

UK house prices surge to record high

House prices soared to record highs last month, rising at their fastest pace in 16 years as the stamp duty holiday took effect and buyers sought new homes after months of living in lockdown. The Nationwide Building Society reported on Wednesday that UK house prices rose 2 per cent in nominal terms, despite the country entering its deepest recession on record in the second quarter. The surge in prices stemmed from the reopening of the housing market in May alongside the stamp duty holiday on property values of less than £500,000, announced in July, which runs until the end of next March. The recovery in activity has pushed average prices up to a level 3.7 per cent higher than a year earlier, the Building Society said. “House prices have now reversed the losses recorded in May and June and are at a new all-time high,” said Robert Gardner, Nationwide’s Chief Economist.

The new housing market is far removed from pre-pandemic conditions, however, with many variations based on types of property in demand and their location as people consider a future where proximity to the office is less important. Jonathan Hopper, Chief Executive of Garrington Property Finders, said: “Prices are rising fastest among coastal and country properties as buyers [are] planning for a new work-life balance built around less commuting and seek more green space, fresh air and better value.” In hotspots outside London, properties are selling at rates rarely seen since before the 2008-09 financial crisis. “A stunning proportion of properties are now going for the asking price or more, and offers are flooding in. It’s like lockdown was a bad dream,” said Lucy Pendleton, of independent estate agent James Pendleton.

Separate research from property portal Zoopla showed that in the third quarter there had been a surge in demand for larger properties in London, while demand for one-bedroom flats tumbled. Nationally, surveyors expect prices to fall in London but to rise in most other regions, according to the latest survey by the Royal Institution of Chartered Surveyors.  In such a divergent market where the mix of properties sold has been changing rapidly, finding a genuine average price for the whole UK is proving extremely difficult, according to Richard Donnell, Director of Research at Zoopla. More large homes in wealthier areas have been listed and sold, Mr Donnell said, with the effect that the unadjusted median asking price on the Zoopla portal was 12 per cent higher than a year ago. “The rebound in housing demand is creating more ‘transaction bias than normal as we see a big shift in the price and type of homes that are selling as a result of the lockdown,” he said. But the stamp duty holiday and low interest rates are not helping all buyers, keen on a new place to buy and live. Those wanting large mortgages worth 90 per cent or more of a property’s price are having to pay higher interest rates on average even though the Bank of England’s official rate has plunged from 0.75 per cent to 0.1 per cent since the pandemic struck.

Andrew Bailey, the BoE Governor, told a Parliamentary Committee on Wednesday that this change in the average cost of a mortgage for buyers with relatively small deposits was due to lenders withdrawing some of the cheaper deals from the market. “All the evidence is that the cuts we made [in the BoE’s base rate] have been broadly passed through,” he said. Central bank data show that at the end of July, the average quoted interest rate on a two-year fixed rate mortgage with a 90 per cent loan was 2.66 per cent, 0.51 percentage points higher than a year earlier, while those with much larger deposits were benefiting from lower mortgage rates. Neal Hudson, Director of Residential Analysts, a consultancy, said that those who could not access a large deposit were clear losers in the current housing market, but were not affecting the prices of the properties in high demand at present because there were many other cash buyers and those with significant home equity fuelling the recovery. “It appears the economic fallout [of coronavirus] has been mostly felt by the young and low earners — those least able to buy a home,” Mr Hudson said.

Many property market experts warned that the jump in house prices could be short lived when unemployment rises after the furlough scheme tapers out this autumn and the stamp duty regime changes next spring. Tobi Mancuso, Director of property investment company Track Capital, said: “The danger is that this frenzy could create a bubble in house prices that will be quickly deflated when stamp duty returns.” Howard Archer, Chief Economic Adviser to the EY Item Club, said: “We suspect that the housing market is likely to come under pressure over the final months of 2020 when there is likely to be a significant rise in unemployment as the furlough scheme draws to a close in October.” Overall “the recovery in the house market has so far been V-shaped”, said Hansen Lu, Property Economist at Capital Economics, a consultancy. But he warned: “We expect the recent frenzy in housing demand to cool over the next few months.”

Shorter Corvid self-isolation period = Please

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”.

Covid-19 prompts a rethink of the case for real estate

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.