U.K. Housing Boom May Endure After Tax Break Ends, BOE Says

Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The U.K.’s housing market boom may persist even after a government tax incentive is withdrawn this year, according to Bank of England Deputy Governor Jon Cunliffe.

Speaking a day after a report showed U.K. house prices rose in March at their fastest annual pace since the financial crisis, Cunliffe said structural shifts in the wake of the pandemic, such as greater home working, may keep demand elevated.

While “one would expect the market to cool down when public support to the economy in general and the housing market in particular is withdrawn,” Cunliffe said, there “may also be some reasons to believe that the recent increase in demand for housing, and perhaps the composition of that demand, which has driven the U.K. market in recent months reflects some more persistent drivers and that the market will not fall back to its pre-pandemic decade performance when the tax incentives have gone.”

A 10% surge in house prices over the past year has defied the U.K.’s deepest recession in three centuries. The boom partly reflects a tax cut on purchases that is due to be phased out from the end of next month.

Regional housing markets have done particularly well as people forced to work from home take the opportunity to move away from big urban centers. Cunliffe said it was too early to judge whether this trend will be sustained once coronavirus restrictions are removed.

“Preferences expressed during the pandemic and lockdown may not be a good guide to post-pandemic behavior,” he said.

In a speech that looked at the performance of the housing market during the past decade, Cunliffe also warned that booming prices are likely to widen inequality, adding to wealth of richer households that already own their homes.

Only 19% of renters can afford to save enough to afford a mortgage for 95% of the value of the property they would like to buy, he said -- a reference to level of borrowing offered by a government guarantee program to help people get on the property ladder.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.