Wednesday Dec 25, 2024
Podcast Transcript
Welcome to the Essential Property Podcast.
In episode 54, hosts Amanda Woodward & Paul Samuda continue with the new style semi-digital episode, this time talking about how Labour's budget is hurting the UK economy.
Hey everyone, welcome back. Today we're going deep on the UK economy. Ooh, exciting. Yeah, especially for those of you, uh, interested in property or running a business. Or even if you just like to keep an eye on the bigger picture. We've got two main sources for this deep dive. Okay. A briefing document that looks at how the Labour government is doing. Interesting. And then a news article from the Daily Telegraph. It came out just a few days ago on December 23rd, and it's titled UK economy Headed for worst of all worlds, CBI tells Rachel Reeves after budget fiasco. Wow, that's a pretty dramatic title. Yeah, right. It's a bit of a head scratcher, because it wasn't that long ago that the UK was actually the fastest growing economy in the G7. Hmm. Yeah, I remember hearing that things change quickly, though. So what happened? Well, that's what we're going to try to figure out today. All right I'm ready to dive in okay. So the CBI has come out and said that they're seeing signs that businesses are expecting to produce less and higher, fewer people. Mm. That's not good. Yeah. Not great. And they're actually comparing the situation to the economy after Liz Truss was prime minister. Oh, wow. Really? That's a pretty serious comparison. What makes them say that? Well, I mean, her time as prime minister was pretty short, but it was really unstable economically. Yeah. So the fact that the CBI is drawing a parallel to that time is concerning. Definitely. And I think it's worth remembering that Liz Truss's policies really shook things up to see the CBI bringing that up again suggests they believe we could be facing a similar level of risk. So what exactly did they say? Their deputy chief economist, um, he said that the UK is heading for the worst of all worlds because demand is weak, and that things like the National Insurance hike are part of the problem. Oh, okay. So when they talk about weak demand, what does that actually mean, like for regular people? Well, weak demand basically means that people and businesses aren't spending money like they used to. Ah, I see, and this can create a bit of a chain reaction. Companies sell less. Right. And then they might cut back on production which could lead to job losses, make sense and then becomes harder for the economy to recover. Yeah. It's like a downward spiral. Exactly. And the CBI survey showed a 24 point difference between those who expect output to fall and those who expect it to rise. That's significant. It's not just a handful of businesses being pessimistic. It's a widespread concern. Okay, so we've got this potential economic downturn. And of course, like always with any kind of economic trouble, the political blame game starts. Yeah, no surprise there. And the Conservative Party is putting the blame on Labor's policies and specifically the National insurance increase. That's to be expected. I suppose politics got politics right, but aren't they just playing politics or is there something to their argument? Well, their criticisms are pretty strong. Shadow business Secretary Andrew Griffith called the recent budget a tax raising spree that is literally killing businesses and jobs. Wow. He didn't mince words there. No, he did not. And to be fair, it's not just the conservatives. Even the Bank of England has lowered its growth forecast and linked it to the budget. Interesting. So could you remind us what National Insurance is and why this increase is such a big deal? Sure. It's basically a tax on your earnings and both employees and their employers pay it. And the recent changes mean that more of your income is subject to this tax. Oh, so it's kind of a double whammy then hitting both workers and businesses. Exactly. And that's why the conservatives argued that this hike is hurting businesses and discouraging them from hiring. Gotcha. So what is labor saying in response to all of this? Well, Prime Minister Starmer says these changes are tough but necessary. Okay. He's basically urging everyone to be patient because he believes these policies will lead to long term stability and growth. So it's a bit of a short term pain for long term gain argument. You could say that. Yeah. He's emphasizing that the focus should be on structural change not quick fixes. It's a longer term vision. So it's a classic political debate. One side says these policies are the problem. The other says they're the solution. Right. And for the rest of us, it's about how these policies actually play out in our lives, you know. Exactly. And that brings us to another concern that's been making headlines stagflation. Which always sounds a bit scary. It does have a sort of ominous ring to it, doesn't it? Can you explain in simple terms what it means? Sure. So imagine an economy that's growing very slowly or not at all. Okay, but prices are still going up. Well that's stagflation. It's basically a combination of economic stagnation and inflation. So you're not seeing any progress. But everything is getting more expensive. So it's like a lose lose situation, no growth and a higher cost of living. Are we really headed for stagflation? I mean are there signs of that happening? Well, there are some worrying indicators. Inflation is at 2.6% right now, which is the highest it's been since March. And that's already putting a strain on people's budgets. Yeah for sure. And our research even mentioned something about middle class families having to rely on food banks more and more. Wow. That's a powerful image and a reminder that this isn't just about numbers. It's about real people being affected. Absolutely. And this situation is making things really tough for the Bank of England. They've decided to keep interest rates steady for the moment. Okay. Even though inflation is rising. And Governor Bailey talked about their cautious approach. You know, they're trying to balance all these uncertainties in the economy. I can imagine how difficult that must be if they raise rates to try to control inflation. It risks slowing down the economy even more. Exactly. But if they lower rates to encourage growth, right, they can make inflation even worse. It's a tough spot. So what are the experts saying. Well there's a range of opinions. Paul Dales, who is an economist at Capital Economics, says the UK economy is flirting with recession. Flirting with recession. That doesn't sound like a very healthy relationship, doesn't it? And Rupert Harrison, who used to advise Chancellor George Osborne, is painting a pretty bleak picture, too. Oh, he says that with higher interest rates, people have to pay more for their mortgages. Right. And businesses have higher borrowing costs. And when you combine that with the tax increases we were talking about earlier, yeah, it's not surprising that people are feeling less confident about the economy. So it sounds like we have a lot of challenges, lots of uncertainty. And everyone's got a different opinion about what's going on is what should be done about it. Yep. And all this is happening while the property market is facing its own unique trends and challenges. Right. Which is actually what our next source digs into. Okay. It's an article from property one 18.com, and it looks at how the Bank of England's decisions are impacting housing. That's really relevant for our listeners, whether they're investors, landlords who are just hoping to buy their first place. Absolutely. Yeah. So let's get into that next. This is where things get really interesting. Sounds good. I'm ready. Okay. So the property 118 com article starts by describing the current state of the UK housing market. Right. Well it says that both house prices and rents are going up huh. That sounds good at first, at least for people who already own their homes, right? Yeah. I mean, it might seem like a good thing for homeowners who are seeing their property values increase, right? But at the same time, it's feeding into the inflation problem we were just talking about, oh, that's right. Higher housing costs just make everything more expensive for everyone. Exactly. So homeowners might be happy about their property values going up, but they're also facing higher costs across the board. And renters are in a particularly tough spot. Yeah, they're getting squeezed from both sides, rising rents on top of everything else that's getting more expensive, right? So what are the experts saying about how this is impacting property investors and landlords? Well, the article brings in a few different perspectives, which is interesting. Okay. Lay it on me. So Nathan Emerson from Property Marque points out that when interest rates are high, fewer people can get a mortgage. Make sense and that can cool down the market. Yeah, fewer people can buy homes. Then demand goes down and that affects the whole market. Exactly. But then we have Ben Nichols from Roark Capital Partners, okay. And he's a bit more optimistic. He points out that the Bank of England has hinted at possible rate cuts in 2025. Interesting. And he thinks that could give the market a boost. Okay, so there's a chance things could improve down the line. Maybe. But even with that possibility, it still seems like navigating the property market right now is pretty tricky. You're telling me. And Nichols really emphasizes the need for lenders to be flexible and to communicate clearly with borrowers. Yeah, especially investors who are facing these higher borrowing costs. Exactly. And Paresh Raja from Market Financial Solutions is pointing out that there are new policies that are making it even harder to be a landlord in the private rental sector. It's a lot to keep up with. That's like it. So much uncertainty for anyone involved in property. Absolutely. Although there are some voices of cautious optimism as well. Oh yeah. Jeremy Leaf, who's been an estate agent for ages, thinks that even a small cut in the base rate would be really helpful, especially for first time buyers who are struggling with those high rents we were talking about. Okay, so fingers crossed for those rate cuts, right? And Stephanie Daley from Alexander Hall stresses the importance of getting advice from experts. Whether you're buying, selling or remortgaging. Yeah. In this market, it seems like a good idea to have someone in your corner who knows what they're doing. Definitely. And Jonathan Samuels from Octane Capital makes a good point, too. He acknowledges that the higher mortgage rates are a challenge, but he reminds us that the property market is still in a much better place than it was a year ago. So perspective is important. It's not all doom and gloom, but there are definitely some hurdles. That's a good way to put it. And Mark Van Quencher from Benjamin Rees brings up another important factor the stamp duty deadline. Oh, right. The stamp duty holiday is ending. Can you remind us what that means? Sure. Basically, the stamp duty holiday was a temporary tax break for people buying property. Okay, so when it expires, buyers will have to pay the full amount of stamp duty again, which can be a lot of money. Definitely. And that deadline is something potential buyers need to keep in mind, because it could really add to the cost of buying a property. Absolutely. So looking ahead, what are the predictions for interest rate cuts and how could they impact mortgages. All right, so Matt Smith, who's a mortgage expert at Rightmove, thinks there might be three rate cuts in 2025. Okay. And that could bring average mortgage rates down to around 4%. But he also says it's just a prediction you know yeah things can change right. Global events and inflation could shift things for sure. So there's hope for lower rates, but it's not a sure thing exactly. Sarah Coles, from Hargreaves Lansdown, has some advice for people who are dealing with all this uncertainty. I'm listening. She suggests that anyone who has to remortgage soon should probably lock in a rate now. Okay, just in case rates go up in the next few months. Makes sense. Better to be safe than sorry. Exactly. And Ryan McGrath from Pepper money points out that second charge mortgages can be a good option for some people. Oh yeah? Yeah, they can be helpful if you want to keep your existing low fixed rate mortgage, but you need some extra cash. Oh, okay. That's good to know. It seems like there are still tools and options out there. Even with all the uncertainty in the economy, that's good to hear. It can feel overwhelming sometimes. Definitely. And as we wrap up this part of our deep dive, it's important to remember that all of this information is here to help you, right? This isn't just about abstract economic concepts. No, it's about how you can use this information to make informed decisions about your own financial life. Exactly. And that's what we'll be talking about next. Sounds good. So we were talking about how all of this economic uncertainty is affecting people. Yeah. And how it's playing out in the property market. Exactly. And it really is a mixed bag. We've got rising house prices and rents on one hand, which seems like it would be good. Right. Well, on the surface maybe. Especially for people who already own property. Sure. But then again, it's kind of feeding into that whole inflation problem we were discussing, right? Higher housing costs just make everything more expensive for everyone. Yeah, it's a bit of a double edged sword. Homeowners might see their property value going up, but they're also facing higher costs everywhere else. And renters are getting hit especially hard. Absolutely. Rising rents on top of everything else becoming more expensive. It's a tough situation. So what about property investors and landlords? How are they being affected by all of this? Well the property 118. Com article we were looking at brings in some different perspectives. Oh good. I was like hearing different takes on things. Yeah me too. So Nathan Emerson he's from property market and he points out that with these high interest rates, fewer people are able to get a mortgage that makes sense, which can slow down the market. Right? If your people can buy, then demand goes down. Exactly. But then there's been nickels from Raw Capital Partners. Okay. And he's a bit more optimistic. Oh yeah. He thinks the Bank of England hinting at rate cuts in 2025 could be a good sign. Interesting. He believes those cuts could actually boost the market. Okay, so maybe there's some light at the end of the tunnel. Perhaps. But even with that possibility, it still seems like a pretty tricky time to be involved in property. You're kidding. Nichols also says that lenders need to be more flexible and really communicate clearly with borrowers. Yeah, especially with investors facing higher borrowing costs. That communication is key. Exactly. And then pressure from market financial solutions. He brings up the fact that some of the new policies are making things a lot harder for landlords, especially in the private rental sector. So it's like every part of the property market is facing its own unique challenges. It really is. But there are some voices of cautious optimism out there too. Oh, good. Tell me more. Well, Jeremy Leaf, who's a really experienced estate agent, he thinks that even a small cut to the base rate would make a big difference. Okay. Especially for those first time buyers who are struggling with high rents. It's like everyone's holding their breath waiting for those rate cuts, right? And Stephanie Dailey from Alexander Hall, she stresses how important it is to get good advice. Yeah. In this kind of market, I bet that's crucial. Totally. Whether you're buying, selling or remortgaging, having someone in your corner who really knows their stuff can make all the difference. Absolutely. Now, what about Jonathan Samuels? Didn't he have something to say about all this? Oh, yeah. He's from Octane Capital and. He basically acknowledges that the higher mortgage rates are a challenge, but he also reminds us that things are still much better than they were a year ago. So trying to keep things in perspective. Exactly. It's not all doom and gloom, but there are definitely some obstacles, right? Speaking of obstacles, Mark von grunter from Benjamin Reeves mentioned another big one. What do you mean, the stamp duty deadline? Yeah, that's the one. That stamp duty holiday is coming to an end. It is. And that's a big deal for buyers, because it means they'll have to pay the full stamp duty amount again once that holiday expires, which could be thousands of pounds. It definitely could. Yeah. So potential buyers need to factor that into their budget. Absolutely. Okay. So looking ahead, what are people predicting about those interest rate cuts and how could they impact mortgages. Well Matt Smith he's a mortgage expert at Rightmove okay. And he thinks there could be three rate cuts next year in 2025. Wow three. Yeah. And he says those cuts could bring average mortgage rates down to around 4%. That would be amazing right. But of course he also cautions that this is just a prediction. Things can change quickly. Oh it's good to remember that. Definitely. Sarah Coles from Hargreaves Lansdown has some good advice for anyone trying to navigate this uncertainty. I'm all ears. She basically suggests that if you have to remortgage sometime soon, you might want to lock in a rate. Now, just in case rates go up. Smart thinking. Right. It's better to be prepared. Absolutely. Oh, and Ryan McGrath from Pepper money mentioned something else that could be helpful. Okay. What's that? Second charge. Mortgages. He says they could be a good option for people who want to keep their current low fixed rate mortgage, but need some extra money. Oh, interesting. I hadn't thought about that. Yeah, it's worth considering. It seems like even though there's so much uncertainty in the economy, there are still options and tools available. That's really good to hear. It is. And as we rev up this part of our deep dive, it's important to bring it all back to you, the listener. Right. All this information is only useful if it can help you make good decisions about your own finances. Exactly. So we've covered a lot of ground today economic downturns, political debates, what's happening in the property market, even this idea of stagflation. Yeah, a lot to think about. It's easy to feel a bit overwhelmed with all this information, definitely, especially when it comes to figuring out what it all means for your own personal finances. Right? And while we can't give any specific financial advice, of course what we can do is encourage everyone listening to think critically about their own situation. Absolutely. What are your goals? What's your financial picture? It's about making decisions that make sense for you personally. Exactly. We're all different. What works for one person might not work for another. It's all about finding what fits your own needs, right? So let's say you're a homeowner now might be a good time to really look at your mortgage. Yeah. Good point. Could you benefit from remortgaging? Are there any big renovations you've been putting off? It's about being proactive, and if you're renting, it's worth making sure you know your rights as a tenant. And maybe explore different neighborhoods, or even think about whether buying a property might be a possibility. It's about exploring your options. And for investors, maybe this is a time to diversify your portfolio or really think about your risk tolerance. Good point. And for business owners, maybe it's time to look at new markets or find ways to make your operations more efficient. Exactly. The key takeaway here is to stay informed, stay proactive, and make decisions that align with your own needs and goals. Couldn't have said it better myself, and don't be afraid to reach out to experts if you need help, a financial advisor or property professionals. Someone who's been successful in your industry. Yeah, get advice from people you trust. Absolutely. So as we wrap up this deep dive, what stands out to you from all of this? What are you going to be thinking about as you make your own financial decisions? Well, I think what really strikes me is the importance of balance. We definitely talked about challenges, but there are opportunities out there too. That's true. We've heard different opinions and predictions, and it's about finding what resonates with you in your own circumstances. That's a great point. This isn't about panicking or making hasty decisions. Definitely not. It's about being informed, thinking things through, and being proactive and remembering that you don't have to figure it all out on your own. There are resources and people who can help. Great advice. Well, that wraps up our deep dive into the UK economy. I always feel like I learned so much from these conversations too. It's always a pleasure. Until next time, keep asking questions, keep learning, and keep diving deep.
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