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Finanze Weekly Roundup - 24/12/2022

First of all, Merry Christmas and Happy New Year everyone from the Economics & Research team at Finanze Group and Finanze. We wish you all the prosperity and happiness you deserve in 2023 and hopefully with following our reports we will continue to keep you ahead of the curve.


-- Josh Ellard, Head of Research

-- Imogen Sporle, Head of Property Finance

Property


Demand for new homes down 50% as property market continues to cool.


Zoopla has released a report stating demand for housing has fallen by 50% over the last year. The trend is largely unsurprising; however, the extent of the decline can be largely attributed to the uncertainty that shrouded the market as result of rising rates coupled with some questionable political and economic decisions. Looking forward, I would expect to see demand start to steadily increase. Although the economic outlook may not drastically change throughout 2023 in terms of rates and taxation, the picture will be that of a more stable one. This should give investors more confidence in progressing with transactions as levels of stress test and affordability can be more easily predicted.


Escape from the country.


Many flocked to the countryside during and after Covid, causing a sharp increase in the cost of houses in areas such as, Cornwall, Devon, Mid-Wales and the Lake District. Figures now suggest that such areas are facing the largest correction compared to that of towns and cities. Affordability has been a hot topic over recent weeks, and it can be largely blamed as the cause of the ‘fall of the countryside’. As mortgage rates increase, those with second or third houses in rural areas are now faced with a decision. Increasing pressure on household incomes from the cost-of-living crisis are forcing those with larger mortgage payments to sell their holiday homes. Basic supply and demand analysis would suggest that as the housing stock increases, prices will, inevitably, come down. Zoopla has predicted that the areas least likely to be impacted by the above issues are those urban locations with affordable housing such as flats and apartment blocks.


UK Extends Mortgage-Guarantee Program to Bolster Housing Market.


The UK government has confirmed this week that its mortgage-guarantee program will be extended until the end of 2023. The scheme provides lenders with a government backed guarantee to issue mortgages to mainly first-time buyers with only a 5% deposit. With house prices expected to drop more than 5%, some lenders including NatWest have decided to withdraw from the scheme entirely.


Business


Q3 of 2022 sees a greater economic contraction than initially anticipated.


Figures from the Office for National Statistics show a contraction in GDP of 0.3% compared to the expected 0.2% in Q3 of 2022. The much-awaited figures for Q4 will likely show the UK is already in the grip of a recession. Rising energy and food prices have curbed consumption – a key component of an economy’s aggregate demand. There has been an additional supply side contraction, most notably in the UK’s manufacturing sector.


Brexit has had a negative impact on UK firms’ ability to trade in the EU.


Brexit has made imported goods comparatively more expensive than when the UK was part of the union. The current trade deals have done little to help UK businesses, as confirmed by The British Chamber of Commerce. The Office for Budget Responsibility (OBR) has echoed these claims stating, Brexit has caused ‘significant adverse impact’ on trade between UK and EU businesses. Additionally, data from HMRC reveals the number of UK firms that export a large percentage of their produce has fallen from 150,000 in 2020 to 125,000 in 2021. I will be interested to see how those figures look for 2022, although I don’t expect there to be a positive shift in trend. Regardless, there is significant work to be done in 2023 to negotiate better deals for domestic firms.


Finanze Foresights: Energy support package from April further delayed.


Liz Truss’s energy support package subsidising an energy price cap for UK firms’ gas and electricity bills is due to end in March 2023. The current scheme would entail an annual cost of £40 billion to the UK government. Hunt has confirmed the new scheme will be far less generous, falling in line with austerity. Whilst firms struggle to get to grips with the economic instability of late, Hunt has gone back on his promise to deliver a plan by the 31st December 2022. Instead, he will allow business owners to contemplate what their energy costs will look like in 2023 over the Christmas period. We have now been told to expect an update on the issue early in the new year.



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