Marmite-gate may be over but it could have a long-lasting impact on house prices
A new report claims that homebuyers are returning to the housing market as Brexit concerns ease, but that was before Marmite-gate hit.
New buyer enquiries from homebuyers rose for the first time in seven months in September as confidence in the strength of the housing market continued to improve, according to a new report.
The findings from the latest RICS UK Residential Market Survey suggests that residential property prices look set to increase across parts of the UK in the coming months as demand from homebuyers starts to grow again, while the supply of homes on the market remains at an historical low.
New property instructions received by estate agents dropped again in September to just over 45 properties adding to the supply-demand imbalance in the market and this according to some experts was expected to drive up home prices. But that was before a 24-hour stand-off between Tesco and consumer goods giant, Unilever, last week that saw Marmite and some other well-known brands pulled from the supermarket’s online store.
You may be thinking what has Marmite got to do with house prices, but bear with us because there is an indirect link that could potentially impact on property prices in the not too distant future.
Unilever ultimately wanted to raise prices on popular products like Marmite, PG Tips, Hellmann’s mayonnaise, among other popular products to compensate for the sharp drop in sterling’s value in the wake of the Brexit vote.
But while the consumer goods giant may have lost the argument with Tesco on this occasion, the row has paved the way for dozens of other household brands to make an attempt to raise their prices over the coming weeks, as customers are hit by a Brexit price war.
Inflated prices of goods as a result of the falling pound against the dollar are expected to hit consumers from early next year, with various experts warning that price hikes are inevitable as supermarkets will struggle to absorb all the extra costs, as import costs grow as a consequence of the sharp decline in sterling’s value against major overseas currencies.
Higher shelf prices will ultimately result in greater inflationary pressure. In fact, fresh figures show that the price of many branded goods has already started to increase disproportionately since the vote to leave the European Union in June.
Many Heinz products, for instance, have reportedly soared in recent weeks, with the price of Heinz baby food up 59% from £2.39 to £3.81 between June and October, while Heinz tinned spaghetti is 21% more expensive at £1.26 instead of £1.04.
Research data also reveals that the price of other popular branded goods provided by the likes of Kellogg’s, Coca-Cola and Pepsi have risen by more than 12% since June.
With inflation almost certainly set to rise, the Bank of England could find itself in a position whereby it has no alternative but to raise interest rates even in a sluggish economy because imported inflation has sparked a mini-spiral of inflation; the consequences of that will almost certainly be bleak.
A combination of a weakening pound, increasing commodity prices plus growth in wages would make for an uncomfortable mix of inflation, causing borrowing rates to rise which is bad news for the government and for homeowners.
Higher borrowing costs will push up mortgages rates and that would almost certainly place downward pressure on house prices, which have been partly supported in recent times by abnormally low interest rates.
A fall in home prices will inevitably leave some homeowners in negative equity adding to what could potentially be a general mood of depression, while higher interest rates will increase monthly mortgage payments for those who have not fixed their home loans; the end result is that many people will be left feeling poorer, and that is before taking into consideration the higher costs of grocery shopping.
Property investment journalist, Peter Hemple, is among those who believe that the implications of increasing food prices “will be huge”.
He explained: “Tesco and Unilever are just two well-known companies but almost every other retailer is not in a position to negotiate with suppliers, as Tesco is, so in the majority of cases the retailer will have to accept these large increases in the region of 10%.
“Depending on their profitability, either all or at least half of that increase will be added to retail prices, which means in a few months time, it will be showing up on both the CPI and RPI indexes. This will put the Bank of England in a difficult position with regards to cutting the base rate further, which now appears very unlikely as most are predicting UK inflation to be in the 2-4% range over the next few months.
“The question is how long can the Bank of England ignore inflation and keep the base rate at 0.25%? They did it before in 2010/11, but next year they will have one eye on Brexit and one eye on the general election and to keep the pensioners happy and voting Conservative they may have to cut them some slack and raise the base rate, especially if inflation is closer to 4% than 2% next year.”
So three months on from the UK’s momentous and unprecedented decision to leave the European Union, and clear signs are emerging of the potential property price crash anticipated by some experts as a consequence of the Brexit vote.
The difficulty we have when trying to predict the future, is that we do not know what form Brexit will take. Although some market stability has come in the aftermath of Brexit, there are some clear signs that there will be further volatility as the UK’s two-year separation from the EU unfolds when Article 50 is triggered by the UK government in March 2017.
Ultimately, the inherent undersupply of housing coming onto the market means that property prices are likely to increase further in the long term, but weakening sentiment regarding house price prospects and a dip in consumer confidence in the short term suggests that house prices could very well drop in the coming months.