The end of the furlough scheme – does it pose a risk to housing?

The government’s furlough scheme will finally come to an end on September 30, raising the question of whether its expiry will have an adverse affect on the housing market.

The scheme was launched in the spring of 2020 to support struggling businesses. When introduced the government paid 80% of employees’ wages who couldn’t work up to £2,500 per month. This was reduced to 70% in July 2021 and then 60% in August.

Andrew Wishart, property economist at Capital Economics, doesn’t think it will have much of an adverse effect on the economy and house prices.

He said: “While the furlough scheme was critical in preventing the COVID-19 recession from dragging down house prices, we don’t think that the withdrawal of the scheme poses much of a risk.

“Meanwhile, the latest data show the end of the repossessions ban and mortgage payment holidays have not brought an upturn in homeowner distress.”

He added: “Remarkably limited damage to the labour market means that the housing market can now withstand the removal of the exceptional policy measures put in place at the height of the crisis.

“So rather than a jump in unemployment, the biggest risk to house prices is that the Bank of England responds to the coming spike in inflation by raising interest rates more aggressively than we expect.”

The number of workers relying on the furlough scheme dropped by over three million between January and June 2021.

But rather than leading to a jump in unemployment as many feared, employment rose by over 700,000 over the same period.

Some are more pessimistic about the end of the scheme however, as trade body UK Finance expressed some caution.

In its Household Finance Review for Q2, the trade body said: “When the furlough scheme closes in Q3, this has the potential to create uncertainty in the labour market, due to the mismatch between sectors with large numbers still on furlough and those likely to continue recruiting. This is expected to lead to a pick-up in job losses in the latter part of this year and the unemployment rate is forecast by NIESR to peak at 5.4% in the final quarter of 2021

“Overall, the outlook for the second half of 2021 is a more optimistic one, however as the furlough scheme ends, optimism has to be tempered with the as-yet-unknown extent of job losses following the end of furlough.

“Looking ahead, the most immediate challenge to household finances is the winding down of the CJRS. For those who do not immediately return to full employment following furlough, maintaining credit commitments may be a challenge, and more so for those who were already in existing financial difficulties prior to the pandemic. Lenders remain ready to help where these borrowers need assistance.”

Sarah Coles, personal finance analyst, at Hargreaves Lansdown, seems particularly worried about the scheme’s expiry.

She said: “Hundreds of thousands of people could be left high and dry when the furlough scheme comes to an end, and those who are carrying debts could find themselves in serious difficulty.

“The ONS Business Insights survey estimates that between 1.6 million and 2 million people were on full or partial furlough at the start of August. On the face of it, if their employer can’t take them on again, they should be able to find work, given there were an estimated 953,000 job vacancies in May to July 2021, a record high.

“At the moment, UK Finance says the number of people who are starting to run into trouble with mortgage payments is falling, while the number with more serious problems rises. As the furlough scheme comes to an end, we can expect those facing problems for the first time to rise too.”

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