Munich Personal RePEc Archive

Rebuilding the U.K.economy after the corona virus pandemic: a new Home Equity Release Method (U.K. HERM)

De Koning, Kees (2020): Rebuilding the U.K.economy after the corona virus pandemic: a new Home Equity Release Method (U.K. HERM).

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Abstract

In the U.K., at the time of writing, the corona virus pandemic has not reached its peak yet. Once it has, hopefully in the next couple of weeks or months, the recovery process can begin. With a nearly total lock down in place on many economic activities, the future for incomes, business survivals and the wealth of the U.K’s citizens has and will come under a severe strain.

The U.K. government has promised a “Whatever it takes” cash injection into the economy. The real question is about a delivery on time and in the right format.

Just as an indication: the Footsie 100 stock index reached its peak this year at just over 7600 by the 17th January. Just about two months later, by the 19th March, the index had dropped to just under 5200; a drop of 31.6% in values in just over 8 weeks.

Another indicator, published by the Office for National Statistics (ONS) was the unemployment rate, seasonally adjusted for all 16 years and over. Over the period November 2019-January 2020 the unemployment rate reached a near long term low of 3.9%. One has to go all the way back to the same period in 1974 to find such a low unemployment rate. The corona virus crisis has and will change all this.

The Center for Economics and Business Research (CEBR) was quoted in a number of U.K. newspapers as indicating that the average home values will drop by £30,000 by the end of 2020; equivalent to 13% of such average values. The Royal Institute of Charted Surveyors in its monthly report indicated that for the next three months housing transactions have slumped to their lowest level on record,

How can the U.K. economy be rebuilt?

The answer may be in a wealth factor incorporated in the homes, owned and occupied by British households. The ONS publishes a bi-annual overview of such wealth factors; its latest report covers the period April 2016-March 2018. By March 2018 the owner occupiers’ net worth was £5.1 trillion and the gross figure £6.26 trillion, which included the outstanding mortgage debt of £1.16 trillion.

With the U.K’s 2019 GDP at £ 2.21 trillion, the net savings built up in U.K. homes of £5.1 trillion may well come to the rescue.

A new Home Equity Release Method (U.K.HERM} may be needed!

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