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LearningLab Live – the economic outlook

After what has been an unprecedented year how will the economy rebound and what impact will this have on the housing market?

Source and Protect Commercial are hosting an exclusive FREE online event with renowned economist, Roger Martin-Fagg.

Roger has an excellent reputation for providing jargon free insight into today’s key economic influences, trends and indicators.

If you missed this live event you can access the recording by filling out the form below.

Meet the speakers

Lee Denton

Associate Sales Director at Source Insurance

Lee will be providing an update on the current GI landscape.

Steve Evans

Broker Relationship Manager at Protect Commercial Insurance

Steve will be discussing changes in the commercial insurance market.

Roger Martin-Fagg

Leading behavioural economist and author

Our keynote speaker will discuss the latest economic outlook.

Q&A

The roaring twenties was followed by the great depression, is the ongoing currency creation not going to be disastrous? As we’re in a great experiment increasing unemployment move to the digitisation of many jobs.

Yes I think it is likely, it is possible that in 2029 there will be a sharp slow down. That’s the repeat. Digitisation is creating job losses primarily in white-collar activities and an awful lot of those white-collar workers actually have transferrable skills. So if you digitise HR processes, you need someone in HR to design the software. So you’re not going to see ‘mass white-collar unemployment’.

Isn't a large percentage of this cash being held by middle and higher income households with a much lower propensity to spend and they will save it all?

That argument is an interesting one. If you look at the data it’s the 80:20 rule. 80% of British households have got excess cash, 20% are suffering. That 80:20 has always been with us and regrettably it always will be. The very high net worth householders have got exceptionally richer this past year because they’ve got properties and equities. They’ll buy yachts, they might buy private jets and they might well spend money on very expensive restaurants. What we’re thinking of, when we look at where the boom is coming from, it’s the person on £30/40k a year.

They have surplus money right now. The vast majority of them have not been furloughed. There are only 3million out of 31million people furloughed right now in Britain and almost all of them are hospitality or events.

Wouldn’t inflation severely damage the average consumer?

There is some truth in that. As long as wages can keep up with prices, you’re okay. Given our demographics as a country, given that we’ve lost 300,000 EU workers, there is no doubt in might that wages are going to keep up and probably be ahead of inflation, over the next few years.

Demographically, we’re a pyramid. We’ve got more and more people reaching 65 and retiring, and fewer people coming in at the age of 16 to 19. This has been discarded disguised by EU workers helping us out, but they’re not going to be with us now.

What is the place for cryptocurrencies in the equation?

The place for cryptocurrencies is, number one are for gamblers, if you look at bitcoin. 96% of bitcoin is just bought/held, it’s a speculative product. That’s why it’s price keeps doing this (up and down action) It’s not a medium of exchange, unless you’re a real geek. There are 200 cryptocurrencies in the world. Until you can go to the Bank of England with your ‘crypto wallet’ and come out with folding money, it’s not a currency. So I don’t think there’s a big role for it, yet.

When would you expect a base rate increase?

Base rate increase – a year from now, we might see up to 0.5%. I still think 2 years from now, the base rate will be 1% or less. The long rate, the yield on gilts (gilt-edged securities are bonds issued by the UK Government), that’s probably going to be up to 2/2.5% by then.

As a mortgage adviser, how can we advise our clients on the market ahead during buying?

First of all, there’s going to be a lot of mortgage products available. For a bank, a mortgage is like a Walmart or Asda product, you pile it high, you sell it cheap. The margin on mortgages has steadily been falling in the last 15 years. It used to be 3%, and it’s now running about 1.6%. So the banks will look for volume so there’s going to be loads of mortgage money available, particularly if you’ve got a 10/15% available deposit. If you’re a mortgage broker, you’re going to be very busy.

The advice to people is, when they say, “should I buy, should I not buy?”, if you see a house you can see yourself living in and you can afford it, buy it. The idea that a house should only be an investment, for me, is false thinking. A house is primarily a place where you get a supply of services. Yes in Britain they tend to go up 4/5% a year, but that’s not the reason you should buy.

Will the house prices ever come down or crash like 2008?

On average, no they will not. 2008 house prices crashed because the mortgage manufacturers were insolvent. They’re not, they’ve got loads of capital right now. Banks are very firmly open for business right now, providing it isn’t too risky.

With an the aging population, does that not lead to downturn, as people pull investments out of market for retirement?

That’s interesting. A pension fund has to manage it’s book, such that it’s got enough cash to make those payments. An individual, when they reach retirement age, yes will if they’ve got a private pension, begin to pull on that resource, in order to spend it. You’ve got them spending and others contributing, so the net thing balances.

You may remember that they were saying by 2020 there’s going to be a massive transfer of wealth from the oldest to their kids. Oh no – skiing, spending the kids inheritance, going on cruises, buying Range Rovers, that’s what the ‘oldies’ are doing.

What is the likelihood that there will not be another lockdown?

I think the issue with COVID, it’s going to be with us every year, like flu. We know that 90% of all those that unfortunately died were actually significantly overweight. So if we can get the whole nation physically more healthy, and we have vaccinations like the flu jab, then I think we’ll be living with it and the vast majority of people will feel rough for a couple of weeks, but they won’t die. So COVID is here to stay, and I think therefore lockdowns (and this might be wishful thinking) are probably a thing of the past in Britain. In America, it might be different, in countries where the roll-out is so much lower.

Will commercial property prices increase year-on-year, in line with house price growth, even though more people will be working from home?

That is a very difficult question. When we think of commercial property and we think of office blocks, I think the picture is going to be very, very mixed. I think if the office block is in a prime area with good links, prices aren’t necessarily going to fall but there’s going to have to be a big spend on refurbing the interiors. If you think of commercial properties that is sheds, warehousing, industrial, I think that’s going to do just fine.

What do you think is a good investment?

A good investment is anything that gives you a stable return. A lot of people are attracted by investments that give them 10% returns but that’s not stable. You’re not going to get 10% year-on-year on year. Some property, but not 80% property, equities, some bonds. Basically, most of us, if we own our own house, are already over-invested in property. If we’ve got spare cash, we should be moving into baskets of equities, not following the herd into buy-to-let. That’s just my opinion.

People I know say “I’m doing really well”, I say you are at the moment, but you haven’t got any liquid asset, you’ve got four properties. If you want to cash any of those in you’ve got six months, you’ve got expenses. You can sell a share by just pressing a button.

Broad balance portfolio, not all in one basket.

With Brexit, could the UK not get more labour from other parts of the world?

Yes. The Government is looking at VISA regime. In fact, most of the net immigration this last year has been from outside the EU. The answer is yes, but we’ve got to find a way that works in terms of getting the right sort of labour for the jobs that need filling.

Returning back to the buy-to-let, what was your opinion about that?

I think if you do buy-to-let professionally, then it makes sense. But if you’re someone who just buys a property and they’ve already got an existing property, so that you look at their overall wealth and 90% of it is just property, I think that’s an exposure.

I don’t think you should have 90% of your wealth in a single asset. If you look at the return on buy-to-let, if you take the Capital Gains Tax that you would have to pay upon disposal, you get an average return of around 5%. You’ll get that average return on an average basket of equities.

What does this change in economic behaviour have on the financial services with protection?

We all need insurance because insurance actually passes risk from us to the insurer. I feel very strongly that you have no idea how good your insurer is until you make a claim – and then you discover. A lot of my friends spend a lot of time online, trying to get the cheapest. And I say, why do you do that? If it is the cheapest, it’s like anything that is the cheapest – it’s generally speaking going to be rubbish when you need it. As people expand, as businesses grow, the insurance industry, as always, is going to be a pretty good industry to be in – if you do it properly.