How will the property market be impacted by the Spring Budget?

The most significant help for the property market is likely to come from a drop in the rate of inflation, which Chancellor Jeremy Hunt stated is expected to fall to its target of 2%, if not lower, within a matter of months.

Spiraling inflation and a seemingly constant increase in the Bank of England base rate between December 2021 and August 2023 saw mortgage rates rise significantly for many. However, if inflation does drop as predicted, the base rate should also reduce, enabling lenders to bring their rates down again.

Sarah Thompson, Managing Director at our sister company Mortgage Scout, explains:

“All that we in the mortgage industry ask of the Chancellor is that he concentrates on lowering interest rates. Once interest rates begin to come down, the housing market will react quickly.

“Although we are unlikely to get back to the sub-2% mortgage rates that were available in the years prior to 2021, we should hopefully see them fall to between 3% and 5%.

“The National Insurance drop that has been announced is positive, as this should feed through to the ONS figures, which many of the banks use for affordability when assessing mortgage applicants.

“Addressing both the cost-of-living crisis and the housing crisis will result in a win-win for both politicians and the electorate.”

Increasing the supply of new homes

Tim Foreman, Managing Director of Land and New Homes, would have liked to have “seen the Government turn its attention to first-time buyers, appreciating the difficulties they face and enabling them to make a very important first step onto the ladder.”

However, whilst an increase in the supply of new homes wasn’t a key feature in the budget, it was mentioned that new homes would be created from investment in Sheffield, Blackpool and Liverpool, and there would be further funding for Barking Riverside and Canary Wharf. The Government intends to develop the latter as a tech hub, in an effort to deliver ‘the next Silicone Valley’ in the UK.

Cambridge was also highlighted as another area where funds were being invested, in order to make it Europe’s leading centre for medical research and health science. While the main focus seemed to be on creating more jobs, the Government also recognised that homes, as well as new infrastructure, transport, and services were required to deliver this growth.

Property tax changes

Several tax changes were announced including:

• Multiple dwellings relief – where investors can claim Stamp Duty relief when they buy more than one dwelling in a transaction (or a number of linked transactions) – is going to be scrapped from 6^th April 2025.
• Furnished holiday lets tax relief will also be scrapped from 6^th April 2025. This relief enables landlords who rent out furnished holiday lets to take the full cost of any mortgage interest payments from rental income and, if they qualify for Business Asset Disposal Relief, they only pay 10% Capital Gains Tax (CGT) when selling.
• Higher-rate CGT will drop from 28% to 24%. While lower-rate tax payers are charged CGT at 18% of the rise in the property’s value, higher-rate tax payers pay 28%. The reduction to 24% will be implemented from 6^th April 2024.

What is there in the budget that could help the property market?

As mentioned, the biggest help comes from the forecasted fall in inflation to 2% or below, which should ultimately reduce mortgage costs for borrowers.

And whilst the changes to holiday lets will impact the bottom line of some landlords, we believe that some may return to offering longer term tenancies instead – which is good news for families and communities.

There were some other changes announced that could help everyone involved in a property from a more general perspective, including:

1. The VAT-charging threshold for those with a business is rising to £90,000 - up from £85,000
2. National Insurance is dropping from 10% to 8% for employees, and from 8% to 6% for the self-employed
3. A review of child benefit thresholds versus income, means there will now be no cuts to child benefit payments for those earning below £60,000 – increased from £50,000
4. The fuel duty freeze and 5p discount has been extended to February 2025
5. A new investment allowance of £5,000 can be made in a UK ISA, offering further tax-free savings to support UK companies

Unfortunately, one area that was lacking was that nothing was specifically announced to help landlords or tenants that would ease the issues with stock shortages seen over the last few years.

Allison Thompson, National Lettings Managing Director, had hoped that the Chancellor would take into consideration the important fact that the private rented sector is the only sector in the UK which, since the abolition of Section 24, is taxed without the ability to offset. She says, “The playing field needs to be levelled, urgently, to keep the required level of stock in the private sector”.

Job creation and local investment offer possible opportunities to investors

For those looking to invest in property, there are some possible opportunities if you understand the jobs and areas where the Government is making investment. This tends to support demand for property which, in turn, can result in price and rental growth.

The nuclear industry, film and creative sectors, NHS, science, data centres (such as Google and Microsoft) and clean energy, are all areas that are likely to be supported by Government as ‘jobs for the future’. They are also industries that would potentially attract highly-paid tenants, so understanding the areas where these new jobs are going to be created can be very useful to investors.

• Barking – Investment of £124 million at Barking Riverside to unlock 7,200 homes.
• Canary Wharf – Investment of £118 million to accelerate delivery of the Canary Wharf scheme. This will deliver a life sciences hub, commercial and retail floor space, a healthcare diagnostic facility and up to 750 homes.
• Leeds Vision Document – The Government’s detailed vision for transforming Leeds, to unlock 20,000 new homes.
• Euston Housing Delivery Group – Establishment of the Euston Housing Delivery Group, with £4 million to support plans to deliver up to 10,000 new homes.

Michael Cook, CEO, says, “Although there was some investment in new homes announced in this budget, we would like more Government support to increase housing supply. We want to see more sustainable ways to support growth, such as looking at stamp duty reform and policies that are conducive to help increase supply, which is the underlying cause of lots of the issues we're facing in the property industry.

“Let’s hope the election brings forward more housing policies that will help to support all tenures from social homes to renting privately and home ownership.”