Effects of the Spring Budget on the Property Market

Potential Decrease in Inflation Rates

According to Chancellor Jeremy Hunt, the greatest support for the real estate market might come from an expected decline in inflation rates to a target of 2% or possibly lower in the upcoming months.

Due to rising inflation and continuous increases in the Bank of England’s base rate from December 2021 to August 2023, mortgage rates have surged. However, a reduction in inflation should lead to a decrease in the base rate, allowing lenders to offer lower rates once more.

Sarah Thompson, Managing Director at Mortgage Scout, urges the Chancellor to focus on reducing interest rates. She expects the housing market will quickly improve once rates begin to decrease. Although mortgages may not return to the below 2% rates seen before 2021, they are likely to fall to between 3% and 5%.

The drop in National Insurance announced should positively impact the affordability calculations for mortgages, as banks often use figures from the ONS (Office for National Statistics) for these assessments.

Addressing both the cost-of-living and housing crises is seen as beneficial for politicians and citizens alike.

Boosting the Supply of New Housing

Tim Foreman, Managing Director of Land and New Homes, would have preferred to see the government offer more support to first-time buyers, recognizing their challenges and assisting them onto the property ladder.

Though not a focus, the budget mentioned new housing investments slated for Sheffield, Blackpool, and Liverpool as well as additional funding for Barking Riverside and Canary Wharf, with plans to develop the latter into a tech hub aiming to be ‘the next Silicon Valley’ in the UK. Cambridge was also noted for investments to become a leading medical research and health science center in Europe. The government acknowledged that along with job creation, new infrastructure, transport, and services, housing is needed for growth.

Upcoming Property Tax Alterations

Some key tax changes include:

  • Scrapping multiple dwellings relief (a Stamp Duty relief for purchasing multiple dwellings at once) from April 6th, 2025.
  • Cessation of furnished holiday lets tax relief from April 6th, 2025. This relief currently allows landlords to deduct all mortgage interest payments from rental income and, under Business Asset Disposal Relief, pay only 10% Capital Gains Tax (CGT).
  • Reduction of the higher-rate CGT from 28% to 24% beginning April 6th, 2024.

Potential Budget Benefits for the Property Market

The anticipated fall in inflation to 2% or below should positively affect mortgage costs for borrowers.

The changes to holiday lets could potentially lead some landlords to offer longer-term rentals, which is good news for families and communities.

Additional changes that could broadly help the property industry include:

  • The VAT threshold for businesses increasing to £90,000 from £85,000.
  • A reduction in National Insurance contributions for both employees and the self-employed.
  • No cuts to child benefit payments for those earning below £60,000.
  • Extension of the fuel duty freeze and 5p discount until February 2025.
  • A new investment allowance within a UK ISA permitting tax-free savings of £5,000 to support UK companies.

However, no specific support for landlords or tenants was announced to alleviate recent stock shortages.

Allison Thompson, National Lettings Managing Director, laments the lack of budget measures to help balance the taxation field for the private rented sector, which she believes is necessary to maintain adequate stock levels.

Investment and Job Creation as Potential Opportunities for Property Investors

Investors may find opportunities in property markets where the government is investing and creating jobs. These industries include the nuclear sector, film and creative industries, NHS, science, data centers, and clean energy. They may draw high-earning tenants which could support property demand and increase in both value and rents.

  • Barking will see £124 million invested at Barking Riverside for 7,200 homes.
  • A £118 million investment in Canary Wharf to develop a life sciences hub, commercial space, and up to 750 homes.
  • The Leeds Vision Document outlines plans to transform Leeds, aiming for 20,000 new homes.
  • The establishment of the Euston Housing Delivery Group, supported by £4 million for planning up to 10,000 homes.

Michael Cook of LRG commended the budget’s investment in new homes but emphasized the need for more government support to boost housing supply. He anticipates that future housing policy developments may better support various housing sectors from social housing to private rental and homeownership.