It is fair to say that Jeremy Hunt’s first budget did not send many pulses racing in the property industry.
Even Kwasi Kwarteng’s notorious effort last September included a cut in stamp duty.
The current chancellor did not create any turbulence, though he was operating against the backdrop of renewed concerns about the banking sector, following the collapse of America’s Silicon Valley Bank. His “no risk” budget left many wanting more, however.
The National Residential Landlords Association described it as missed opportunity to tackle the supply crisis in the private rented sector, while others were concerned about the lack of measures to lift battered spirits among homebuyers, following the autumn mortgage rout. The Royal Institution of Chartered Surveyors (RICS) said it was disappointed by the lack of housing ambition in the budget.
The absence of significant property measures did not mean, however, there was nothing in the budget for people to get their teeth into. The construction industry will be pleased to see that some of its pleas about worker shortages have been heeded, with five construction occupations added to the shortage occupation list on the recommendations of the migration advisory committee.
There was also plenty of content in the new assessment of the economy by the Office for Budget Responsibility (OBR). It has become less gloomy about the short-term outlook for the economy and unemployment but is gloomier about the housing market. In its new economic and fiscal outlook, it predicts that house prices will fall by 10% from their peak in the final three months of last year.
This, perhaps surprisingly, is slightly more downbeat than it predicted in that autumn, when the mortgage market fallout from that September 23 mini budget was still in full swing. It noted that what it described as leading indicators from the Halifax and Nationwide have already fallen by between 3% and 6% from last year’s peaks. There will be an even bigger fall in housing transactions, the OBR thinks, which it sees falling by 20% from their peak towards the end of last year.
“Low consumer confidence, the squeeze on real incomes, and the expectation of mortgage rate rises to come are expected to contribute to continued falls in house prices and a reduction in housing market activity,” it says.
Will it be right? The latest figures for transactions, for January, show that they were down by 11% compared with a year earlier, and 3% lower than in December. The official house price index shows that the annual growth rate has dipped below 10% but that there is little sign that the market is capitulating yet.
If anything, surveys suggest more optimism is creeping back in now that autumn’s turbulence is starting to fade in the memory. On this, the new official forecast was also interesting on the outlook for mortgage rates.
You will know that in an era of predominantly fixed rate mortgages, the pass-through from a rise in the cost of borrowing is slower than in the past. Some homeowners will already have had to refix at higher rates and roughly 300,000 a quarter will do so this year.
The OBR looked at when this would feed through to higher mortgage rates for everybody, in other words when the stock of outstanding mortgages fully reflects higher rates. As it notes: “With more than 80% of mortgages on fixed-term contracts and the prevalence of fixed-rate mortgage contracts with terms of more than two years having risen in recent years, the increase in rates on new mortgages over recent months will take several years to feed through to the average mortgage rate.”
Its view is that this will be achieved in four years’ time, in 2027, by which time the average mortgage rate across all loans will be 4.2%, double the level in late 2021, the low point. That is quite a hit, even if it occurs relatively slowly, but it could have been worse.
In November, the OBR thought that the stock of outstanding mortgages would be on a 5% average rate, 0.8 percentage points higher than it currently expects.
These things can change, for good and bad, in a remarkably short time.
Ignoring Housing Crisis is Catastrophic Misstep for Tories
The bewildering absence of support for first-time buyers and the property sector is a catastrophic misstep for the Tories which could cost them in the next general election.
The Government is fully aware that it is more difficult than ever to get onto the property ladder, yet its inaction is paving the way for a potentially devastating defeat at the next general election — and the opposition knows this, Ben Woolman, Director at property firm Woolbro Group, commented. Labour is already drawing up battle lines by announcing it will seek to reform Britain’s outdated and ineffective planning system, sending a clear message of support to the property sector.
The Tories have kicked the can all the way to the end of the road. To stand any chance of winning over the votes of first-time buyers, it must start taking the housing crisis seriously. An obvious and overdue starting point is to replace the Help to Buy scheme, which helped hundreds of thousands of first-time buyers onto the property ladder.
Secondly, it must renege on plans to make housing targets for advisory only, ensuring that underperforming planning authorities are held to account when they fail to hit targets. Lastly, and most importantly, Woolman concludes, it must bring planning reform back onto the table.
Jeremy Hunt wasted no chances in pulling the biggest rabbit from his hat, brandishing the forecast from the Office for Budget Responsibility that the UK will swerve a recession this year. Things were already looking up, with consumer and business confidence rising, and spending proving much more resilient.
The rebound in the huge services sector in February had already raised hopes that two back-to-back quarters of negative growth will be avoided and now that more pieces of the jigsaw are now in place a rosier picture is emerging. But given that the cost-of-living crisis is still proving painful, economic activity is still likely to be slow to power up and a period of stagflation not super-charged growth is still expected.
The Chancellor is gearing up to deliver fresh incentives to loosen a tight labour market, spark greater productivity and bring in foreign investment but it’s going to still be a hard slog ahead, comments Susannah Streeter, Head of Money and Markets, Hargreaves Lansdown. Prudence and stability were clearly right at the heart of Hunt’s Spring Budget. Undoubtedly, the hangover effect of his predecessor’s gargantuan economic gamble – and the corrective fiscal squeeze that followed – left little room for any wild cards.
From the perspective of where the government and economy found itself in late 2022, a relatively quiet Budget is not a bad thing. It shows they are being financially responsible.
However, at a time when sky-high inflation is compounding the housing crisis, is no news really good news?
Building costs are through the roof and access to finance remains a big issue for developers, in turn damaging efforts to boost the UK’s housing stock. Quite ridiculously, the revolving door for housing ministers has left the UK with six different MPs holding the role in the space of a year, while the scrapping of mandatory housebuilding targets, means that what we needed today was some clear policies to get Britain building.
While all eyes will remain on Hunt and Sunak’s conservative fiscal policies, the lack of decisive action on planning reforms, construction output and the lack of affordable homes could be a dangerous oversight. Evidently, the private sector will have to forge ahead to ensure property development continues at pace, said Jatin Ondhia, CEO of Shojin.
Paresh Raja, CEO of Market Financial Solutions, said, "it’s no secret that there are issues requiring attention in the property sector, most notably where housebuilding activity, planning regulations and the national housing stock are concerned. Clearly, as Hunt looked down his list of priorities for this particular Budget, these items were overlooked in favour of other pressing concerns. In truth, the property market could benefit from the Chancellor’s prudent economic approach. While there may not have been any noteworthy policies or investments relating specifically to property, his efforts to combat the cost-of-living crisis and bring much-needed stability to the economy should be welcomed. We saw how tumultuous the effects of the mini-Budget were back in September. The ill-fated announcement fuelled significant interest rate changes and a great deal of uncertainty. Hunt has favoured a cautious approach, and the property market will likely benefit from a sense of economic calm, particularly if inflation continues to fall and interest rate hikes come to an end.”
Richard Campo, Founder of Rose Capital Partners said, "I’m disappointed to say that there was nothing in the Budget to alleviate the pressures on the UK housing market but with 20 housing ministers since 2010 and a lack of continuity and foresight over this period, the consequences of inaction are now really biting, and will only get worse until this issue is addressed. There are two simple (but hard) solutions that can solve this:
Firstly, we need to BUILD MORE HOMES!
According to the think tank, Centre for Cities, at the current rate, it will take us 50 years to catch up with demand, even if we started building 300,000 homes a year, which we are not currently doing. It’s time for the Government to step in and focus on newer construction methods, create more jobs, keep house prices lower over the long term, increase the number of first-time buyers and make more affordable rental homes available.
There are strong economic arguments for doing so.
Secondly, we need to reverse the tax treatment on Buy To Let properties that was introduced in 2017. Rents are soaring due to landlords exiting the market, and this will only get worse before it gets better. This is only a small revenue earner for HMRC in relative terms, and encouraging existing landlords to remain in the market and attracting new landlords will help to ease the housing crisis. It really is that simple, although I appreciate that simple things are still very hard to do. However, it’s time for the Government to step up and take action."
What does the Budget mean for Homeowners?
Kellie Steed, Uswitch.com mortgage expert, said, “A large focus of Hunt’s first budget has been getting the nation back to work, with a number of plans aimed at making work more accessible to the economically inactive. In the absence of any direct help with higher mortgage costs, this at least provides hope to those struggling due to a lack of income.
A return to the workplace for early retirees
The “returnerships” programme will be introduced to offer skills training to the over-50s in an attempt to aid economic growth. Coupled with an increase to the cap on tax-free pension contributions, this offers some promise to those in this age group with rising mortgage and general living expenses. Applicants nearing retirement age also have a greater chance of being accepted for a new mortgage and remortgage if they have proof of a stable income. These changes may, therefore, encourage older buyers back to the property market, and ease the burden of maintaining their mortgage repayments post-retirement, by providing an opportunity to increase their pension pot now.
Help for low-income parents
A dramatic rise in the cost of childcare in recent years has made it increasingly difficult for families with young children to return to the workforce. Hunt’s response has been to restructure universal credit to provide upfront payments, rather than payments in arrears, and provide an increase to the maximum universal income support threshold. Both may go some way to supporting those on the lowest incomes back into employment, giving more young parents scope to begin looking at home ownership.
Getting disabled people and those on long-term sick back to work
Plans to scrap the work capability assessment are designed to provide more disabled people the chance to work without losing their benefits. This is promising for those with long term disabilities looking to increase their affordability for a mortgage application. It will also increase their access to mortgage lenders, as people with an income solely consisting of benefits have a harder time getting their application approved.
Further energy bills support
Hunt has maintained the current energy cap at £2,500 for an additional three months, rather than raising it to £3,000 on 1st April, as previously expected. From 1st July, prepayment energy charges will also be brought into line with those charged to direct debit customers, reducing bills for many of the lowest income households. For those struggling with increased mortgage payments, this may offer an element of balance and reduce the occurrence of missed payments due to a lack of affordability.
Investment zones offer future promise for struggling landlords
12 Investment Zones, each to receive £80m in funding over the next five years, have been announced, with eight locations shortlisted in England and four more to be added following discussions with the devolved administrations across Scotland, Wales and Northern Ireland. The focus for these areas are high-growth zones, specifically those surrounding universities and research institutions in areas that have traditionally underperformed economically. This will likely provide attractive new buy-to-let investment potential in areas where property prices are more affordable.”
Adrian Anderson, Director of property finance specialists, says, “chancellor Jeremy Hunt has finally offered some help on the horizon to working parents with the expansion of free childcare for those aged over 9 months to three years. Childcare fees of potential borrowers are scrutinised by the banks and have a real impact on the affordability capacity for those seeking mortgages. Childcare fees were making some families unmortgageable. This expansion of free childcare in 2024 will make unmortgageable families (due to childcare costs), mortgageable, enabling them to get on the ladder or secure the right property to meet their needs.”
Commenting on First-Time Buyers, Co-founder and CEO of Wayhome, Nigel Purves, said, “the nation’s first-time buyers are currently tackling the highest cost of homeownership on record and it’s bitterly disappointing to see the government turn their back on them yet again. Having afforded them some brief stamp duty respite during the pandemic, they clearly feel their job is done and have now left them out in the cold to fend for themselves. While we certainly weren’t expecting another stamp duty reprieve, nor do we believe these intermittent discounted buying costs are the answer, a commitment to at least building more homes would have been a start. We were also hoping to see amendments to stamp duty laws to bring parity for all homebuying schemes. This would allow those who utilise additional methods, such as Gradual Homeownership, to be afforded the first-time buyer rate of stamp duty tax when they do come to purchase their home, rather than the rate applied to an existing homebuyer.”
Commenting on Levelling Up, Managing Director of Stripe Property Group, James Forrester, said, “while we certainly need a better balance of investment across the nation, the Levelling Up Fund has so far been lopsided, to say the least. As it stands, the North West has seen a substantial amount of investment, while the North East has been largely ignored. So today’s news that the region will benefit from the next round of investment is, of course, positive for the regional economy, along with the economies of the other areas earmarked to benefit. However, we can be forgiven for holding our breath until we know for sure just how the latest £80bn has been allocated and which areas of the nation stand to see the largest boost.”
Commenting on Housebuilding Targets:
CEO of Alliance Fund, Iain Crawford, said, “It’s disappointing not to see any new ambitions with regard to housing delivery in today’s budget. There’s been a severe lack of new homes reaching the market in recent years and so you would have hoped the issue of housing supply would have been higher on the agenda. Instead, it seems as though the government has chosen to throw in the towel with no new targets set and this certainly isn’t going to help solve the housing crisis.”
Head of Corporate Partnerships at Sirius Property Finance, Kimberley Gates, said, “rather than address the housing crisis head on, the government has chosen to shy away from the issue, relinquishing any accountability by failing to set new housebuilding targets. This hands off approach is sure to see the already inadequate level of new homes reaching the market decline even further. For homebuyers, this means less choice, higher prices and an even tougher task when attempting to climb the property ladder.”
Commenting on Pensions and Corporation Tax, CEO of RIFT Tax Refunds, Bradley Post, said, “the decision to abolish the lifetime allowance for pensions may seem like a generous offering from the government, but the reality is that it will only benefit a minute percentage of society who are already benefiting from huge pension cash pots. The average pension pot sits at around £180,000 to £190,000, so for the average person, today’s news is rather irrelevant. Alas, the chancellor went ahead with his promise to increase corporation tax today from 19% to 25%, a 31% rise in real terms for medium and large companies. This move will potentially net him another £10b to £12bn in annual tax revenue at the expense of hard-working businesses with profits over £250,000. Lowering this tax would, we suggest, have been the best way to truly administer a ‘Budget for Growth.”
Commenting on ‘A Budget of Missed Opportunities’,
CEO of Octane Capital, Jonathan Samuels, said, “the government has made numerous legislative changes to ‘improve’ the rental market at the expense of the nation’s landlords, changes that have ironically led to higher rents, less accommodation and lower standards. We were hoping that they had finally realised the error of their ways and wanted to once again tempt buy-to-let investors back into the fold. Unfortunately this hasn’t been the case and, with them also pushing forward with changes to Capital Gains Tax allowances, we expect to see more landlords exit the sector as a result.”
Director of Benham and Reeves, Marc von Grundherr, said, “another missed opportunity for the government to finally do away with the archaic and unnecessary buyer tax that is stamp duty. Doing so would have offered a hand up to thousands of beleaguered buyers who are hard pressed to overcome the high cost of homeownership and helped ensure the market puts its recent cold spell well and truly behind it.”
Managing Director of House Buyer Bureau, Chris Hodgkinson, said, “the property market has been treading water since last September’s shambolic mini budget and we were looking to the spring statement for a shot in the arm that would reignite the furnaces of buyer demand and help negate any prolonged period of subdued activity. Unfortunately this hasn’t materialised and the nation’s homebuyers have been shown the cold shoulder once again. While we expect the market to hold fairly firm over the coming year, it’s extremely unlikely that house prices will now rally and the pandemic highs of previous years will be resigned to the record books.”
Commenting on ISAs, CEO of easyMoney, said, “ISAs have become increasingly popular in recent years and the sector has evolved to provide investors with a range of options to suit their individual needs, whether it be the long established Cash ISA, or more recent offerings such as the Innovative Finance ISA. So while the government’s decision to keep the current ISA threshold frozen is certainly not bad news for the nation’s savers, we would have liked to see more done to streamline ISA offerings and make it easier for savers to diversify their portfolio with greater ease.”
Commenting on Smart Regulation for Digital Tech, CEO and Founder of ID Crypt Global, Lauren Wilson-Smith, said, “AI is an incredibly fast moving sector and one that holds huge potential for the future with regard to how we live and work. The proposed ‘AI sandbox’ will no doubt help accelerate the growth of the sector and provide a much needed platform for many innovators. Of course, while the increased speed of innovation is a positive, we must make sure that we don’t jeopardise the security and safety of the nation in the process.”
Paul Sams, Partner and Head of Property for Dutton Gregory Solicitors, said, “we predicted that this would not be a Spring Budget to remember, it was a positive move to introduce the price cap on energy bills, the introduction of the childcare reforms, and reassurance that inflation will decrease by over half to 2.9%, however there were some missed opportunities, particularly for the property industry. There were a number of simple initiatives that could have had a transformative impact on the UK’s property sector, with every new transaction pumping circa £10,000 into the wider economy. This should have included a Help to Buy Scheme that would have actively increased the number of first time buyers, and incentives and support for landlords to make the investment into retrofitting eco-friendly technologies into their Buy to Let properties.”
Scrapping Help to Buy
As Help to Buy was self-funding, it should have been reintroduced. The tightening of the original Help to Buy criteria – which was open to first time buyers, as well as existing homeowners until two years ago – was a sensible change. The scrapping of Help to Buy entirely has made no sense.
First time buyers are now scarcer than we have ever seen, so there is a danger of a generation of young people being denied accessible home buying opportunities. Prior to a decade of Help to Buy, there was Home Buy Direct and First Buy, so how is it right that there is no longer a government initiative to make home ownership a possibility for those without a substantial deposit?
Incentives for Landlords and making Buy to Lets more energy efficient
If we want to see the UK’s homes become far more energy efficient, landlords need to be incentivised to make the investment into retrofitting eco-friendly technologies into their buy to let properties. There are some grants available, but the uptake is very low because of the complexity and red tape.
A largescale residential property upgrade scheme could be rolled out, mirroring the simplicity of the 2020 furlough system.
By seizing the opportunity to see millions of homes upgraded to an EPC-C performance, the Chancellor could deliver a very welcome shot in the arm to the property, construction, and manufacturing sectors, while also reducing the energy bills and carbon footprint of renters. The climate of demonising buy to let landlords should also end. Modernising and upgrading buy to let properties has been far more scarce in the three years since landlords stopped receiving interest tax relief on their mortgage expenses. This is not beneficial to the wider economy.
Our property conveyancing team has just received the highest number of weekly new instructions of the year. This number even exceeds March 2022, when the housing market appeared to be more buoyant. The media hype about a property downturn has now been proven to have been blown out of proportion. Now is the time for the Chancellor to reintroduce some much-needed levelling up and help vying first time buyers in the way that nearly 300,000 before them were given assistance to become homeowners.”
Reflecting on the Spring Statement, Nick Whitten, Head of EMEA Living Research at JLL says, “on the eve of the end of Help to Buy, there was a noticeable lack of policy to boost the supply of new housing in the UK. This is against the backdrop that the UK has perennially failed to build enough homes to meet demand while also having the most energy inefficient homes in all of Europe. The Government needs to find ways to grow the housing delivery food chain as a whole. This means the creation of more big builders, more medium sized builders, more small builders and more self-builders. Housing affordability has come sharply into focus on the back of the cost of living crisis. The UK needs greater innovation on supply side policy – we need to increase the volume and variety of the different housing tenures including rent, sale, affordable housing and part-own part-rent homes.”
On The Chancellor announcing an extension of the energy price guarantee, Meg Eglington, Senior Research Analyst at JLL said, “after a year or so of continuously rising household costs, the news of the energy price cap remaining at £2,500 per annum will be a welcome relief to families in the UK. Although real energy prices and inflation have begun to fall, unfortunately the pinch is still being felt as real incomes have failed to keep pace. Energy prices falling is all well and good, but the Government can’t get complacent – we must look towards retrofitting our homes to become more energy efficient. JLL research shows that the energy efficiency of homes is now one of the most important housing priorities – almost two thirds of home buyers say a saving on energy bills is a key driver in their homebuying decision making. Meanwhile, energy costs still remain uncomfortably high for poor performing homes. JLL analysis of Energy Performance Certificate (EPC) data highlights that even with the current energy price cap, the average house in the most inefficient rating of G is paying approximately £4,117 more per annum than the most efficient households in bands A-C.”
Tom Bill, head of UK residential research at Knight Frank, said, “the Budget has certainly provided more of a boost for the UK housing market than the mini-Budget did. The absence of a recession will lift sentiment as buyers and sellers adapt to the new reality of higher mortgage rates. However, we expect house prices to fall by 5% this year as buyers recalculate their budgets and more supply comes onto the market.”
Key Take Away for Property Investors
From a property investment perspective, one of the issues that matters most is average disposable incomes. The cost-of-living crisis – high inflation and a sharp fall in real-terms earnings – has been exerting a braking force on the property market for many months, and capital growth rates have steadily declined. That’s why the decision to extend the Energy Price Guarantee is a welcome step; it steers us away from the prospect of another unaffordable rise in household energy bills, which might otherwise have averaged around £3,000 this year.
That, together with the prospect of stronger-than-expected economic performance and slowly falling inflation, is encouraging for investors. More money in the pockets of ordinary tenants and house buyers should help the market to see a faster and stronger recovery. Moreover, with the OBR forecasting that CPI inflation will fall to 2.9% by the end of the year, the Bank of England should feel less pressure to maintain an elevated bank rate. As the base rate of lending starts to fall back, we should see lower mortgage costs, which would also support improving conditions in 2024 and beyond.
Another important announcement was the decision to invite competitive regional applications for the new Investment Zones. Wherever these new zones are established, the potential for each of them to draw down £80m of additional funding means that they are likely to create – or reinforce – property investment hotspots by encouraging local economic growth and job creation. Such growth should help to raise average earnings in the relevant areas and attract new inbound workers. Both of those outcomes should help to energise local housing markets, boost demand for accommodation and improve longer-term returns for investors.
We also heard about regeneration and infrastructure budgets: £200m ringfenced for projects in England, £161m for the mayoral authorities, and £400m for levelling up partnerships. It’s impossible to know yet which markets will take the lion’s share of that cash but, again, the funding will undoubtedly create important new opportunities in the areas that benefit. The same is true of the £20bn support for carbon capture – though we can guess that much of it is very likely to support economic growth and job-creation in North Wales, Merseyside and the Yorkshire Coast.