The Budget has been and gone and the fact most commentators’ view of this fiscal event focused on, what they perceive to be, a ‘missed opportunity’ by the Chancellor for our sector, perhaps tells you everything about what we anticipate the reaction will be.
Certainly, there was no market-shifting measure that is likely to change the dial significantly; no big reform to Stamp Duty, for example, that will provide a much-needed impetus to transactions as would-be purchasers seek to take advantage of any tax-savings.
That being said, we did see the Multiple Dwellings Stamp Duty Relief regime abolished – at least it will be from the 1st June – and therefore advisers might well see a tick-up in terms of those would-be purchasers of multiple properties seeking to buy before this changeover.
Even with this, one of the reasons why the Government says it is abolishing this relief, is that it’s not actually been supporting investment in the private rental sector (PRS) and therefore we shouldn’t anticipate we are going to see a multitude of activity in this space.
Also, the Government feels it might incentivise further transactions from its decision to cut the higher rate of CGT payable on residential sales from 28% to 24%.
The assumption here is that, in particular, landlords and second-home owners will feel the tax-saving is now worth the sale of their properties, and the Government has explicitly stated it hopes this will generate the transfer of PRS properties to first-time buyers and other owner-occupiers.
If this sounds like a very hopeful assessment of its own policy, then I would have to agree with you.
For a start, you might well rightfully argue that the private rented sector (PRS) needs all the properties it can get at the moment.
Also, while there may be a very small cohort of landlords who have been put off from selling their investment properties up until now because of the CGT they would have to pay, and this measure might mean they feel more comfortable in making this decision, it feels like this won’t be enough to make any real difference to housing supply for first-time buyers and others.
Indeed, the vast majority of landlords are investing in the PRS for the very long term, and while there are clearly increased mortgage costs due to higher rates to cope with, the wider market is delivering them increased tenant demand against less supply equalling higher rents, which are able to offset some of the increased finance costs.
At the same time, we’ve had a number of recent house price indices showing prices are moving back up – good for capital gains, while the OBR predicted inflation will hit the 2% target in a couple of months, and 2024 is likely to bring (probably) multiple rate cuts, which should cut the cost of mortgages.
What I’m saying here is that a relatively small CGT cut will be utterly irrelevant for most landlords because they will recognise that, after a tough 2023, the market is moving back in their direction and there is unlikely to be any discernible drop-off in the need for quality rental properties, particularly as supply is short across the entire housing market.
Overall, therefore, this is not a Budget likely to make much of a change to our market.
Clearly, if we’d seen a big focus on housebuilding or a replacement to Help to Buy, or indeed any further specific schemes purely for first-time buyers, or Stamp Duty changes, then we might well be talking about a significant increase in activity. We did not get any of that and we’re therefore on much the same path as we were earlier in the year.
What will move the market, as mentioned, will be inflation falling further, any interest rate cuts by the Bank of England, subsequent falls in product rates, further high loan-to-value (LTV) options for first-timers, etc, and perhaps a growth in consumer confidence that the worst of the economic situation is over and they can make those big-ticket decisions such as buying or selling a house.
It sounds somewhat odd to be saying this, given the UK has just entered a recession, but even with that, there are some property market fundamentals that point to a better year in 2024 than 2023.
Of course, for advisers, with the Budget unlikely to herald a flood of new enquiries or clients, the important point is to make the most of every opportunity that presents itself.
The mortgage advice you give should be the gateway for all other client needs, including protection, GI, conveyancing, legal services, you name it, and those advisers and firms who take the time to explore all of these, and then some, are likely to have the most productive year possible.
Keith Young is managing director of Broker Conveyancing
