Hunting for answers: will the autumn statement do enough for the property sector?
Jeremy Hunt's autumn statement seems to have landed well with the country. But there wasn't all that much for us in the property sector. So, we've taken a deep dive into what the statement could mean for us, if the autumn statement will do enough for the property sector, and what some of the knock-on effects could be.
Last week was Jeremy Hunt’s big moment. Would the new chancellor calm the markets, tame inflation, and pacify spiralling interest rates? Or would he do a Kwasi Kwarteng and scare the markets, terrify the country, and find himself out of a job faster than you can say, “a plan for growth” (presumably the growth of Labour’s lead in the polls)?
Fortunately, for Hunt and the whole country, the markets responded well to his autumn statement. There was no panic, there was no emergency Bank of England (BoE) press conference, and nobody in The City was rushed to hospital with heart palpitations. Consequently, inflation is forecast to fall next year and the recession might turn out to be a brief dip rather than a prolonged plunge.
There was just one fly in the ointment, however: the autumn statement did very little for housing. Yes, it would be terrific if inflation and the cost of living crisis were brought under control but the lack of specific measures to help landlords, tenants, and first-time buyers were conspicuous by their absence. The chancellor, therefore, prevented a tumble in the markets but presented the property sector with a tumbleweed instead.
Luckless landlords
We’ve discussed many times how landlords feel demonised these days. And, sadly, the autumn statement will do nothing to make them feel loved and appreciated again. Therefore, we expect the number of landlords selling up to increase after Hunt’s punt.
The first blow to the unmentionables was the chancellor’s decision to reform annual exemptions from Capital Gains Tax (CGT). This will move the threshold at which CGT is paid from £12,300 to £6,000 in April and then down to just £3,000 in 2024. What’s more, we shouldn’t forget that CGT is already geared against residential property sales because landlords are taxed 28% of their gain compared with 20% for other assets.
Landlords that hold their properties in companies will feel extra pain, too. Jez and Rishi’s raid will reduce dividend allowances (the amount of dividend you can claim before being taxed) from £2,000 to £1,000 next year, and then down to a paltry £500 from April 2024. Ouch.
Corporate tax will also rise to 25% in April, which will obviously hit limited company landlords. As a result, it’s getting increasingly tricky for hard done by landlords to catch a (tax) break, especially as the higher earners might find themselves dragged into the new 45% income tax band as well.
A blow for the private rented sector?
Although stabilising interest rates should help landlords to pay their buy-to-let mortgages, the economic argument for renting out property is becoming harder every day. The prospect of making a capital gain when they sell was one of the few perks that landlords had left. However, with a higher CGT burden and property prices cooling, this looks dicey in the short term.
What’s worrying, of course, is that the autumn statement will shrink the private rented sector even faster. With Section 21 surely on the way out courtesy of the Renters Reform Bill, whispers of a landlords’ register, the new EPC requirements for private rented properties, and higher stamp duty rates for second homes, there really isn’t much incentive to be a landlord these days.
There is a positive spin, however. Although Ben Beadle of the National Landlords Association (NRLA) has quite rightly claimed that the autumn statement could lead to an increase in demand for rented homes just as many landlords are selling up, it could have been a lot, lot worse. There were rumours last week that the CGT rate itself could be increased (rather than just the thresholds altered). What’s more, maybe the new CGT rules will dissuade landlords from selling? After all, they’ll get less money if they do get spooked and give up the ghost.
Trembling tenants
Although the government is currently trying to swing the balance of power towards tenants at landlords’ expense, the autumn statement didn’t bring much cheer for those living in privately rented properties, either. For starters, reforms that hit landlords often adversely affect tenants, too. After all, landlords selling up means fewer rented homes, more competition for these homes, and increased rents - the last thing tenants need at a time when rents are already rising at the fastest annual rate for more than a decade.
Tenants will also surely feel the pinch from Hunt’s decision to allow local councils to raise council tax by as much as 5% without local referenda - an opportunity the Treasury expects them to grab with both hands. Throw in the price of energy - the chancellor is keeping the cap in place beyond April but at an increased average price of £3,000 per year - and soaring inflation, which the BoE only expects to fall next year, and it’s going to be a Scrooge-like Christmas for many tenants. Don’t be surprised if there’s more grovel than gobble this yuletide.
First-time disappointments
Finally, the autumn statement provided very little for first-time buyers. This was a surprise to some after the end of Help To Buy and reports that approximately one million people have put off stepping on the housing ladder due to mortgage costs. Indeed, it could be argued that the reforms announced by Jeremy Hunt actually penalised first-time buyers.
Whereas Kwarteng, flawed as his overall plan may have been, had announced that first-time buyers wouldn’t pay SDLT on properties worth up to £425,000, the new chancellor has set a cut-off point for SDLT breaks of April 2025. This has effectively transformed a much-needed change into another stamp duty holiday, where buyers will eventually end up scrambling to get deals over the line. This will obviously keep agents busy as the deadline approaches but could push house prices, not to mention stress levels, sky high.
Negative ninnies?
We like to keep things upbeat at Just Move In, as our regular readers will know. However, this autumn statement has left us feeling a little, well, underwhelmed. Yes, it could have been worse - another ‘mini-budget’ would’ve been a major catastrophe - but we’re wondering, like others, whether the government really grasps the major issues facing the sector.
It’s a worrying sign, for example, that Hunt announced nothing - zip, zilch, zero - about building more homes. With mortgages becoming more expensive and rents reaching eye-watering levels, a greater supply of homes is what the sector needs more than anything else. Yes, this is difficult to achieve, but we don’t see how putting landlords in an even tougher spot is going to help. Where, exactly, is the necessary uptick in available homes going to come from?
Our very own Residential Expert, Mark Hayward, perhaps sums up the situation best:
“Unfortunately, the recent announcements continue to pour cold water over the property market. Whilst we all hope that the current problems with inflation and interest rates will improve, predictions are just predictions. What we do know for sure is that the cost of living crisis will continue to impact tenants, and as many homeowners and landlords come off fixed-rate loans, the pressures on many will increase. We have already seen increasing numbers of landlords exiting the market, and this will only be exacerbated by the reductions in CGT allowances.”
Whilst we agree with Mark wholeheartedly, there is some reason for optimism. Even if the autumn statement left many wanting more, perhaps it was unrealistic to expect the chancellor to solve all the sector’s ills at once. The immediate goal was to settle the markets and restore some confidence. And that, at least, has been achieved.
Maybe, just maybe, Hunt will pursue other problems in due course? He is a landlord himself, after all. And do you know who else is a private landlord? The new housing minister, Lucy Frazer. Nothing gets past us.