Better news for economy gives confidence boost to property market

The best news for the property sector to come from Chancellor Jeremy Hunt’s Spring Budget statement came not from any fiscal measure or intervention scheme, it came from the latest forecasts from the Office for Budget Responsibility.

Traditionally the fiscal event of the year is accompanied by the latest OBR predictions on what lies ahead for the UK economy.

And Mr Hunt reported that inflation was set to fall below 2% ‘over the next few months’.

This is good news for homeowners paying mortgages and for homebuyers and is somewhat ahead of schedule when compared to the last forecast that accompanied the Autumn Statement.

And it comes against a backdrop of wages that are rising faster than prices at the moment.

This could herald a drop in the Bank of England Base Rate which, in turn, may feed through to mortgage rates later in the year.

The OBR also re-calculated their growth forecast for this year which was revised upwards to 0.9%, with the figure for 2025 increasing to 1.9%.

Tinkered with the policy

Turning to the Chancellor’s own measures, pre-Budget talk of 99% mortgages and/or a return of the Help to Buy Scheme all came to nought. But there was some cheer on the affordability front when Mr Hunt announced a further cut in the employee National Insurance rate which he’d already reduced by from 12p to 10p in the Autumn. This time around he knocked off a further 2p bringing it down to 8p. For someone earning £35,000 this will mean a saving of £450 over the next 12 months.

This measure is designed to put more cash in people’s pockets as will his reform of the child benefit threshold which he increased to a maximum earning of £80,000 per year. The Chancellor calculated that this measure would benefit half a million families to the tune of £1300 per annum.

Many industry commentators had hoped the Chancellor might undertake a root and branch reform of Stamp Duty Land Tax (SDLT). In the end he only tinkered with the policy, removing Multiple Homes Relief – a tax mechanism to benefit those purchasing more than one property at a time. This measure is expected to hit the Build To Rent sector hardest but it may also affect some landlords who may be planning to expand their portfolios.

Positive for landlords

As far as landlords and tenants were concerned, the Chancellor offered pluses and minuses.

Both will welcome the NI cut and the prospect of better Buy to Let mortgage rates as the year goes on will be a positive for landlords.

Also of benefit to landlords was a cut in the rate of Capital Gains Tax for second homes. Mr Hunt reduced this from 28% to 24%, saying he believed this move would offer up more properties for sale. Unfortunately for the Private Rented Sector (PRS), there is already a massive shortage of supply and any further reduction in the number of rental homes can only put upward pressure on rents which have already risen markedly in recent times.

There was a measure aimed at boosting the number of homes in the PRS – albeit only marginally. Mr Hunt announced the abolition of the Furnished Holiday Lettings Regime saying that he believed this tax benefit disadvantaged local communities in desperate need of long-term housing. He believed that by removing it, some short-term landlords might switch to longer-term tenants.

Looking at the package of measures as a whole, the PRS is unlikely to see a significant increase in the number of homes available to rent as a result of the Chancellor’s efforts and rents look likely to continue to rise for the rest of the year.

For the property market as a whole, buyers and sellers alike will benefit from the improved affordability measures and the revised economic forecasts will increase market confidence as the year progresses.

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