The Great Government Giveaway
Tomorrow’s mini budget is eagerly awaited and will provide a very useful insight on what to expect from Truss’s premiership for the next couple of years. The rumour mill is in full swing with people speculating and commenting on scrapping interest rate relief for landlords, changes to stamp duty, uncapped banking bonuses
and many more items aimed to stimulate the economy.
While all may have a positive effect should they come to pass there is also the law of unintended consequences to think about. The COVID stamp duty changes massively stimulated a number of markets throughout the country and lead to previously stagnant markets achieving price growth never seen before, some I fully expect will be in negative equity even if they don’t realise it.
Perhaps of a more immediate concern is that with rising interest rates (2.25% at the time of writing) and a number of these rushed purchases at potentially inflated prices will they be affordable for the new home owners when the fixed mortgage terms come to an end? This coupled with rising gas and electricity prices and inflation across all products is going to really hit home for a number of people.
What do I think would actually help the market most?
Scrap stamp duty for genuine downsizers altogether. Up and down the country we all know of a single occupant of a four plus bedroom house who would like to downsize but economically it does not make sense to do so if you plan to remain in the same area when you factor in stamp duty costs, other costs of moving and the cost of getting the new smaller property to how you want it. Many of these people are also going to be asset rich and cash poor and will be severely impacted by the increased cost of utilities putting further pressure on them.
Incentivising people to downsize will have an immediate positive effect on the stamp duty revenues received and will lead to the creation of a number of chains that will lead to knock on effects in terms of building projects and purchases of furniture and other household items.
Imagine a house at the top of the chain costing £1m and raising £43,750 in stamp duty that is unlikely to come to market in the current structure. The current single occupant decides to sell and they purchase a property down the road for £700,000 costing them no stamp duty at all as opposed to the current rate of £25,000. Sceptics would say that this has cost the government £25,000 straight away but I would suggest it has netted £18,750 of tax revenue that would not have otherwise been received.
On top of that it’s safe to assume both properties would undergo a degree of decorative works and bringing in more tax revenue from the VAT on the works and any purchases. It would also provide opportunities to help people get suitable accommodation.
In the agency world a commonly used phrase is “stock breeds more stock”. Many of us are not actively in the market for a new home or investment however when the perfect one comes to market overnight we become so. Even if we miss out on the dream home in many cases our heads have been turned and we are keen to make the next move.
Reverting to a stamp duty rate similar too that implemented during COVID will not help issues with supply it will bring more people into the market and create further house price inflation and will only exacerbate the housing shortage.
In terms of lettings interest rate relief being removed did remove many would be landlords from the market. Scrapping it would be welcome news for thousands of landlords who remain in the market but would it lead to wholescale return of landlords to the sales market? The sky high rentals currently being achieved may be tempting but with a general election two years away you have to wander if this is implemented will it remain in place under a new government?
The single best thing in central London terms at least that will have the biggest impact on the chronic supply issues for rental would be stronger regulation and enforcement of the short lets market. COVID brought back thousands of properties to the long term rental market that had been lost since the launch of Airbnb and similar platforms and boosted supply. While the levels of properties on short let platforms does remain lower than pre pandemic levels its clear to see it is rising and if left unchecked will revert back to pre pandemic levels over the coming years. Addressing this issue would help boost supply and regulate the incredible rent inflation we are currently witnessing.
I for one will be keenly watching the developments and hope that the great Government giveaway will be given in a way that helps all and one that does not come with too many unintended consequences.
If you want any further advice on your portfolio or wish to obtain an accurate market value for sale or rent please do get in touch we are here to help.
Yours sincerely
Rob Hill