No apologies this month for focusing on the dramatic events of the last few weeks and setting the scene for the way ahead.
Firstly, we have to mention the sad passing of Queen Elizabeth II who dutifully fulfilled the role of Monarch for over seventy years. Succeeded by Charles III, the second Elizabethan age has now been replaced by the third Carolean age.
King Charles III’s formal coronation is expected to take place early in 2023 and expectations are that the new Monarch will look to modernise the Monarchy further and look to reduce the cost of the Royal family to the State by slimming down the breadth and depth of those involved.
Just two days before Queen Elizabeth II passed away, she welcomed Liz Truss as the new Prime Minister.
Liz Truss has inherited a growing economic crisis and has moved quickly to introduce measures that the Government hopes will stimulate growth whilst protecting everyone from the worst of the inflationary pressures that exist, largely off the back of huge increases in energy prices across the globe.
On the 22nd September, the independent Bank of England increased the base rate by 0.5% to 2.25% and are clearly walking tightrope between curbing inflation and recessionary pressures and promoting growth.
The cost of borrowing has now risen significantly over the last year although a little over 40% of homes are owned outright and the majority of borrowers are on fixed rate schemes so they will not be immediately impacted. Of course, other forms of borrowing such as credit cards, banks loans etc are rising.
Those with savings will see higher returns but still well below the current inflation level of c10%.
The Government focus is firmly on seeing growth to pay our way out of the current crisis and this could end up at odds with the Bank of England. Politically they are also focused on winning the next General Election which is, in realty, less than two years away.
Following the huge challenges and costs of the Covid pandemic, the Russian invasion of Ukraine has been a major driver of rising energy and food costs as well as seeing the UK and other nations spending billions in helping Ukraine fight off its attackers and remain democratic. There appears to currently be some positive progress in defending their position and growing dissent amongst many in Russia. However, President Putin is possibly now at his most dangerous, having painted himself into a corner. We all hope for a speedy and peaceful outcome.
On Friday 23rd September the Government delivered, what was described as a mini budget. In reality it was a series of some of the most sweeping fiscal measures seen in recent times.
The key elements are outlined here:
The change that will likely affect the property market the most is a permanent and immediate cut in stamp duty (SDLT) .
The zero rate tax threshold has been raised to £250,000 which is close to the average property price across the UK.
Greater encouragement for first time buyers in that they will pay no stamp duty on the first £425,000 of any purchase. This will go a long way to helping with saving deposits as SDLT payments were not able to be borrowed on a mortgage.
The value of a property on which first time buyers can claim the zero-rate relief has increased to £625,000.
This means that, should a first-time buyer purchase a property up to £425,000 ten no SDLT will be payable. If they purchase up to £625,000 then they will pay SDLT on the amount between £425,000 and £625,000.
To help mitigate the growing cost of living, the Government will be providing (that’s borrowing to you and me!) a further £60billion or so in order to provide subsidies to help households cope with the increases in energy bills.
Every household will received £400 off their bills spread over 6 months from October and additional Cost of Living payments will be made for those on benefits, the disabled and pensioners (who will also continue to received the winter fuel payment).
In addition, a new energy price guarantee has been introduced meaning that the “average household” will see its energy bills capped at c£2500 per annum. It is estimated that these moves will save the average households c£1000 pa against predicted costs.
Other tax measures announced include:
The 1.25% increase in National Insurance introduced earlier this year for employees and employers will be reversed from November.
The income tax basic rate level will be cut to 19% from April 2023 and the 45% top rate for people earning £150,000 per annum will be abolished, creating a single higher rate of 40%.
Energy bills - £60bn of subsidy
£400 per household spread over 6 months from October
Additional COL payments for those on benefits, disabled and pensioners (who will also get winter fuel payment)
In addition - New energy price guarantee – average house will be capped at c£2500 per annum – estimated to save households c£1000 pa against predicted costs
To help businesses, moves to subsidise energy costs had already been announced and, crucially, Corporation tax will not be increased as proposed next year. This was due to increase from the current 19% to 25%. Whilst not a saving, it is a future saving that it is hoped will stimulate growth and investment and reduce the likelihood of employment reducing.
Phew!
So what will it all mean?
Well, quite frankly, it is difficult to tell. Many will argue that the measures are wrongly targeted and not significant enough but everyone will see their immediate future positions at least mitigated.
The property sales market was already starting to slow and property values were easing back. It is hoped that these moves by the Government will create a more level playing field where prices stabilise but transactional volumes continue at decent levels. So much of the UK economy is driven by activity in the housing market that the Government is, in our opinion, right to focus efforts on supporting it but not creating an environment that sees it “overheat”
One significant area of risk in the Government's moves is in the value of the pound.
In the days immediately following the Government’s announcement, the value of Sterling has dropped significantly and this will likely force the Bank of England to raise interest rates to support the currency. It is also increasing concerns about the ability to repay debt and lenders are now all reviewing their portfolio of mortgage offerings and criteria to try and mitigate issues over affordability and repayment in the face of likely interest rate increases.
One significant area of risk in the Government's moves is in the value of the pound.
In the days immediately following the Government’s announcement, the value of Sterling has dropped significantly and this will likely force the Bank of England to raise interest rates to support the currency. It is also increasing concerns about the ability to repay debt and lenders are now all reviewing their portfolio of mortgage offerings and criteria to try and mitigate issues over affordability and repayment in the face of likely interest rate increases.
Markets are built on confidence and we need businesses and individuals to sensibly invest and grow economic activity. It remains to be seen if the aforementioned moves help or hinder.
The lettings market will likely continue strongly with the moves on energy prices and personal taxation benefitting tenants to some degree.
As always, the team and myself are here to help you and to use our knowledge and experience to ensure that you achieve the best outcomes, whatever your plans.
Yours
Darren Murphy
Partner
