Date Posted: 02/11/22
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 Succeeded by Charles III, the second Elizabethan age has now been replaced by the third Carolean age.
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.
On the 22nd of September, the independent Bank of England increased the base rate by 0.5% to 2.25% and is clearly walking a tightrope between curbing inflation and recessionary pressures and promoting growth.The cost of borrowing has now risen significantly over the last year. However, 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. Interest rates for mortgage borrowing have risen and it is expected that the Bank of England will raise the base rate again in October.
Of course, other forms of borrowing, such as credit cards, bank loans etc., are rising.
Those with savings will see higher returns but still well below the current inflation level of c10%.
The Government’s focus is firmly on seeing growth to pay our way out of the current crisis, which could end up at odds with the Bank of England.
Following the enormous challenges and costs of the Covid pandemic, the Russian invasion of Ukraine has been a significant driver of rising energy and food costs. The UK and other nations are spending billions to help Ukraine fight off its attackers and remain democratic.
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.
Some of the critical elements related to the UK property market are:
1. The change that will likely affect the property market the most is a permanent and immediate cut in stamp duty land tax (SDLT).
2. The zero rate tax threshold has been raised to £250,000 from £125,000, which is close to the average property price across the UK.
3. 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 could not be borrowed on a mortgage.
4. If they purchase up to £625,000, they will pay the SDLT of 5% 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 to give subsidies to help households cope with the increases in energy bills.
To help businesses, moves to subsidise energy costs have already been announced, and, crucially, Corporation tax will not be increased as proposed next year. This was due to an 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.
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”.
All markets are built on confidence, and we need businesses and individuals to sensibly invest and grow economic activity. It, of course, remains to be seen if the aforementioned moves ultimately help or hinder. Markets have steadied but until the major factors that are driving the economy are resolved there is likely to remain a period of some degree of uncertainty.
The lettings market will likely continue strongly, with the moves on energy prices and personal taxation benefitting tenants to some degree. Demand continues to outstrip supply which is a factor in keeping rental values high.
As always, our team at Putterills are here to help you and to use our knowledge and experience to ensure that you achieve the best outcomes, whatever your plans.
We look forward to hearing from you.
Best wishes
The Putterills Directors
