What does the Autumn Statement mean for property?

publication date: Nov 24, 2016
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

What does the Autumn Statement mean for property?

 

The government statements are always useful to better understand what and where they think we are heading and problems that they need to fix – which might impact on us.

Government’s future view
The government emphasises the strength of the economy in the run-up to and following the EU referendum but says: The UK is likely to face a period of uncertainty, followed by adjustment.” And “In the near term, the UK’s economic outlook has become more uncertain.”

So what the government has set is a budget that will help try to balance some of the uncertainty in the private economy with heavy amounts of guaranteed investment in infrastructure spending. This is good for jobs and putting money back into the economy at a time when the government can borrow cheaply.

From a market perspective, economic uncertainty tends to dampen the sales market and boost the rental market. That’s potentially good news for landlords and investors, but lots of negative news in the press could end up making it difficult to sell and secure the maximum price for your home. However, if you want to get on the ladder for the first time, a flatter market may this easier, especially if you are planning to stay in the property for five or more years.

Wages/income/tax
Salaries are predicted to increase, albeit more slowly than previously predicted, due to an uncertain economic outlook following the Brexit vote. The Office for Budget Responsibility forecasts average earnings growth of 2.4% in 2017 and 2.8% in 2018.

This is a potential problem economically as inflation is expected to rise over 2% so that means no REAL growth in incomes. However, a few initiatives were announced to help this squeeze on earnings…

National Minimum Wage rise to £7.50
From April, The National Living Wage is to be increased by 4.2% from £7.20 per hour to £7.50, which is lower than expected but represents a £500 a year pay rise for those who work full-time. The government says this will benefit more than a million workers and the target is to get this up to £9 an hour by 2020.

Personal allowance is going up
From April 2017 it will rise from the current £11,000 to £11,500, giving people a little more money in their back pockets. By 2020, it will rise to £12,500.

Higher rate tax band is increasing to £45,000
This is from next April, rising to £50,000 by 2020; good news for those who are on the borderline as far as slipping into higher rate tax.

Salary sacrifice schemes
For items such as computers and gym memberships, salary sacrifice schemes will be taxed from April, although the most popular options – pensions, childcare and bicycles – are unaffected.

How will wage/income/tax changes affect the property market?
With forecasts of a slowdown next year in the property market as far as prices are concerned and rises in rents expected, the additional money may well help fewer landlords slip into the higher rate tax. It also might help tenants absorb the now much-needed rental increases due to higher costs, lower profits due to tax relief losses and adverse tax versus financial investments.

Match these changes to an uncertain market and we are probably looking at a muted property sales/purchase market next year, fewer landlords investing in existing homes and moving into more refurbishment or building projects. First-time buyers may fall if the news on the market is gloomy on a regular basis.

Not sure how to read your property market? Read our analysing your market checklist.

Cost changes
With inflation likely to start rising faster than income growth, due to the fall in the pound, the cost of living is expected to rise by 2.3%, rather than the 0.7% previously predicted. That’s why people won’t feel the benefit of wage rises in real terms as explained above.

Also:

  • Fuel duty has been frozen for the seventh year

  • There is a 2% increase in Insurance Premium Tax from June 2017

Housing
The emphasis remains on home ownership, with the contribution of landlords and letting agents to the nation’s housing appearing to be disregarded again, suggesting this cabinet will do little to support the ‘good guys’ in the private rented sector and is actively giving away letting agent profits to help the JAMS (Just About Managing) – which, sadly research so far from Scotland where it has already happened, suggests it is unlikely to help tenants at all as so far we’ve seen rents rise and rogue agents continuing to charge vulnerable people, with no or little enforcement.

In addition, if agents do have to cut costs and let people go as a result, then that’s going to hurt employment in the industry.

And even more annoying is that if successive governments had regulated agents in the first place, this problem would never have existed!

Thinking about renting? Read our how to rent guide.

Up to 100,000 new private homes are planned
This is from the new Housing Infrastructure Fund of £2.3billion by 2020-21 which is part of a new National Productivity Investment Fund of £23billion and aims at “unlocking new private house building in the areas where housing need is greatest.”

Letting agent fees
The announcement making the most headlines is the upcoming ban on letting agent fees to tenants. The government says this will “improve competition in the private rental market and give renters greater clarity and control over what they will pay.”

Inevitably, agents will need to recoup their costs somehow, either through landlords or by cutting costs. Either way, it’s not great news for landlords as they will either be hit by higher costs or a reduced level of service, if letting agents are forced to reduce staffing levels. This is likely to take at least a year to implement, due to the need for consultation.

Looking for a letting agent? Read our choosing a letting agent checklist.

Right to Buy
This is going to be extended from a small to a larger region, but unfortunately we don’t have any more detail yet – but if you are interested do register this with your local authority.


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Which? Property books and one of the UK's top property experts.
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