What the “mini-budget” means for UK property investors
The UK Chancellor’s fiscal statement on 23rd September sent the UK economy in to turmoil. Now, with the dust settled a little, we consider what impact its policies could have on the UK property market.
Corporation tax won’t be increased
We’ve written about how purchasing via a limited company can help reduce the tax burden on property investors.
Corporation tax had been scheduled to rise to 25%, but it was confirmed in the min-budget that this would not go ahead. Instead, corporation tax will remain at 19%, saving landlords thousands of pounds.
Currency discounts
Chancellor Kwarteng sent the pound tumbling over the last 10 days. Sterling fell against every major currency. It’s only recently begun to recover.
For overseas buyers, a low Pound effectively means a discount on everything bought in that currency. Property is no exception. Over the last 10 years, the Pound has traded against the Dollar at an average of £1 = $1.41.
This fell as low as $1.06 recently and has only just reached $1.12.
Keep an eye on foreign exchange markets and, if the Pound slips again, be ready to act to secure your property.
Huge demand but low supply
It’s no secret that there’s a huge supply vs demand imbalance in the UK housing market. Despite government pledges, there’s been little progress towards house building targets over the last 5 years. In any case, on an island the size of the United Kingdom, it’s debatable whether there will ever be enough housing to satisfy demand.
As ever, any commodity that is rare, will retain value and likely see it grow, meaning your capital appreciates over time. Nothing in the mini-budget changes this.
In fact, you could argue that the increases in mortgage rates will do little to stimulate house builders to create more housing. Over the last week, share prices for companies like Barratt or Taylor Wimpey have plummeted. There’s concern in the markets that rising interest rates mean limited affordability and therefore a dwindling market for the homes these companies intend to build.
If housebuilders stop building, supply will constrict, meaning any investors who can afford to buy a property are in an enviable position.
Strong rental market
With rising interest rates and rising property prices, it’s no surprise that fewer young people are able to afford to buy their own home. The mini-budget has, in the short term, exacerbated this situation.
Of course, this isn’t necessarily great news for those wishing to get on the property ladder, but it does mean that there’s a large pool of potential tenants in the UK.
This affordability challenge means that more people are renting for longer than ever before, creating a very competitive market. This is driving rental prices up.
The latest ONS figures show that rents paid by tenants rose by 3.4% on average across the country in the 12 months up to August 2022. In some regions, annual growth of private rent was 4.5%. This means that landlords are able to charge a premium for the type of high quality, well-positioned properties Hoxton Property specialises in.
Energy Bill Relief Scheme can stop businesses failing
On the face of it, the Energy Bill Relief Scheme (the support given to non-domestic energy customers) appears to have little to do with buy-to-let investment.
However, anything that helps reduce inflation and protect vulnerable businesses should be welcomed by landlords. Hopefully, this support will lead to fewer insolvencies and redundancies than there could have been without the scheme.
It goes without saying that collapsing businesses and an uptick in unemployment would not have been good news for landlords, who rely on housing tenants being able to pay rents.
Conclusions
We’ve written elsewhere on the blog bout the importance of staying invested during turbulent times.
The same applies to property, whether it’s holding on to your existing properties or deciding to invest in the first place. Change brings opportunity. We’re working hard with our clients to identify how they can continue to profit from UK property. If you’d like your own personalised consultation, please get in touch with us.
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