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Autumn Budget 2021: How will the announcements impact landlords and property investors?

After lots of news on the tax front for property investors and landlords, we’ve now had two budgets in a row that have more or less left the lettings market alone!

Although there weren’t any announcements specifically aimed at the lettings industry in Rishi Sunak’s latest budget, the broad picture is good. Predictions for the economy were more buoyant than expected, and that’s really the best possible news for the property market right now.

It’s important to understand that any shifts in the economy can impact the property market, so here is our take on what’s useful to know from Wednesday’s budget.

What does the Government think is in store for the UK economy?

Overall, the economic indicators versus the forecasts are so much better than was thought even just a few months ago. Nevertheless, there are some challenges ahead:

  • Inflation. The Government expects consumer price inflation (CPI) to average around 4% over the next year – double their targeted rate of 2% - due to a rise in the demand for energy, goods and services, which will take some months to ease. This means that if you own your property outright, the value will need to increase by 4% in 2022 just to ‘stay still’.

    If you haven’t reviewed your rents over the last 12 months, do feel free to chat with our local lettings experts so we can discuss if you are charging a fair rent.

  • Interest rate rises. Despite the Chancellor having written to the Bank of England Governor to explain that inflation needs to be kept low, the base rate is predicted to move from 0.1% to 0.25% by the end of the year.

    With rates expected to go up, it’s worth chatting to a mortgage broker to help ensure you still have the right deal for you. We are partnered with Mortgage Scout so if you haven’t reviewed your mortgage in the last 6-12 months, now might be a good time to get in touch.

On the positive front:

  • Recovery to be quicker than thought. Economic growth was revised up from 4% to 6.5% for this year, with further growth of 6% expected in 2022, before the UK drops back to ‘normal’ growth rates of 1-2% from 2023 and beyond.
  • Unemployment lower than feared. Unemployment is now expected to peak at 5.2%. Although that’s still fairly high, it does means around 2 million more people will be in work versus previous forecasts, which is a huge saving for public finances.
  • Wage growth is expected to be 3.5% up in real terms year on year.

Overall, these better-than-expected results for the economy should help continue to support our fairly buoyant property market in the near future.

Wages

Wages are a key influence on property prices and rents. When they go up, typically property prices and rents can increase too, especially where demand is higher than supply.

There were two important announcements regarding wages that should positively affect the property market into the future:

  • In April 2022 the minimum wage will rise from £8.91 to £9.50. This should help to combat some of the cost of living rises for those on lower incomes and means everyone has the chance of earning around two-thirds of the average wage in the UK.

Although those on minimum wage are still probably unable to afford to buy a home, this news is good for the rental market. Rents are very much tied to wages, so a higher baseline wage for most people will definitely help keep rents buoyant and should help reduce arrears.

  • The public pay freeze is ending. This means rents should be able to rise in those areas where the major employers are public services, such as the NHS, a local council or HMRC. As it stands currently, accepting a public sector worker as a tenant could restrict rent increases, whereas someone working in the private sector, where salaries are rising, could be able to pay more for their accommodation.

Tax changes

To the relief of most people, the Chancellor had very little to say on the tax front. However, we do still have the 1.25% rise in National Insurance coming into effect in April, which was recently announced.

Tax changes announced today which could affect the property market and your costs include:

  • Fuel duty to be frozen. Considering the increase in the price of fuel during September, the news that there won’t be any increase in tax is a small relief.
  • More favourable ‘return to work’ terms for those on Universal Credit. Currently, they can lose up to 63p for every £1 they earn when returning to work, however this has been reduced to 55%. It’s expected to take effect by December 1st at the latest and for those on Universal Credit who are working, this could help negate the recent loss of their temporary ‘pandemic assistance’ payment of £20 a week.
  • A 50% discount on rates for businesses most badly affected by the pandemic. On the commercial front, for the next year, those businesses that have been terribly affected by the response to COVID – such as hospitality, gyms and retail – will be able to claim up to a 50% discount on their Business Rates of up to £110,000.

The Office of Tax Simplification had highlighted prior to the budget that the requirement for landlords to pay Capital Gains Tax (CGT) on sold properties within 30 days was incredibly difficult to achieve due to the administration involved. The good news from this budget is this has now been extended to 60 days, which should help reduce some of the fines currently being charged for missing the 30 day period. 

Specific housing announcements

Landlords could potentially benefit from the already reported £65m fund in England to help tenants in arrears who are at risk of being made homeless, which is being administered by local councils.

But apart from this plan to help tenants, in this budget, the housing news is mainly related to new homes and includes:

  • £11.5bn being invested in 180,000 in new affordable homes
  • There will be £1.8bn extra investment to facilitate the build-out of 1,500 hectares of brownfield land
  • An additional £10bn housing investment is expected to unlock the building of a million new homes. 

From a landlord and investor perspective, any new homes help to take the ‘pressure’ off the rental market from a supply and demand perspective, especially if affordable and this funding could also help local property investors that build to sell or rent.

Major infrastructure changes

One thing that this Government has seemed to understand is the importance of connecting investment in infrastructure which results in better transport links, to opening up new potential areas for more homes to be built. Improved infrastructure in existing areas can help boost demand for homes and increase prices and rents, as well as potentially attracting further investment.

Although these changes are very specific to individual areas, the announcement from Rishi Sunak of £6.9bn investment for English city regions to spend on train, tram, bus and cycle projects, highlighted areas such as Greater Manchester, the West Midlands and West Yorkshire as key places which were set to benefit.

It is always worth keeping an eye on investment that the budget might help to generate new transport and infrastructure changes in the area/s you let property in.

Eco-friendly initiatives

Surprisingly, given the impending COP26, very little was said about investment in reducing the UK's net greenhouse emissions to zero by 2050. We were told that there will be a £30bn investment in new green industries of the future, but this was also announced in the March budget.

So, the recent promise of a £5,000 grant towards renewable energy heating systems, such as heat pumps, seems to be the only direct support property owners can secure for eco-improvements at the moment.

Steps to take

Remember, not everything is announced or hits the headlines, and even small changes could make a big difference to you and your property plans. So, whatever the announcements are, there are three things which are worth doing after every budget:

  • Speak to an independent financial advisor to check whether anything is likely to affect your plans in the future
  • Consult a property tax expert to see if there are any implications for your property earnings and profits
  • Contact the solicitor who handles your estate affairs, to check whether you need to make any changes to your will.

In the meantime, if you have any questions about the property market, your property or portfolio, please do contact your local experts who have the expertise to help you decide to do what’s next.

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