Hammond’s Budget silence on property means “let’s just get on with it”

They say that no news is good news, but for the UK property industry the stunning silence on housing matters in Chancellor Philip Hammond’s Spring Budget seemed to be bad news.

It would appear that he felt the Government addressed the needs of the nation’s ‘broken’ housing sector in its recent white paper but many would say that while this document is a step in the right direction it doesn’t do anything for the here and now.

And right now prices are still rising because of demand at a time when there is a lack of supply. The measures in the white paper are designed to get more homes built but this doesn’t happen overnight whereas adjusting stamp duty for first time buyers, especially those in London, some would argue, would have a much quicker impact.

There was hope in the housing industry that Hammond would take on board concerns that the current rates of stamp duty is hampering first time buyers in particular. There were also concerns that the increased rate at the higher end of the market is putting off investment in the prime property market in London and this is stalling prices and rents and having a knock down effect.

But Hammond ignored arguments made him by the industry and he immediately ran into criticism that he failed to understand that the impact of stamp duty change is being felt at every level of the market, from international investors, to downsizers and first time buyers, where prices at the higher end are faltering and competition at the lower end of the market is intensified.

It can be argued that developers, agents, architects, contractors and investors have been affected by stamp duty and the vital first time buyer market is not as buoyant as it should be.

Due to increasing house prices, stamp duty is now paid by three quarters of first time buyers who play a fundamental role in ensuring a stable and healthy property market.

Then there is the issue of the private rented sector. There was hope that Hammond might re-visit the extra 3% in stamp duty imposed by his predecessor last year on additional homes and that he might also reconsider the changes to tax relief on buy to let mortgages due to come into force from next month and the ban on letting fees.

Many think that it will now mean rents rising across the UK this year as a combination of higher stamp duty on additional homes, less tax relief, the ban on lettings fees and tougher rules for buy to let mortgages combine to make it harder for landlords to make a living.

When a lettings fee ban was introduced in Ireland, rents soared until the Government was forced to repeal its policy. In Scotland such a policy did not have such an effect, indeed that latest Your Move index published last week showed that rents were flat month on month in January. Two indices published today show that the annual average rate of rental growth is slowing across the country, most notably in London and the South East.

Countrywide’s index shows annual rents fell 0.3% in February nationwide, with rents down 4.7% in London and 2.6% in the South East. The Landbay rental index shows that year on year rents were up by just 1%, the slowest annual rate since April 2013, while in London rents were down 0.53%. But this masks larger falls of 3.5% in Kensington and Chelsea, a fall of 2.23% in Westminster and rents in Camden down 1.79%.

The Council of Mortgage Lenders (CML) recently carried out some of the most extensive research to date on landlords and found that most understand the changes that have been and are being made and have planned for them.

I think it is significant that just 5% said that they have increased rents as a result of the changes while 19% are planning to do so. So it follows that the vast majority are not planning to increase rents. The CML research points out that landlords have recourse to other tax reducing measures which would not feed through to tenants. About one in five landlords are considering either transferring property ownership into a corporate structure or to a partner who pays a lower income tax rate. About one third are looking into remortgaging as a cost saving option.

I don’t think the Budget was bad news for the housing market. Constant change is unsettling as is reversing measures that people have already started to plan for, so from that point of view Hammond did the right thing. Rents and price growth is slowing and forecasts are for growth this year, but much lower and that is good for the market at a time when the country moves into Brexit negotiation mode. It is a matter of being patient and let the building begin.