How Will The Spring Budget Impact The UK Housing Market 2024?
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The Spring UK Budget is an eagerly anticipated event in the UK, as it allows our Government to set out its plans for the country's economic growth and development.
The Budget is expected to significantly impact everyday life, including taxation, public spending, and the housing market.
In recent years, there has been a particular interest in how the UK Budget will address issues such as the ongoing pandemic, climate change, the cost of living crisis and the economy's recovery.
In this post, we will delve into the Spring and Autumn UK Budgets, exploring what we can expect to see, what we can expect from the Budget, and how the UK Budget will affect individuals and businesses across the UK.
What Is The UK Spring Budget?
The UK Spring Budget is an annual statement presented by the Chancellor of the Exchequer to the House of Commons, usually taking place in March. It serves two primary purposes:
Outlining the government’s plans:
The Chancellor details the government's economic and fiscal strategies for the coming year, including:
Taxation: This includes potential changes to personal and corporate tax rates, allowances and reliefs.
Public spending: This specifies how the government intends to allocate funds to various public services, such as healthcare, education and infrastructure.
Economic forecasts: The Chancellor presents the Office for Budget Responsibility's (OBR) economic projections, outlining expected growth, inflation and unemployment rates.
Setting the fiscal agenda:
The budget lays the groundwork for the government’s financial direction for the year, impacting various aspects of the economy and individual lives.
The UK Spring Budget is different from the Autumn Budget, which focuses on updates and adjustments to the government’s financial plans in the latter part of the year. The Spring Budget is not a legally binding document but it sets the tone for economic policy and influences future legislation related to taxes and spending.
The UK Spring Budget attracts significant attention as it can directly impact individuals and businesses through its potential impact on taxes, public services and the overall economic climate.
How did past Budgets impact the UK housing market?
Previous budget announcements have had a complex and multilayered impact on the UK housing market. While some measures have acted like fuel to the fire, boosting demand and pushing prices upwards, others have served as braking mechanisms, slowing down the market’s pace.
Ultimately the overall impact hinges on the specific measures implemented and the broader economic climate at the time.
We have seen everything from tax breaks for first time buyers which incentivise more people to enter the market, to raising interest rates, making mortgages more expensive and discouraging potential buyers from making impulsive purchases.
What happened in the last Spring Budget 2023?
In the March 2023 Spring Budget, Chancellor Jeremy Hunt outlined the government's plans for public finances focusing on four areas: Enterprise, Education, Employment, and "Everywhere" (referring to national infrastructure and regional development).
This budget aimed to achieve the long-term goal of making the UK "the most competitive tax regime of any major country." It covered various aspects, including corporate and personal taxes, innovation, and economic growth initiatives.
While the Spring Budget 2023 aimed to address various economic issues, it had limited direct impact on the housing market itself. The focus was on increasing workforce participation (potentially freeing up social housing) and providing energy bill support, but no significant measures were directly aimed at the housing market.
However, the National Association of Property Buyers (NAPB) and the British Property Federation (BPF) proposed several indirect measures that could have potentially benefited the housing market:
Stamp Duty Changes
They suggested using stamp duty to incentivise specific behaviours, such as:
Taxing overseas buyers more: This could level the playing field for domestic buyers.
Reducing stamp duty in deprived areas: This could encourage investment and revitalise those areas.
Giving stamp duty relief to downsizing pensioners: This could free up larger homes for families.
Tax breaks for landlords making energy saving improvements: This could encourage a more sustainable housing stock.
Taxing vacant plots: This could discourage developers from holding onto land without building on it.
Planning regulation changes
Easing planning regulations could potentially increase the housing supply, benefiting first time buyers.
Tax breaks for builders & investors
This could incentivise them to build more homes, further increasing supply.
Support for improving EPC ratings
The BPF suggests offering a zero VAT rate on maintenance and repairs related to improving energy efficiency. This could encourage homeowners and landlords to upgrade their properties, making the housing stock more environmentally friendly.
However, these were just suggestions and the government did not implement any of them in the Spring Budget 2023.
What Happened In The Last Autumn Budget 2023?
Chancellor Jeremy Hunt unveiled the Autumn Budget Statement on November 22nd, 2023. This statement outlines plans for the UK's future through funding allocations and policy commitments.
The key points of the announcement included:
Increases in wages and pensions: This aims to address the cost-of-living crisis and support individuals facing financial pressure.
National Insurance and self-employed tax reforms: These changes are likely to impact both employees and self-employed individuals, but the specific details require further investigation.
Extensive welfare changes: The nature and extent of these changes are not explicitly mentioned, and further information is needed to understand their potential impact.
Focus on housing: The Chancellor's announcement emphasised increasing housing supply and digitising the buying and selling process, suggesting potential efforts to address the housing market's challenges.
Here’s a breakdown of the Autumn Statement’s impact on the housing market:
For homebuyers
The extension of the Mortgage Guarantee Scheme helped first-time buyers and those with smaller deposits to access the market by making it easier to get a mortgage, which increased the demand for first time buyer housing.
The increased demand, especially amongst young people and first time buyers buying in areas with limited supply like Yorkshire, lead to higher house prices, with some areas experiencing more competitive markets.
For sellers:
The influx of new homes, particularly in demand areas, meant there was more competition and people found it harder to sell quickly when selling through traditional routes.
The streamlining of the buying and selling process has only begun to take its place within the market, and has already proven to increase market activity.
What happened in the Spring Budget 2024?
The Spring Budget 2024 addresses several key areas like demand side measures, supply side measures which have the potential to significantly impact the UK housing market.
Demand-side measures
Investment in housing development: The government’s allocation of funds for major housing projects in areas like Barking Riverside and Canary Wharf is likely to increase supply in the long term, potentially leading to stabilisation or even moderation in house prices over time.
Stamp Duty Land Tax (SDLT) reforms: The changes, including exemptions for specific buyers and adjustments to First-Time Buyers relief, could increase transaction activity particularly for first-time buyers.
However the abolition of Multiple Dwellings Relief might deter some investors from purchasing additional properties, potentially dampening demand in that segment.
Supply-side measures
Investment in brownfield sites and infrastructure: The budget’s focus on infrastructure projects, including accelerating East-West Rail delivery, could indirectly support increased housing development in the connected areas by improving accessibility and infrastructure, potentially leading to increased supply in the long run.
Other potential impacts
Capital Gains Tax changes: The reduction in the higher rate of Capital Gains Tax for residential property disposals could make property investment more attractive in the short term, potentially leading to increased demand and impacting prices.
Abolishment of Furnished Holiday Lettings tax regime: This could discourage investment in short-term rentals, increasing the availability of properties for long-term tenants but also reducing overall rental stock.
Overall the Spring Budget 2024 takes a multi-front approach, aiming to address both demand and supply-side issues in the housing market.
While the long-term impact remains to be seen, the measures have the potential to increase housing supply in strategic areas, make property transactions more accessible for specific segments, and potentially moderate price increases over time.
What was announced for regeneration in the Spring Budget 2024?
The Spring Budget 2024 announced significant government investment in housing development, aiming to boost housing supply and potentially impact the UK economy by increasing housing supply, creating hobs and regenerating areas across the UK.
The additional funding for housing projects, like those in Barking RIverside and Canary Wharf could lead to the creation of thousands of homes in the long term. This could help to address the current housing shortage and potentially moderate house price increases over time.
Investment areas like Canary Wharf, which could include commercial and health care facilities alongside housing, could lead to broader regeneration and improved infrastructure, attracting businesses and residents, further boosting the local economy.
What else was announced in the Spring Budget 2024?
The Chancellor’s Spring Budget focuses on tax cuts, boosting investment and supporting specific regions:
National Insurance (NI) Cuts:
Significant reductions for both employees and the self-employed. Employees see a 2p cut in the main rate, saving an average of £900 annually. The main rate for the self-employed drops from 9% to 6%, saving an estimated £650 per year.
British ISA:
A new savings account with a £5,000 allowance, specifically for investments focused on UK assets, offering additional tax benefits.
Capital Market Boost:
Reforms aim to improve the UK’s attractiveness for listings and investment, supporting economic growth and job creation.
Pension Funds:
Measures encourage pension funds to invest more in UK equities, alongside increased transparency through mandatory public disclosure of asset allocation.
New investment vehicles:
Introduction of British Savings Bonds alongside the British ISA to further encourage domestic investment.
Science & technology:
Continued support for the LIFTS competition and exploration of Distributed Ledger Technology applications.
North East Devolution Deal:
A new trailblazer deal grants the North East Mayoral Combined Authority greater control over local spending, potentially receiving £100 million in additional funding.
Infrastructure & Regeneration:
The budget allocated funds for specific projects, including £23.7 million of Bradford and Ashfield, and £6 million for community-led regeneration initiatives nationally. A £400 million extension of the Long-Term Plan for Towns is also announced.
How Will The Spring Budget 2024 Impact The UK Housing Market?
From 6th April 2024, the higher rate of Capital Gains Tax for residential property disposals will be cut from 28% to 24%, with the lower rate remaining at 18%.
The reduction might incentivise some sellers who were previously holding onto properties due to the higher tax burden. This could increase the number of properties on the market, impacting supply and demand dynamics.
This change is seen as a positive step for long-term buy-to-let investors and those planning to sell inherited properties, as they will pay less tax on any profits.
The abolishment of the Furnished Holiday Lettings tax benefits from April 2025 could discourage investment in such properties, potentially leading to a decrease in the availability of short term rentals.
This could benefit long-term renters as the overall rental stock could shift towards longer-term tenancies. However, for existing FHL landlords, this change could lead to increased tax liability, potentially impacting their investment returns.
The amendments to First-Time Buyers’ Relief could make purchasing a property more affordable for some individuals, potentially increasing demand in this segment.
While the abolition of Multiple Dwellings Relief from June 2024 could discourage some investors from purchasing additional properties, potentially dampening demand in this segment and impacting rental yields.
Furthermore, the exemption from SDLT for Registered Social Landlords and public bodies from March 2024 could facilitate their acquisition of properties, for social housing purposes, potentially increasing the availability of affordable housing.
Is the Spring Budget 2024 a good thing for housing?
Whether the Spring Budget 2024 is a good thing for housing or not will all depend on how the markets react to the announcements. But, here is how the Spring Budget measures might impact different groups of people:
For Homebuyers:
Positives:
Similar to the Autumn Budget 2023, the extension of the Mortgage Guarantee scheme should aid first-time buyers and those with smaller deposits.
While the SDLT reforms with exemptions for specific buyers and adjustments to First Time Buyers’ relief could increase affordability and transaction activity, similar to the increased demand seen after the Autumn Budget 2023 changes.
Negatives:
The abolishment of Multiple Dwellings Relief might deter some investors, potentially reducing competition and slightly increasing house prices in the property market, unlike the increased competition seen after the last Autumn Budget.
For sellers:
Positives:
The reduction in Capital Gains Tax might incentivise some to sell, increasing the number of properties on the market and potentially improving their seller experience compared to the more competitive market seen after the last Budget.
Negatives:
The abolishment of Furnished Holiday Lettings tax benefits could discourage investment in short-term rentals, and decrease the pool of potential buyers for short term rentals.
Similar to the Autumn Budget 2023’s focus on increased supply, the Spring Budget 2024 allocates funds for major housing projects and brownfield site development. This should lead to a stabilisation or moderation in house prices over time, unlike the price increase in limited supply areas observed after the Autumn Budget in 2023.
The National Insurance cuts and British ISA aim to boost investment potentially leading to increased demand in the long term. However, the impact it shall have on house prices is yet to be seen.
In conclusion, the Spring Budget 2024 presents a mixed bag for the UK housing market, with potential benefits and disadvantages for different homeownership groups.
While measures like increased housing supply and support for first time buyers could lead to some long-term improvements, the full impact remains uncertain and will depend on market reactions.
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