In light of the recent publication of the Budget for 2021, what is the impact on property investors?
The economy
The economic recovery to pre-COVID levels is happening much faster than expected, according to Rishi Sunak. In addition, the unemployment rate is rapidly declining and employment is increasing.
Clearly, this is an excellent development regarding less evictions, higher rents and house price growth.
Nevertheless…
Inflation
There is a possibility that inflation might run at twice the Bank of England’s target of 2%, but this is only expected to be temporary and should resolve itself as supply chains become less constrained and the demand for goods increases.
Initially, materials, tradespeople and personnel will cost more.
Interest rates
Given the extremely low-interest rates, it appears that only upward movement is possible. It is a matter of when not if. In view of the high level of government debt, it will not be inclined to encourage the Bank of England to increase interest rates and would rather have the debt devalued in real terms by inflation.
A further factor driving down mortgage rates is the fact that lenders have a large amount of cash as a result of quantitative easing.
In the short term, the Bank of England will likely signal a possible rate hike in order to change spending and lending behaviour, or it may raise interest rates to combat inflation, at which point a tipping point will be reached.
Tax changes
Property investors will be pleased to learn that the deadline for paying capital gains tax on the sale of residential real estate has been extended from 30 to 60 days.
Other than that, only a few changes were made in addition to those previously announced, such as:
- In April 2023, corporation tax will increase from 19% to 25% for companies with profits over £250,000 (19% for companies with profits under £50,000).
- Increase of 1.25% in National Insurance and Dividend Tax from April 2022.
- Until April 2026, many tax allowances and thresholds will remain fixed and will not be adjusted for inflation. Among them are the capital gains tax allowance of £12,300, the personal income tax allowance of £12,570, and the higher rate income tax threshold of £50,270.
Serviced Accommodation Providers
Businesses in the retail, hospitality and leisure sectors will be able to claim a 50% discount on their business rates up to a maximum of £110,000 in 2022/23.mprovements to their property without having to pay extra business rates for 12 months.
Alternatively, SA providers should expect a higher demand for their properties, but should also plan for higher operating expenses.
BTL landlords
There was not a great deal of new information for BTL landlords in the budget. Rent arrears should decrease, rents should increase, and house prices should rise as the economy recovers. However, it is important to monitor mortgage rates.
Property Flippers
Again, there is not much in the budget for flippers. The most pressing concern will probably be the cost of labour and materials. Consider building in a larger buffer for potential cost escalation when planning your next flip than you might have done previously.
Also, keep your eye on the time-supply chain problems may mean it takes longer to access materials and labour, so you might have to wait longer to complete the flip, leading to higher financing costs.
Property Developers
It has been announced that £11.5 billion has been set aside for the construction of 180,000 affordable homes. Increasing the number of homes available may have an impact on house prices, but realistically, this number of homes is unlikely to make a significant impact on the country’s housing market.
Developers will be required to pay a new Residential Property Developers Tax of 4% to cover the costs of cladding; however, this tax will only apply to those with profits exceeding £25 million.
