Impacts for investing in UK Property
Today, new Chancellor Rishi Sunak has delivered his first UK Budget after just a few weeks in the job. If that was not challenge enough, he finds himself with the backdrop of a Bank of England emergency rate cut to 0.25%, the UK braced for the impact of coronavirus as well as the UK engaged in aggressive trade discussions with the European Union.
In the lead up to the budget much had been discussed about the new look conservative government and its plan to deliver on its manifesto commitments. Specifically relating to housing and plans to fix the UK’s “Broken Housing Market” – pre-Budget rumoured plans included a proposed overhaul of Stamp Duty, additional Stamp Duties on overseas and second homeowners together with a potential mansion tax on higher value homes. Much has been proposed, but what was delivered? Announcements relating to housing include:
Stamp Duty Surcharge
In a clear sign that the government favour institutional investors over offshore investors it has announced a new Stamp Duty surcharge of 2% on residential property for non-residents from April 2021. The new surcharge has not gone as far as some had proposed of up to 3%, however, there is no doubt that this will have an impact on offshore investors. At now 5% on top of ‘normal’ Stamp Duty I anticipate the potential impact of this new surcharge to be the following.
Foreign Buyers are likely to seriously consider their investment decisions in the UK. With average house price growth in the England at 1.7% (HM Land Registry), it will on average take the typical investor more than 2 years to recover the cost of their surcharge. Ultimately, this may well drive those investors to lower cost tax countries such as New Zealand who have 0% Stamp Duty are likely to see an increase in interest from offshore investors.
Foreign Buyers may well look to focus investment on lower cost property, where the impact of SDLT will be lower. This will further increase direct competition between investors and first home buyers as they compete for the same stock. This is a battle in which there is no doubt liquid offshore investors will come out better.
Supply of new housing, there is little doubt that this will have a further dampening effect on the supply of new housing particularly in inner London which is reliant on international investors to help fund new development.
The Chancellor has announced major overhaul of the planning system to be announced tomorrow. Given today’s announcements I anticipate this will provide significant additional measures aimed at helping Build to Rent Developers.
The concept of a mansion tax was initially proposed in the UK by the Liberal Democrats, as an annual tax on properties with a value in excess of £2 m. The government has so far resisted a a mansion tax, however, it was widely tipped to be introduced is this budget. However, there were no announcements with respect to a potential mansion tax.
The Chancellor committed an additional £12 bn to be invested in affordable housing. Together with a £1 bn fund for Building Safety Fund to remove unsafe materials form high rise buildings above 18 m high.
UK Economic Growth Forecasts
In a clear sign the government is committed to leveling up the North, South divide, the budget also included a number of infrastructure measures such set out below:
|Public net investment of £600 bn over the next 5 years, which is the highest since 1995|
|£20 bn for road infrastructure|
|£5 bn for gigabit-capable broadband to hardest to reach places|
|Moving 22,000 civil servants outside of central London|
The OBR (Office for Budget & Fiscal Responsibility) have commented that the budget will result in a long-term productivity increase of 2.5% and it has forecast UK growth to be 1.1% in 2020, 1.8% in 2021 and then 1.5%, 1.3% and 1.4% in the subsequent years.