The industry reacts to the Spring Budget

In what was likely the last Budget before a general election[1], the conservatives have delivered what may be their final set of financial priorities. Given the current state of the economy, many were hoping – wishfully thinking perhaps – for sweeping tax cuts, property reform, and various overhauls of our status quo.

As the Budget was delivered, there were commendable efforts to steady the ship. National insurance was cut, controversial child benefit rules were amended, and taxes were tweaked across the board[2].

Although, there was a lack of substantial changes announced for housing and the property market. The higher rate of CGT for residential properties was cut from 28% to 24%. Meanwhile, tax breaks for holiday let owners were scrapped.

But that was about it for our corner of the economy. A missed opportunity, to a certain extent, according to our CEO.

“In his attempts to woo voters before the upcoming election, the Chancellor missed a trick by not bringing forward more meaningful, positive policies for the property market,” he said.

“But we knew that was likely to be the case. Cutting property CGT rates will be welcomed in some quarters. But elsewhere, after years of tightening regulation in the buy-to-let market, the Government has indeed now moved to put the squeeze on holiday lets.

“Ensuring there are ample properties available for local homebuyers in tourist hotspots makes sense, but it is regrettable that the solution is always to target investors and penalise landlords rather than boosting supply through greater investment into housebuilding.”

“It feels like a missed opportunity”

A common critique levied on the state is that it often puts measures in place to boost demand, but does little to address supply. Think Help to Buy[3], or 1% mortgages[4].

While it’s true that these types of schemes can help some people get on the ladder, they also result in more people chasing a dwindling lack of supply. Rising demand should be met by adequate supply. If it’s not, prices tend to rise, which leads to the kind of challenges we’re facing now. This wasn’t lost on Mr Raja.

“That there was so little by way of stamp duty reforms, housebuilding commitments, or ways of incentivising landlords to invest in their properties – particularly for energy efficiency purposes – was disappointing,” he added.

“Ultimately, after two years of rising interest rates, today’s Budget would have been an opportune moment to bring about a string of policies and reforms to boost the property market. It feels like a missed opportunity.”

This sentiment was shared among several others within the property landscape. We reached out to experts across the market for their perspectives.

“I think we were all waiting for the rabbit in the hat that never came”

Bob Singh, director at Chess Mortgages, seemed deflated by the announcements made.

“Well for something that was so anticipated by the property sector it was quite inconsequential,” he said.

“The Budget isn’t going to change anyone’s situation drastically and as for the long-term investors, offering them a 4% cut in CGT isn’t going to make them sell up and miraculously solve the housing shortage.

“I guess we’ll have to wait for the Autumn statement for the knockout blow”

First-time buyers, according to Stephen Still, head of surveying at Stirling Ackroyd Group, were also left out in the cold.

“I think we were all waiting for the rabbit in the hat that never came,” he said.

“There were no specific measures to help first-time buyers, which may impact the buy to let market as much as anything. Therefore, this budget probably has bigger implications for private landlords than for people looking to get on the ladder.

“The cut in capital gains tax may impact the rental market if the 4% is deemed enough to encourage some property owners to sell – meaning potentially less property on the market to let.”

Kelly Hopkins, founder of Let’s NVST, a hub dedicated to creating a more secure and efficient experience for property investors, was also underwhelmed.

“Overall, the Chancellor’s Spring Budget was underwhelming for property investors and developers,” she said.

“The abolition of multiple dwellings relief, which was widely used by property investors and developers, will be a setback for larger investors. It was disappointing that there was no mention of the consultation on the permitted development right to split a single dwelling into two, which had been discussed in the Autumn budget.

“On a positive note, the reduction of the capital gains tax rate from 28% to 24% for non-permanent residences, such as buy-to-lets, second homes, and holiday lets, is a favourable development that is expected to stimulate transaction volumes in the housing market.

“From a broader economic perspective, it was disappointing to see that more was not done to support SMEs with business rates. However, the introduction of the British ISA, which provides an additional tax-free annual ISA allowance of £5,000 for investments in UK equities, is a welcome development.”

Stephen Burns, a partner and specialist mortgage broker at Word On The Street, also noted some of the broader economic positives that came out of the budget. Overall though, the government may have ended up playing it safe.

“The Spring Budget seemed to come and go in the blink of an eye,” he said.

“I saw it as covering a wide range of the ‘usual suspect’ topics – taxes, benefits, transport, energy, housing, and alcohol. But all somewhat lame.

“With the published predictions that inflation will soon fall below the government’s target and economic growth is also predicted, were the announcements enough to maintain a status quo, or does the up and coming election have anything to do with it?

“The cynic in me thinks more ‘dramatic’ announcements will follow, to perhaps boost the government’s popularity pre-election. In summary, I expected more.”

Indeed, given what may be on the horizon, we should all perhaps take this Budget with a pinch of salt. The powers that be may just be saving their biggest announcements for the autumn…

“Actually, I think the budget is a red herring”

While Rishi Sunak was operating under the “working assumption[5]” that a general election would occur in H2 2024, the Prime Minister recently refused to rule out a May election. Maybe it’s best for everyone if we just get it all over and done with.

With this in mind, Juliet Baboolal, partner at gunnercooke, issued a reminder on the importance of focusing on the long-term. Rather than becoming bogged down in short-term changes.

“It is important to closely monitor future policies and reforms to determine their long-term impact on the property market and the economy,” she said.

“There is a concern that the budget may be driven by political motives, as it coincides with a likely election year.”

Despite the potential motives however, Ms Baboolal was optimistic about some of the announcements made. Chiefly, she welcomed the news that stamp duty perks will remain in place until 2025, that our economy overall seemed to be heading in the right direction, and that the UK should avoid a recession this year.

“In summary, while the budget may not have brought significant reforms, the positive economic outlook, sustained stamp duty holiday, and focus on economic growth provide reasons for cautious optimism,” she added.

On this, Sean Bowling, director and advisor at SBL Financial, believed the budget largely provided a moot point.

“Actually, I think the Budget is a red herring because ultimately, if the election is in three months’ time, the plans are not going to be implemented, because they’re going to be out of power,” he said.

“Labour is going to come in and they’re going to say: ‘well, we can’t roll with this Budget. We’re going to have our fiscal people looking at the state of the finances, and we’re going to introduce our own measures’.

“Now, the flip side of that is, even though if we find political census on factual information, we could have some really good news as, to a certain degree, it was a positive Budget.

“So, yes, there are positives, but I still wouldn’t get too hung up about the Budget. I just don’t think it’s going to amount to anything because Labor’s going to get in and have their own budgetary and fiscal policies.”

Looking ahead

Given what could be looming, it may not be long until we’re writing the next Industry Reacts piece on a general election announcement. Which, frustratingly, could force us all to revaluate our plans once again.

But, it just goes to show that one can never truly prepare for what’s on the horizon with complete accuracy. One minute an investor is preparing to take advantage of reduced CGT rates, the next they’re creating a fresh plan for an entirely new government.

Rolling with the punches is the only thing that’s proven to work consistently. We understand that better than most here at Market Financial Solutions, which is why we’ll embrace adaptability, flexibility, and understanding for years to come.