October Property Report.
The fiscal event a few weeks ago was billed as a mini-budget. But, if you’d tuned in, you’d have quickly noticed that it was anything but “mini”. Income tax, Corporation tax, National Insurance, Stamp Duty – everything was on the table, in what soon became a full-scale proposal to jump-start UK growth.
But one question remains: how will that proposal affect you, and your investments?
It may read like ‘the good, the bad and the ugly’ but there’s plenty of positive property news this month. If approached with calm caution, highlights can be extracted. You just need to know where to look.
Let’s start with the good. A mini-budget in September saw the Chancellor revise England’s stamp duty system, although in Wales it remains unchanged. The result is a typical saving of £2,500 and the move is permanent, not a time-limited holiday.
Improved first-time buyer budget
First-time buyers can now buy a more expensive property and still benefit from an exclusive stamp duty saving. As before, stamp duty isn’t applied to the first £425,000 of a property’s value but the ceiling purchase has increased. First-timer buyers can now purchase a home worth up to £625,000 and claim the bill reduction – up from the old £500,000 threshold.
Majority of buyers set for savings
The threshold at which stamp duty is applied has risen from £125,000 to £250,000 and this applies to everyone. Second steppers, downsizers and first-time buyers won’t pay a penny of stamp duty if the property is £250,000 or less. As a result, Rightmove reports that 33% of purchases should now be free of stamp duty.
Even if a property’s price is above £250,000 bills will decrease. There is an average saving of £2,500 for those buying between £280,000 and £1 million. It’s all down to stamp duty being applied at the new, higher £250,000 threshold
Investors and those buying holiday homes will also see a reduction in their stamp duty bill. They too will enjoy an average £2,500 saving. All purchases classed as an ‘additional home’ will however, still be subject to an additional higher rate of stamp duty.
Good news also comes in the form of house prices. We know budgeting has been tricky over the last two years but there are signs of price stabilisation. Nationwide’s September House Price Index revealed the UK’s average house price stayed the same over the last four weeks.
This flatlining trend has ended a run of 15 consecutive months of price rises. It also results in a new UK house price average of £272,259 – slightly lower than August’s figure. At the same time, annual UK house price growth has dropped to 9.5% from 10%.
Onwards and upwards for rental values
While annual house price rises are dipping, rents continue their upward trajectory. HomeLet’s September Rental Index shed light on lettings activity during the month. Every UK region saw annual and monthly rental values grow. The UK’s average rent is now £1,159 per calendar month. This is up 9.2% from the same time in 2021, and up 1.4% from August.
Rising rents and stabilising property values is posing a question: will yields outperform house price appreciation? Rental price growth is forecast to be in the region of 4% to 6% in the coming three years. This may outpace house price rises, favouring landlords who stay within buy-to-let.
Mortgage manoeuvres
Finally, we can’t report on September’s news without mentioning the mortgage market. At the time of writing, a rise in the Bank of England’s base rate to 2.25%, together with the mini-budget, has prompted lenders to re-evaluate their products. While some of the cheapest rates have been withdrawn, lenders are constantly reviewing the economic situation and almost 4,000 mortgages remain available.
Our advice is to work with an IFA or broker who has access to the whole mortgage market. An independent professional can spot the best ‘deals of the day’ – often products that are around for only a matter of hours. They will also calculate whether a higher rate of interest works out at better value over the course of the mortgage than paying a four-figure arrangement fee.
Summary of What’s Changing?
Stamp Duty
No Stamp Duty on first £250,000 (£425,000 for first-time buyers), effective immediately
When purchasing a property, you’ll no longer pay any Stamp Duty Land Tax (SDLT) on the first £250,000 of your property’s value. In the face of rising mortgage costs, this could deliver savings of up to £2,500.
Say you’re buying a £250,000 property. Previously, that would’ve set you back £2,500 in Stamp Duty as you’d pay 2% on £125,000 of the property’s value. Now, you’ll pay nothing at all. And, as we all know, any savings at the moment are cause for celebration.
It’s also worth noting the intentions behind the Stamp Duty cut: to encourage more people to buy. As we saw during 2021’s Stamp Duty ‘holiday’ any cuts can send demand surging (and prices along with it). This will improve investors’ capital growth, and overall profit when the time comes to exit.
However, with mortgage rates looming larger all the time, the government could’ve gone further on Stamp Duty. The 3% surcharge for investors, for example, went untouched – meaning the bulk of benefits from the Stamp Duty change will fall to first-time buyers.
Income Tax
Basic rate cut to 19%, from April 2023
The UK government will cut the basic rate of income tax to 19% from April 2023 – putting cash back into the pockets of any landlord investing in their own name, rather than a limited company.
Corporation Tax
Planned rises up to 25% in April 2023 cancelled
The UK Government has reversed its previous proposal to increase corporation tax on profits over £50,000 with the rate hitting 25% for anything over £250,000. Instead, it’ll stay at 19% across the board.
This, again, is welcome news – as investors with substantial portfolios across multiple companies would’ve otherwise seen a nasty bounce in their tax bills. The decision ensures limited company buy-to-let will remain an attractive, tax-efficient route for thousands of investors.