Property tax rises and falling house prices look as if they are on the way according to the small print accompanying yesterday’s Spending Review by Chancellor Rishi Sunak.
No tax increases were mentioned yesterday but the Office of Budget Responsibility, which oversaw the Sunak statement, says: “Our central forecast shows £20 billion to £30 billion in spending cuts or tax rises would be required to balance revenues and day-to-day spending and stop debt from rising by the end of this Parliament.”
In addition the OBR warns: “Coronavirus has also exacted a heavy and mounting toll on the public finances. In our central forecast, the combined impact of the virus on the economy and the government’s policy response pushes the deficit this year to £394 billion or 19 per cent of Gross Domestic Product – levels not seen since 1945-46. This is driven by a collapse in tax receipts and an increase in government spending from 41 to 56 per cent of GDP, a level unknown in peacetime.”
The first of these tax rises are likely to come in a Spring Budget expected on an unspecified date in the latter part of the first quarter of 2021 – roughly when the current stamp duty holiday and the extended furlough scheme both expire.
And the OBR also has plenty to say about the housing market and what is likely to happen in 2021.
“House prices are expected to fall back in 2021, driven by the end of the stamp duty holiday and the hit to household incomes from the labour market adjustment that we assume will follow the end of the [furlough] Coronavirus Job Retention Scheme” the OBR admits.
Meanwhile there’s been substantial reaction to the Spending Review from within our industry.
Bryan Mansell – a former agent and co-founder of PropTech platform Gazeal – says: “The property industry will have been calling out for updates on the stamp duty holiday, but will be pleased to see a funding announcement on how the government intends to rectify the UK’s housing shortage.
“The impact of the pandemic will make it harder for these ambitions to be achieved. It is therefore pleasing to see a pledge of £20 billion to support new housing from 2020-21, including the introduction of a £7.1 billion National Home Building Fund.
“The housing shortage is not going anywhere, so hopefully the government’s new strategies will help towards funding new homes for the next generation of property buyers.”
And Neil Cobbold, chief sales officer at PayProp, says: “There had been many calls for the stamp duty holiday to be extended. A longer period for property buyers to benefit from significant tax savings would provide the market with a welcome boost as we approach the New Year and the effects of record-breaking sales volume this summer start to wear off.”
Leading agency owner and former RICS residential faculty chief Jeremy Leaf adds: “Hopefully, the [government housing] funds will be used to improve the pace of supply of affordable new housing for sale and to rent in places of most need. Further support for first-time buyers when the stamp duty concession ends and Help to Buy Part 2 begins in the spring, are other areas which could help keep transaction numbers up. Their value to the wider economic recovery, particularly employment, has proved so crucial in recent months.”
However, there’s criticism of Sunak from the leading landlord body, the National Residential Landlords Association.
In the OBR report accompanying the Chancellor’s speech, it’s revealed that for 2021 Sunak has frozen the Local Housing Allowance, a key factor in helping tenants on benefits.
Ben Beadle, NRLA chief executive, says: “Many renters and landlords are struggling with the consequence of rent arrears through no fault of their own yet the government is failing to take the action needed to address this. Whilst the Chancellor has spoken about the need to support those who find themselves homeless, it would be much better for all concerned to provide the funds needed to sustain tenancies in the first place.”
There has also been a frosty response from Mary-Anne Bowring, group managing director at property business Ringley.
She says: “Coronavirus rightly took up the majority of the Chancellor’s spending commitments, but there was precious little offered to the thousands of households trapped in potentially unsafe or worthless homes thanks to the government’s bungled response to building safety issues in the wake of the Grenfell tragedy. Having committed billions to protect us from the fall out of Covid-19, the Chancellor should also commit to spending whatever necessary to ensure that flat-owners aren’t left to foot the bill for any cladding work needed on their building.”