Spring is traditionally a busy time in the property market. Just how busy it is, however, depends on various factors. Many people involved in real estate will have been awaiting the spring statement with great interest. As it turned out, there were no measures aimed directly at the property market. Overall, however, it was still arguably good news for the sector.
The economic outlook
Probably the key news from the spring statement was that the UK’s outlook seems to have brightened somewhat. Previous forecasts predicted that the UK’s economy would shrink by 1.4%. Now the predicted shrinkage is just 0.2%. Whether or not this qualifies as good news is a matter of opinion. At the very least, however, it is less bad. The better news is that the UK economy is projected to grow from 2024 to 2027 (inclusive).
Inflation is projected to fall
Average inflation for 2023 is predicted to be 6.1%. It is expected to end Q4 2023 at 2.9%. This is (just) within the Bank of England’s target range of 1% to 3%. It’s also a fall of over two-thirds from its Q4 2022 peak of 10.7%.
Inflation is a double-edged sword for the property market. On the one hand, general inflation is part of what contributes to house-price appreciation. On the other hand, excessive inflation can lead to serious affordability issues that can cripple the property market.
Either the inflation itself leaves people less able to buy property or it leads to higher interest rates. These make mortgages more expensive (and hence less affordable). The property sector is highly dependent on the availability of mortgages. This means that anything that makes them harder to get is bad news for it.
Assuming the fall in inflation is organic (i.e. not just a response to higher interest rates), it could bring welcome relief to the property market. In fact, even if it is, initially, just a response to interest rates, it could still be good news. Once inflation is tamed, interest rates may be able to come down again.
It’s also worth remembering that interest rates are still fairly low by historical standards. The UK has a long way to go before it gets anywhere even close to double-digit interest rates.
Unemployment will remain low
Unemployment is projected to rise by a maximum of 1%. This projection is, however, a very interesting one. The chancellor’s spring statement was clearly strongly focused on getting the economically inactive back into work. Specifically, it was aimed at getting early-retirers and home-making parents back into the job market.
If the chancellor’s moves succeed, it is very possible that the UK will actually have greater numbers of people in work despite a technical increase in unemployment. If so, then the boost to the UK’s economy might be greater than the raw figures might suggest. This would be excellent news for the housing market.
Corporation Tax increases
From April, businesses with profits of more than £250,000 will pay 25% Corporation Tax. Those with profits of between £50,000 and £250,000 will see their Corporation Tax increase to some extent but not the full 6%. Those with profits of less than £50,000 will continue to pay corporation tax at 19%.
There are two reasons why this could be very relevant to the property market. Firstly, many property investors are now working through limited companies. They may find themselves forced either to pay the extra tax or restructure.
Secondly, it could lead to businesses looking for ways to cut their costs. This could see firms that have retained office space either giving it up or downsizing it. This could potentially then create a ripple effect in the residential property market. At this point, however, that seems unlikely. Many knowledge workers will already be set up to work from home.
For advice on mortgages please do get in touch
FCA does not regulate some forms of Tax planning, for this service we act as introducers only.
Comments