Hello Medway Property Investors,
I’ve spent the past few days digesting what the autumn budget means for property investors and am, cautiously, pleasantly surprised.
Capital gains tax, stamp duty reform and more… none of that was mentioned. Ok, so maybe they’re still coming, however investors can breathe a sign of relief for another six months.
So, what do the headlines that are out there say? Well, the first headline I have been digesting is from the Financial Times and comments on how the budget is a missed opportunity on stamp duty reform.
Stamp Duty Reform
Certainly, property investors have had a good run when it comes to stamp duty over the past year. Ok, so there has also been an increase in prices that pretty much wiped out the savings but overall, the benefit to those with two or more properties is likely to have been positive rather than negative.
However, here’s where the knife gets shoved in. There’s been a leak that the chancellor was set to increase the stamp duty paid on second homes from 3% to 4%, however pulled the policy at the last minute.
Currently, the rate for the first £125,000 is 3% and raising this to 4% would add £1,250 to the budget for Medway property investors and raise a maximum of around £8m in additional tax revenue based on the rough number of buy to let purchases in the past 12 months.
We may yet see this 4% base rate come in to make up for the catastrophic failure of the stamp duty holiday!
Effects Of Inflation
Inflation was predicted to his 4% over the next year and with the increased cost of living (such as petrol prices rising to around 145p per litre), comes a predicted increase to mortgage rates during 2022.
I can’t find any predictions on what rates could increase to, but I don’t doubt that increased rates will lead to investors fixing in any variable rates before it’s too late and potentially even an increase in rental costs.
There’s a perfect storm brewing. Higher living costs, higher mortgage rates, more tax through National Insurance, massively increased property prices and, most likely, stricter lending requirements will lead to the property market cooling off.
However, it’s not all bad news as Medway investors are set to profit by an expected 3% rise in property prices. This equates to £6,422 per property. It will be interesting to see how much average rental rates will increase to keep in line as demand will be likely to stay high!
4% Cladding Levy
Officially called the Building Safety Levy, this 4% tax will help fund a £5.1bn package to replace unsafe cladding for leaseholders in high-rise buildings across England.
This tax will apply to developers who earn profits of more than £25m and has been slammed by analysis as it is expected to raise just £2bn of the estimated £10bn cost to remove all unsafe cladding.
Build, Build, Build
There were some positive points for developers as the Chancellor announced some key points to help build the homes the country needs. This included the following three points:
- £11.5bn to build up to 180,000 new, affordable homes
- An extra £1.8billion to bring 1,500 hectares of brownfield land into use
- £65 million will be invested to ramp up England’s planning system, including digitisation to make local plans easier to access
Of these three points, we await details, however the goal is to use the funds to support a ‘levelling up’ strategy as brownfield sites often tend to be in less desirable areas.
These have come in for widespread criticism, particularly as when you break down the funding it works out to a measly £11,250 per new home.
Again, it looks like the big numbers were there to draw the headlines, but it seems that the detail behind them could be a tad weak. Time will tell how this pans out!
Investors Keep Investing
So, what does this all mean for property investors? Well, here’s my three take-home points:
- Above-inflation growth for leveraged portfolios
- Higher lending costs could lead to higher rents
- Investors should expect higher costs in the future
In closing, it’s worth highlighting that I anticipate 2022 to be another good year to invest in property. I love this quote, which I believe will outline the property market for 2022:
‘There’s never a best time to buy property. There’s just a better time and that time is more than often NOW’.