Autumn Statement 2022: What it means for the UK’s housing market

Chancellor Jeremy Hunt delivered his Autumn Statement to parliament yesterday, announcing that millions of people will pay more tax as he cut the top-rate threshold and announced freezes on several other taxes.

The total amount of savings from the Autumn Statement has been costed at £55bn, through tax rises and cutting government spending.

The announcements came as the government’s forecaster warned that the UK faced its biggest drop in living standards on record, as the surging cost of living ate into people’s wages.

In real-term costs, Hunt has paved the way for years of pain, as UK households’ disposable incomes will fall by 7.1% over the next two years – the lowest levels since records began in 1956/7, taking incomes down to 2013 levels, according to the independent Office for Budget Responsibility.

The chancellor made several announcements that will have a direct impact on housing, including a deadline on stamp duty cuts, changes to council tax, capital gains tax and an end to the current energy price cap from April 2023.

So, what does yesterday’s Autumn Statement mean for the UK housing market, and what more could Hunt have done to help the sector?

Industry reaction:

Richard Donnell, executive director of research at Zoopla, commented: “The government’s announcement of a reversal of the recently announced stamp duty changes in 2025 signifies a real need to reform stamp duty – a tax that is now starting to resemble income tax where it’s the top tax bands generating the greatest receipts. This reversal will make it increasingly difficult for prospective first-time buyers to get on the housing ladder in the coming years, particularly in London and the South East which accounts for the majority of stamp duty receipts.”

Simon Gerrard, MD of Martyn Gerrard Estate Agents, said: “While nobody craves spending cuts and tax rises, we should welcome the fact the grown-ups are now in charge and are acting to stabilise the economy. However, the Chancellor has missed a huge opportunity to inject confidence into the housing market.

“The big danger, as the economy freefalls into recession, is the expected drop in transactional volume.  Put simply, if too few homes are sold we could see house prices tumble, fewer homes put on the market and ultimately, the very real risk of an entire generation of homeowners in negative equity.

“Confidence is everything, and Stamp Duty reform could stimulate the housing market – particularly in the face of more expensive mortgages. Let’s hope that Rishi Sunak and Jeremy Hunt both realise that a housing market in crisis is as detrimental to the economy as runaway inflation.”

Tom Bill, head of UK Residential Research, said: “The cut to the capital gains tax exemption is a further disincentive for landlords but, like other announcements in the Autumn Statement, it could’ve been worse. It will disproportionately affect landlords of lower-value properties but CGT rates have not been aligned with income tax, so a material drop in demand or a wave of selling is unlikely. Landlords have faced a series of tax hikes in recent years but private rented property accounts for 1 in 5 of English households. At a time when living costs are rising so quickly, policy should remain rooted in economics, encouraging landlords to remain in the sector and keeping downwards pressure on rents.

“By reversing the stamp duty cuts announced in September from April 2025, the government has effectively announced a 28-month stamp duty holiday. It may help stimulate activity closer to the deadline but it appears to contradict the message sent by the government during the pandemic that a liquid housing market was good for social mobility and had wider economic benefits.

“For anyone buying or re-mortgaging, the message is that mortgage rates should continue to edge downwards in coming months and the stability of recent weeks will continue. However, the spike in borrowing costs that followed the mini-Budget in September was a reminder that a 13-year period of low rates is over, which we expect to put downwards pressure on prices as they fall back to the level they were at last summer.”

Nick Leeming, chairman of Jackson-Stops, commented: “Reversing the cut to stamp duty on properties under £250,000 and £425,000 for first-time buyers is unwelcome news for the housing market. Perhaps one of the only positives to come from the ill-fated mini-budget, the decision to put a time limit on the tax break is likely to create a bottleneck of transactions in the first quarter of 2025 as buyers rush to lock in the more favourable stamp duty rate. Whilst this rush to get a sale across the line will not be to the same extent seen during the last stamp duty holiday, this time limit will undoubtedly factor into many first-time buyer’s decisions as these savings could be put towards utility bills, solicitors’ fees or upgrades on the home they purchase.

“The priority must be avoiding creating market bubbles and providing a stable environment. We should be looking to encourage fluidity throughout the market and a wider stamp duty reform is needed for this.”

Rightmove’s property expert Tim Bannister said: “The clock now ticking on potential stamp duty savings will bring a bit more urgency for people trying to get on the ladder or trade up in the next few years. As it’s still in place for a couple of years we don’t foresee a significant number of people bringing their plans forward to 2023, especially due to current affordability challenges, but we may see a jump in new sellers towards the end of next year and into 2024 to ensure they can move in time. The total time it takes to buy and sell a property is currently around six months, meaning people will need to be well on their way by late summer 2024.

“It’s likely to be most challenging for first-time buyers with smaller deposits, as we know it’s currently taking them an average of five years to save up enough for a deposit. The average monthly mortgage payment will be lower if they’re able to raise a bigger deposit, so we may see more people looking to friends and family for help with a deposit to be able to bring their plans forward before the current stamp duty savings disappear in 2025.

“However, the current savings are lower than the stamp duty holiday of 2020, so we don’t foresee the removal having a significantly dampening effect in 2025, with factors such as mortgage rates and house prices likely to have a much bigger impact on activity levels.”

Nick Whitten, JLL’s head of EMEA and UK Living Research, commented: “The financial markets have already responded positively to the Chancellor’s attempts to ‘balance the books’ with the cost of debt, and ultimately mortgage rates, falling steadily in the past week.

“But households are going to feel even more of a squeeze through the current cost of living crisis as a result of the belt tightening measures introduced in the Autumn Statement.

“However, we do not see a house price crash occurring in the UK, more of a correction. The next 12 months will see a sluggish market in which buyers and sellers haggle over price and ultimately less transactional activity occurs. The supply of new homes for sale will gradually becoming constrained.

“Against this backdrop, JLL is forecasting that UK house prices will fall in value in 2023 by 6% which equates to an average discount of £17,500 from the average UK house price of circa £290,000.”

Dominic Agace, chief executive of Winkworth, said: “The property market is built on confidence and everyone, from first time buyers to downsizers, needs reassurance that we have a Government which is making the right decisions to bring about some stability. We have already seen interest rates coming down slowly and mortgage products returning. The most important result from this Autumn Statement should be action and not hot air. We are facing a new reality and after successive fiscal statements this year, it is vital that the Government delivers on its promises.

“The change to CGT is yet another negative move by successive Chancellors against buy to let landlords, many of whom are already leaving the sector due to increased taxation, regulation and rising interest rates. This is an own goal by the Government as the private rental sector is the only place many people can find a home if they are not in a position to buy. With the lack of social housing supply and the need for young professionals to be highly mobile and able to move to London and other major cities, the role of the private landlord is more important than ever and should be encouraged.

“First-time buyers are bearing the brunt of many external factors – from increased interest rates and cost of living to a lack of rental supply making rents spiral and making it harder to save for a deposit. Ending the current cuts in stamp duty in April 2025 is disappointing. The challenges facing first-time buyers are with us for the long-term.”

Iain McKenzie, CEO of The Guild of Property Professionals, said: “Bringing stability to the economy is the number one priority for the property sector.

“These sweeping cuts alongside increases in taxation will spark fears of a deep recession on the horizon, but these decisions have been taken to avoid predictions of it lasting for two years – one of the longest in this country’s history.

“House prices are unlikely to drop dramatically as the unprecedented demand we have seen in recent years has endured.

“There may be some realignment in pricing to adjust for the rising cost of living, but the market will recover. During the global financial crisis house prices dropped by around 19%, however, it has sustained and grown thereafter.

“Despite the increases in tax and budget cuts announced today, the stamp duty cut will remain in place until 2025, which shows that the government sees the property market as driving growth and stability.

“These incentives are crucial to restoring confidence in house-buying, especially now that the Help to Buy scheme has ended. First-time buyers are being pushed out of the market, as they struggle to meet deposit requirements needed to satisfy lenders.

“We would like to see another version of the scheme that will offer more support to get people on the property ladder and available for all types of properties, not just new builds.”

Marc von Grundherr, director of Benham and Reeves, stated: “Homebuyers have been stretched to breaking point in recent weeks, not only by the rising cost of living, but also due to increasing mortgage costs.

So they may well feel that they’ve been shown the cold shoulder today with the absence of any meaningful initiative designed to help stimulate the UK property market. Even more so given that the previous reprieve offered in the way of a stamp duty cut will now only run until the end of March 2025.

At the same time, Jeremy Hunt’s raid on middle England and landlords, in particular, by slashing the amount exempt in capital gains tax is likely to disconnect this government even further from their traditional electoral base.

It’s a risky strategy and one that confirms that the Conservative’s are no longer the party of the UK homeowner, which is sure to lose them votes further down the line.”

Ben Beadle, chief executive of the National Residential Landlords Association, said: “The demand for private rented housing is massively outstripping supply. This will only worsen as growing mortgage rates make home ownership more difficult to afford.

“The government has yet again failed to recognise the potential for housing to drive growth and deliver for the economy.  The Chancellor should have focused on boosting supply by ending the Stamp Duty Levy on the purchase of new rental homes.

“Research by Capital Economics suggests that scrapping this could lead to a £10 billion boost to Treasury revenue. This would be as a result of increased income and corporation tax receipts. Instead, these swinging cuts to Capital Gains Tax allowances will dissuade investment for years to come.

“The last thing renters need is an effective further tax hike on the private rented. All this will do is discourage investment in the new homes to rent the country desperately needs and drive up the cost of renting.”

James Forrester, MD of Barrows and Forrester, commented: “The property market has remained largely defiant despite the turbulence of recent weeks and so it’s no surprise that the nation’s homebuyers and sellers have been ignored this time around, although today can be viewed as a golden opportunity missed to push growth within the sector.

That said, the government seems intent on taxing until the pip squeaks and this is only going to add to the woes of many ordinary folk, as they continue to struggle in keeping their heads above water where their household finances are concerned. The only silver lining is that many of today’s announcements don’t kick in for a while and this lot may not still be in government by then.

We can expect the nation’s tenants to feel the brunt, as yet another government initiative designed to deter landlords, this time in the form of a capital gains tax raid, reduces the level of stock available and drives up rental values.”

SOURCE: Property Industry Eye | NOVEMBER 18, 2022 | MARC DA SILVA