In what is now a seasonal ritual, the UK public awaits the official announcement of the annual budget from the Chancellor of the Exchequer. In early March 2021 Chancellor Rishi Sunak (pictured above) emerged from his office with the traditional red despatch box on his way to reveal his fiscal plans to Parliament.
This year’s budget, announced on 3 March, not only contained a boost for the UK property market; some potentially significant changes that we were anticipating did not appear.
But that wasn’t the end of the story.
Mr Sunak promised to provide more clarity on some of the issues, which were still subject to government consultation, in a few weeks’ time.
Thus pundits had labelled 23 March ‘Tax Day’ and were standing by to update their recent comments and explain to us what it all means.
Stamp Duty is still the headline issue
Just before the end of a fiscal year like no other in recent memory, due to the global Covid pandemic, the Government made it clear this was not the time for major reform or innovation.
The real news in property is that the temporary reduction of SDLT (Stamp Duty Land Tax) is to be extended. From July 2020 the rate was cut to zero per cent on the first £500,000 of a property’s value. The so-called Stamp Duty holiday was due to expire on 31 March 2021.
It has now been extended to the end of June and will be gradually tapered down for three months before returning to the regular rates beginning October 2021.
Fears of a frozen market may be unfounded
Many property experts were warning that the Chancellor’s original action to stimulate activity, and which measurably boosted the market after the first lockdown, would suddenly stop.
With a three-month extension and a gradual, three-month tapered ending, the property market will continue to be active. Effectively, the government wants to keep the wheels of the system lubricated to prevent the market from seizing up.
The extension of support for the employee furlough scheme has also created some fiscal breathing room. Add to these financial facts the social impact of the roadmap to re-open the economy and the momentum of the vaccine rollout, and the outlook might even seem encouraging.
Forecasters promptly adjusted their expectations, revising their outlook to point to growth and opportunities.
In March the main estate agents and property portals changed their growth forecasts for UK prices for the coming year. Knight Frank revised their estimate for annual UK house price growth from 0% to 5%. Similarly, Savills bumped up its numbers from 0% average price growth in the UK to 4%.
By extending both the stamp duty and the furlough scheme, the chancellor has significantly reduced the downside risk in 2021. Furthermore, Savills are predicting cumulative 20% growth over the next five years.
London, with its multiple sub-markets, is still a special case
The picture is encouraging for the UK as a whole. But London has always been a market unto itself, a special ecosystem.
Looking at a map, you’ll see some boroughs experiencing major price increases.
Yet, sales activity in the prime central London market remains subdued. One reason is the continued restriction on international travel, which has led to a downward revision of expected price rises here from 3% to 2%.
Further complicating matters is the SDLT surcharge for overseas buyers of 2% for purchases, which kicks in from 1 April 2021. While a major additional cost for some, most buyers find that career considerations and family factors often outweigh tax consequences.
Nevertheless, for buyers who are already here in the UK, now may be a good time to act. For investors, the long-term prospects of the UK property are once again encouraging.
Keeping in mind that a lot of high-end property trades off-market and understanding that each London neighbourhood has its own contours and characteristics, for long-term success, it’s always a good idea to seek professional advice.
