Please see below an article published by A.J. Bell yesterday (08/07/2020), which summarises the main housing market points from the Chancellor’s mini budget which he delivered yesterday:
Today’s statement was always likely to focus on ‘good’ news items designed to stir the UK economy from its economic slumber. We got that in the form of a big VAT cut for the hospitality sector, new job creation programmes and a headline-grabbing reduction in stamp duty.
However, the Chancellor was clear stabilising the public finances and paying off the estimated £300 billion bill racked up during the pandemic will be a key priority in his Autumn Budget later this year. And with Boris Johnson ruling out a return to austerity, a tax-grab seems almost inevitable as the Treasury seeks to balance the books.
Stamp duty boost for homebuyers
Homebuyers have been given a potential £15,000 boost in the Chancellor’s move to scrap stamp duty on all homes worth up to £500,000. The almost £4bn giveaway is a massive leap in the stamp-duty-free rate from £125,000 to £500,000, and on the average UK property price* of £231,855 a homebuyer would save £2,137. The tax relief will clearly benefit those in London and the south-east most, where house prices are higher and so the potential tax saving is greater.
The move is also across the board, meaning even those buying a second or third home or buying multi-million pound houses will benefit from the tax break – clearly the intention is to encourage all areas of the market to get buying and stimulate the housing market.
The tax cut should provide a much-needed shot in the arm for the property industry, which saw a complete shutdown during lockdown and is now plagued with worries about falling house prices. The Bank of England’s mortgage approval figures, which are a good indication of the pipeline of new home purchases, have fallen dramatically and are a third lower than their worst point in the financial crisis – showing just how dire the outlook is for the market for the rest of this year.
The fact that the move is temporary will be like a sugar rush for the housing market, with people who were planning to move hurrying to do so before the stamp duty holiday ends at the end of March next year. It means that we’re likely to see transactions fall off a cliff once the tax break is whipped away in 2021.
The Government will hope that the tax giveaway will see some households choose to spend that money somewhere else, on furnishing their home or spending elsewhere – in order to help revive the massive drop-off in consumer spending during lockdown. However, it’s more likely that people will just choose to buy a more expensive property, meaning the additional spending will be focused just on the housing market rather than boosting a range of businesses.
House builders, estate agents and builders’ merchants have something to smile about
Much of the Chancellor’s plan to preserve British jobs and boost the economy had been floated beforehand but house builders, estate agents and builders’ merchants all have something to smile about. Mr Sunak tried to do his bit for hoteliers, restaurateurs and publicans, although his limited room for manoeuvre when it came to spending, owing to the existing national debt, means the benefits here may be more limited.
Estate agents such as Foxtons, Savills and Countrywide will all be hoping for a big step up in business thanks to the stamp duty cuts, especially after May’s disastrous new mortgage applications figure of just 9,273. However, the danger is that demand is all crammed into the next few months and business levels then plunge again come April 2021 when the levy returns. Savills was up 2.5% after the speech, putting it in the top ten performers in the FTSE 250.
House builders did not get an extension to the Help to Buy scheme, though doubtless they will continue to press for it, though they too will be pleased to see the stamp duty cut and the emphasis on helping first-time buyers. Shares in Barratt, Taylor Wimpey, Persimmon and others responded strongly to the rumours of this policy initiative on Monday and so are doing relatively little now the facts are known.
Builders’ merchants may benefit too, which could help Grafton and Travis Perkins, while providers of insulation such as SIG and Kingspan will be looking forward to increased demand as a result of the Chancellor’s commitment to more energy efficient homes and public sector premises. Shares in bathroom equipment and accessories supplier Norcros and Topps Tiles are rising in response to the prospect of higher volumes ahead.
The hospitality sector will welcome attempts to boost spending in pubs, hotels and restaurants though Mr Sunak did not venture down the voucher path. Disappointing as this will be for leisure firms, such a giveaway would potentially have had long-term consequences and set a bad precedent – once free money is offered once it is very hard to stop handing it over.
As such, the policy is more nuanced and therefore less dramatic. The VAT cut may entice some visitors but the Monday-Wednesday time frame and £10 limit for the month of August on dining out may not move the dial much – and nor are any of those incentives likely to persuade those who are too frightened or too vulnerable to venture to such public places, or indeed those who have lost their job or are on furlough, for whom cash could be tight and eating out a luxury anyway.
Nevertheless, Wagamama-owner Restaurant Group is taking some comfort from the plan as the shares are up 6%, to put it in the top ten gainers in the FTSE All-Share and InterContinental Hotels is up 2.3% to place it second-best in the FTSE 100 today.
Please continue to check our Blog content for the latest investment, markets and economic updates from leading investment houses.
Please keep safe and healthy.
Carl Mitchell – Dip PFS
IFA and Paraplanner
09/07/2020