London property market to remain buoyant after lockdown, budget proposals
Autumn in London is different this year, especially with the lifting of the Covid-19 lockdown and all remaining restrictions on July 19. Locals and foreign visitors have returned to the city and are starting to buy or rent property again.
According to an October 25 report from Knight Frank UK, overseas buyers have been more active in London since UK travel rules were relaxed, but the full impact of their return on the property market remains to be seen. The property consultancy adds that 2.57 million passengers passed through Heathrow Airport in September, more than double the number 12 months ago, and that figure is expected to rise further in October.
With a downward trend in the number of Covid-19 cases and almost 50 million people aged 12 and over (about 86% of this group) having received their first dose of the vaccine by October 31, while 45 million additional (about 79%) received two doses, the general feeling should improve.
Another recent development that could impact sentiment is the UK’s 2021 autumn budget announced on October 27.
Its implications were discussed in a post-budget analysis webinar on October 28, hosted by real estate agent Benham & Reeves, chief financial officer Vidhur Mehra. Attendees included real estate journalist Graham Norwood and Less Tax 4 Landlords co-founder and group manager Christopher Bailey. The panel examined the impact of the budget on taxation for investors.
The webinar was divided into six main parts – overview, specifics for owners and investors, UK economy and future outlook, indirect issues (for owners and investors), some unknowns to keep in mind and where it all comes from. leaves owners and investors.
No tax change to stamp duty, pledge to spend £150bn on ‘new economy’
According to Norwood, despite much speculation, no changes have been announced for stamp duty, capital gains tax and inheritance tax. Among the announcements was a £5million allocation to remove unsafe cladding from some high-rise buildings, and cladding work to be funded at 4% through the Residential Development Tax.
“There will also be long-term funding for 180,000 more affordable homes and more brownfield focus for new affordable housing. There will be a shift to universal credit, indirectly benefiting many tenants,” he added.
On landlord specifics, Norwood said: “£65m has been allocated to help (settle) arrears built up during the pandemic through the Covid Arrears Debt Fund which will be administered by English local authorities. The deadline for filing and paying capital gains tax has doubled to 60 days.
“There has also been a change in the calendar for the roommate rate to help some tenants. A good thing announced for domestic owners who are self-employed traders with an income of over £100,000 a year is that they would have an additional 12 months until April 2024 before switching to an online system called Making Tax Digital ( BAT). A further £2.2billion has been allocated for more legal recovery, including courts hearing possession cases.
He saw the budget as good news for owners and investors.
“There are promises of massive spending of £150billion to create a ‘new economy’ to recover from the pandemic. This is a substantial injection of funds into the economy with the expectation that growth will be significant in the years to come. Moreover, the inflation rate is now 3.1% and should increase to 4.0%.
“The peak unemployment forecast has been reduced from 11.9% to 5.2% while annual GDP growth will be 6% this year, then 6% in 2022 and 2% by 2025. Borrowing as a percentage of GDP are expected to fall from about 14% to 1.5% by 2025. Overall, the economy is expected to reach pre-Covid levels by the end of 2021.”
In terms of other indirect good news for investors, Norwood said: “There has been a much faster than expected economic recovery from the pandemic. The reform of professional tariffs, as advocated by the Confederation of Businesses and Business Leaders, was very well received. Concerns about financial services were somewhat mitigated by the benefit of a bank surcharge reduced from 8% to 3%.
On other macro issues, the air travel tax on domestic flights has been halved to boost connectivity, while £21bn has been allocated to spending on roads and £46bn to paths of iron.
“The effects of Brexit – so far there have been fewer downsides than expected. The continuation of the pandemic is an uncertainty, but we seem to have weathered the worst; its effects are expected to diminish through 2021 and 2022. There are also issues such as inflation and supply chain crises around the world that impact affordability and the cost of living, which will affect tenants,” he said. .
“Similarly, there will be an increase in the minimum wage for (those aged 23 and over) to £9.50 an hour which will help construction workers and those in industry. Inflation figures may not include very recent energy increases. And finally, there will be an additional air travel tax on flights over 5,500 miles to/from the UK, which is a factor that is likely to affect the country’s international connectivity.
Meanwhile, Norwood gave its forecast for the overall market in light of the budget announcement.
“London’s strengths or unique selling points, which are primarily its connectivity, global language, strong education (and student market) and culture (whether history or tourism) will remain unchanged in the long term.
“The most recent average rate of capital appreciation (in sales) in Britain is over 10% (and in London, depending on the index, the rate is between 4% and 7% on average), it there is therefore no change in the remarkable dynamism of the sales and rental markets.
“The housing shortage relative to demand will continue. Infrastructure projects seem largely untouched by the pandemic, even with high levels of taxation in the UK. The UK clings to its reputation as a haven for investors.
However, he warned that the Tenant Reform Bill, which will be introduced in the next three to four months, could be problematic.
“It will be a long process and we don’t know what the concrete steps will be. There have been discussions about changing the way deposits are handled and changing the possession process for landlords, but the process to introduce this is likely to take three to four years (due to consultation and parliamentary processes ) and, therefore, all the measures that come in the next few months will be the beginning of a long process.
In conclusion, panelists were optimistic about the budget and anticipate a good recovery in the housing and rental markets in London and across the UK.
Vidhur shared his insights: “Since the restrictions were lifted, there has been incredible interest in sales and rentals. All of our branches are receiving an incredible amount of inquiries, at unprecedented levels due to pent-up demand. We have been busy with real estate events and launches almost every weekend at our overseas locations.
“After having to stay indoors for such long periods, people are ready to move on. London’s financial district is starting to experience the same buzz as before the pandemic. While people can enjoy the flexibility of working from home, companies appreciate working together in a professional environment and the more powerful impact of face-to-face meetings.
“But there are still lasting effects of the pandemic to consider. Some may prefer to minimize their trips on public transport or have the option of walking to places they need to go, having an outdoor space and being able to telecommute if necessary.
Bailey predicted: “The landlord bashing may be over, hopefully. Foreign buyers should understand that the government will review votes before reviewing taxes, which is important. The rental sector is buoyant at the moment, and it brings in money for the government.
He said overseas buyers may also need to take into consideration that the business cooperation tax will increase in 18 months. Rates are up 19% and up to 25% in the next two years. In addition, the dividend tax rate could reach 39% by next year.
“Buyers should be aware of these additional taxes,” he warned.