Harsh Brexit and The Autumn Statement
It’s fair to say it has been a turbulent time for the property industry of late. With reports of the property ladder being harder to step onto than ever and the introduction of new legislation, what can we expect going forward? Has the Chancellor helped renters in the long-term with his changes, and will Theresa May and tough Brexit talks mean further trouble is ahead?
The Autumn Statement recently made by Chancellor Philip Hammond has sent an already unpredictable property market into even more uncertainty. Here is what we know so far about the governments planned changes to the sector.
The Autumn Statement (Main Points):
- There is a new tax allowance for property and trading income of £1,000 for both.
- Property Tax – Rural rate relief will be doubled to 100% from April 1st 2017.
- Letting agent fees will be banned.
- Housing Infrastructure Fund of £2.3 billion by 2020-21.
- The NPIF will bring an additional £1.4 billion to start building 40,000 homes by 2020-21.
So how will these changes make an impact on the property market? Well the immediate effects have been obvious. As news broke on the morning of Chancellor Hammond’s statement that letting fees would be banned, shares in some of the country’s biggest estate agencies began to plummet. Early hours trading saw Foxtons’ shares drop 13%, with Countrywide dropping 7% also.
The share prices have since then recovered to less dramatic drops, however the ban on letting fees, in place ‘as soon as possible’, is still causing turbulence for the market. The debate has been focused on whether or not in the long-term renters will actually save money, or whether the fact that the cost will more than likely be passed to the landlords will in turn see rent prices rise.
A lack of affordable housing is another key debate in the property market at the moment. With reports recently emerging that current wages are not matching up to the growing price of property. In a recent Guardian article, London house prices are set against earnings at a ratio of 14.2, with average house prices increasing by a staggering 86% since 2009. Both Oxford and Cambridge are not far behind with Oxford increasing by 72% and Cambridge rising 84%.
With statistics such as these, even the government was forced to react within the Autumn Statement, pledging to increase the amount of affordable housing also the number of homes actually being built to help with the shortage. Some argue however that the government will fail to reach its existing targets when it comes to building new homes. The charity Shelter warned that the government will fail at its commitment to build an extra million homes by 2020 with an expected shortfall of 250,000. The reason given was largely down to the UK’s decision to leave the EU. With Article 50 likely to be triggered early next year, is affordable housing simply not enough of a priority for government?
Brexit in itself has caused uncertainty for the property sector. It has been widely reported that the sector is slowing over concerns of a harsh Brexit as the talks begin. The Financial Times reported that house prices in the UK are set to accelerate from 6% in 2015 to 6.9% in 2016, before then slowing to 2.6% in 2017. This will of course mean that house prices are expected to fall in 2017.
Another important factor of a hard Brexit, is how a tighter immigration policy could impact the UK’s construction sector. Currently, the CEBR, (Centre for Economics and Business Research), report that EU workers make up 9% of the construction sector, with the figure rising in London to a staggering 1 in 3. With the government already short of its target figure of new houses, a hard Brexit is likely to only make this target even more unreachable.
With less of the houses being built that this property sector desperately needs, and affordable ones at that, turbulence is likely to continue. This shortage will continue to push up prices, with Rightmove predicting that house prices in 2017 will continue rising by 2%. With property prices rising and speculation that rent prices could also be set for a sharp rise due to fees being banned, being priced out of property ownership and increased borrowing looks evermore likely.