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Spring Budget: Landlords unscathed and optimism for the economy

March 9, 2017Article by Paul Avery

The Chancellor delivered a sunny and slightly smug budget speech yesterday that managed to cheer property investors without actually touching upon the subject of housing at all.

To understand why no news is good news, it is necessary to place this Spring budget in its unusual context. Brexit aside, it arrives in the wake of an onslaught of budget statements that have saddled landlords with, among other things, an increase in stamp duty and the reduction of tax relief on mortgage interest payments. Although the latter will begin to be phased in from April, this year otherwise feels like a welcome reprieve for property investors.

This context also helps to explain why some in the industry were disappointed with Hammond’s latest announcement. We fantasised that the Chancellor would take a kinder view of landlords and reverse some of the new rules, but it was not to be this time.

No matter. The budget was packed with optimistic updates and projections about the British economy that will trickle down to the housing market. Growth for next year was upgraded to 2% after a surprisingly strong recent performance relative to other Western economies, borrowing forecasts are down, and real wages are reported to be rising at a decent clip.

All of this is good for the bank balances of potential homeowners and will support rental demand. Although house prices have not yet recovered from the post-referendum slowdown, there is little danger of a nationwide contraction. The question is where to look for the bright spots.

Happily, the Chancellor’s speech also offered clues about which regions are outperforming the national average and which are targets for government spending – both indicators of investment potential. Notably, wages have grown fastest in Northern Ireland, which can also expect a budgetary boost along with Wales, Scotland, and the North East. A surprising omission in the Autumn statement last year was Osborne’s hallmark city devolution project, so Birmingham and others will be relieved to hear about commitments to keep refuelling the Midlands Engine and similar regional programmes.

The rest of the Chancellor’s plans, including funding for school choice and social care, and a rethink of how national insurance is paid by self-employed people, have no direct bearing on housing. There was, however, a spot of bad news for investors who own property through limited companies. The director shareholder allowance for companies will drop from £5000 per year to £2000 per year effective from April 2018, so landlords who use that method to withdraw profit from a rental business may need to alter their strategies (there are other options).

All in all, not a bad outing, and plenty of evidence that the UK will remain investment-grade despite the challenges of Brexit.

 

Author

Paul Avery

Paul joined us in 2016 to lead our in-house research efforts, producing reports and guidance for clients as well as the strategic market analysis behind our new project launches. His background is in sustainability in the construction sector, and he is currently being trained in property valuation to further bulk up his investment creds.
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