The Impact of the Budget on the Richmond Property Market

ONE WEEK AGO today, Rachel Reeves made history by becoming the first female Chancellor to deliver a Budget, and that Budget was itself something that also made history, announcing record tax hikes in order to fill - as she put it - a £40billion black hole. This nation of ours, which had felt like it were on tenterhooks, bracing itself for an onslaught of painful tax raises, duly received the anticipated dousing from the big red bucket of tax increases… but, seven days later, it seems that this same nation has shrugged it off and carried on as normal.

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Yes, of course, there was a bit of noise and some pushback from certain quarters – there always is; and yes, businesses look set to suffer a bit of pain (and when businesses suffer pain, that tends to roll downhill, hitting employees and consumers); and yes, from our point of view in the property world, we saw a couple of tax hikes announced that will undoubtedly play a part in how the market moves forward.

Nevertheless, by and large, we seem to have taken it all on the chin.

But how and why?

The thing is, Reeves had made no bones about what her intentions were, realistically: to raise taxes in what Labour themselves said would be a ‘painful Budget’, and to spend (on public services), which is a classic Labour position, and almost always means higher borrowing – and this was the messaging for weeks leading up to Budget Day itself. We were all used to it, by the time we heard it.

It had started to feel like it was all a bit of a tactic, to brace the nation and perhaps even to wind us all into some sort of a quasi-frenzied state of fear so that, on finally hearing the Budget delivered last Wednesday, it would lead to this national collective sigh of relief at the anti-climax of it all; amazing, that we can be dealt something that looks like £35billion in tax rises but yet seem to be saying: “ahh, it’s not so bad…”; but that is how it feels.

There were losers of course, but as far as headlines went, that was mainly in the world of business, particularly employers; and farmers, if social media is to be believed. 

The reality? We wouldn’t call these things stealth taxes exactly, but it does look like the effort made to push the pain away from ‘working people’ (which seems to mean PAYE employees) could have some negative knock-on effects on the working public. These raised costs to employers by way of increased National Insurance and the Minimum Wage could lead to fewer working hours and less pay, fewer or more limited pay-rises this year and next, and perhaps even redundancies. 

Not the government’s intention, but perhaps the reality.

But perhaps not – which has been the story that has started to disseminate over the last few days. 

That new Minimum Wage? Turns out most employers are already paying it, or near enough. That increase in employers’ national insurance contributions? A bit painful for businesses, as mentioned earlier, but when you break it down it means an extra 1.2%… an extra £36 per every £3,000 of monthly salary paid (ignoring that there is a £5,000 allowance anyway (down from £9,100) before NIC kicks in). 

What’s more, this isn’t even accounting for the fact that about a million eligible smaller employers will be exempt due to an increase in the employment allowance.

Now, this is not to get too political, in an article that is ostensibly for the benefit of Richmond Borough property owners, house buyers and would-be home-movers – but the point is, consumer confidence and public sentiment go hand in hand, and the reaction to this Budget – despite what could have led to much handwringing, uncertainty and existential concern – looks pretty optimistic, a week later. And when it comes to selling properties, that’s half the battle won.

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So, bringing it back to property; yes, OK – there will be some ill effect, but let’s have a look at the headlines and assess the real impact:

A Stamp Duty hike on second home purchases? Sure, there will be a handful of ongoing sales where buyers may have suddenly seen their stamp duty liability increase by 2% (that’s around £15,000 on average, in Richmond), if they were buying a second property or a buy to let – but, in this moment in time - which is what this is - there will have been only a few buy to let purchases going through in this part of the world, relatively speaking; nevertheless, even in those cases, a second-home buyer here is likely either wealthy enough to take the £15,000 bath, or the seller has enough of an equity cushion to have allowed some renegotiation to take place in order to salvage the sale. Very few deals will have collapsed in Richmond, due to a 2% increase in the buyer’s stamp duty. 

Farmers being hit with inheritance tax on estates worth over £1,000,000? Well, there aren’t many farmers in Richmond – but if there are, they presumably own farms out in the countryside that tenant farmers or farm managers operate, and so if they were planning to pass that farm down to their equally non-farming progeny, is this something we can really get hot under the collar about, as Richmond residents? 

First time buyers suffering a drop in their stamp duty allowance? The stamp duty exclusion threshold for first time buyers is due to drop from £425,000 to £300,000 from April 1^st, but ONS data tells us that the average first time purchase in Richmond Borough is £583,000. They’re in for stamp duty anyway.

VAT on school fees? Ah – that is an interesting one… but it is a blog for another day (so stay tuned…).

Ultimately, one week in, the fallout from this Budget has been reasonably subdued, compared to expectations before or even compared to the reactions on the day itself. Money markets have baulked at the new borrowing rules, and so forecasts have been revised downwards about the prospects for economic growth and how far interest rates will come down over the next one to five years; however, forecasts are still predicting economic growth nonetheless, and forecasts still do predict ever decreasing interest rates – albeit fewer and more slowly perhaps than previously predicted. However, with the next of these still widely expected to be coming tomorrow, we are confident at Bartlett and Partners that we are still looking at a very strong end to the year for property sales in Richmond, Twickenham and Teddington.

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