Expect pain and some costs in the property market  - David Alexander

For homeowners, landlords, tenants, and the property market this is a major moment. Homeowners will want to know that mortgages aren’t going to soar in the next year or so and that the housing market is going to stabilise without collapsing.

For landlords and second homeowners they are going to want to know that they are not being scapegoated as an easy touch for capital gains tax or other punitive charges against their investments. Tenants need to hear that there is going to be increased availability and rents that they can afford.

Everyone in the property market is going to want to hear that there is stability, some sense of direction, and a steady hand on the tiller. There has been a strong degree of expectation management going on to reassure the financial markets that here are a couple of guys who are in control, who won’t frighten the horses, and will bring the economy back under control.

But the Chancellor needs to be clear that there will be consequences for the next general election if homeowners, property investors, and landlords are made the focus of excessive financial burdens. No-one would deny that everyone must pay their share, but it would be imprudent of the Chancellor to place too much of a burden on one group over another.

The rumoured extension of the freeze on Inheritance Tax (IHT) to 2027-28 seems almost certain to take place making the £325,000 nil rate hold steady for 20 years since its introduction in 2009. If the IHT nil rate threshold had kept pace with inflation it should, by September 2022, be at £464,643 which is 42.9% lower than it would have been if it had kept up with inflation. By 2028, with the current levels of inflation you could be looking at the IHT nil rate threshold being worth a quarter or less of its 2009 level.

Capital Gains Tax (CGT) is liable on the sale of assets so landlords, property investors, and second homeowners would be hit by any changes to the headline rate, the reliefs, and allowances. It seems likely that this will occur limiting the future profitability of investment property ownership. There will be many who don’t see a problem with this but the fewer investors in the private rented sector, the fewer homes there are for tenants and the greater the increases in rents.

The problem is that we have been told this is going to be a tough financial statement and a tough year ahead. The predicted changes introduced in the Autumn statement will hit all groups: homeowners will not see a fall in mortgage rates as those are already built in so will face higher payments from now on and with less inheritance on estates due to IHT when people die.

Property investors, landlords, and second homeowners will make less on their investments as CGT changes will reduce their profitability and potentially limit future investing. Therefore, tenants will experience less availability as property investors leave the market and consequently face higher rents.

For the financial markets and wider economy some harsh changes now will be beneficial in the medium term. For the short term, however, there will be some pain and some costs for all parts of the property market until debt levels fall, growth improves, and the end of the recession is in sight.

David J Alexander is CEO of DJ Alexander Scotland Ltd