Autumn budget 2022 – how will it impact UK property?

Chancellor Jeremy Hunt announced his Autumn budget today, which is aimed at filling a large financial black hole and reducing government debt.

There were few surprises as tax rises were announced along with cuts to public spending.

This sits against a backdrop of inflation running at a 40 year high, as energy bills, food & drink prices, amongst others, continue to spiral.

But what do the headline announcements from today mean for residential and commercial property markets in the UK?

Our research teams analyse how today’s announcements could impact property markets as well as provide opportunity for the real estate industry.

UK residential property

Amongst the headlines today was the hotly anticipated reduction to the tax-free allowance for Capital Gains Tax (CGT).

It will be reduced from £12,300 to £6,000 from April 2023 and £3,000 from April 2024.

This could provoke turbulence if enough landlords decided this is a disincentive too far.

Tom Bill, head of UK residential research, assess the impact on landlords and how the stamp duty cut reversal also announced today, may affect house prices:

The cut to the capital gains tax exemption is a further disincentive for landlords but, like other announcements in the Autumn Statement, it could’ve been worse.

It will disproportionately affect landlords of lower-value properties but CGT rates have not been aligned with income tax, so a material drop in demand or a wave of selling is unlikely.

Landlords have faced a series of tax hikes in recent years but private rented property accounts for 1 in 5 of English households. At a time when living costs are rising so quickly, policy should remain rooted in economics, encouraging landlords to remain in the sector and keeping downwards pressure on rents.

Stamp duty cuts have been reversed in another move to stimulate the housing market, a move that along with a recent increase in cost of borrowing, could see house prices fall.

By reversing the stamp duty cuts announced in September from April 2025, the government has effectively announced a 28-month stamp duty holiday. It may help stimulate activity closer to the deadline but it appears to contradict the message sent by the government during the pandemic that a liquid housing market was good for social mobility and had wider economic benefits.

For anyone buying or re-mortgaging, the message is that mortgage rates should continue to edge downwards in coming months and the stability of recent weeks will continue.

However, the spike in borrowing costs that followed the mini-Budget in September was a reminder that a 13-year period of low rates is over, which we expect to put downwards pressure on prices as they fall back to the level they were at last summer.

Read Tom's latest analysis here

Tom explores the Autumn budget in more detail along with Flora Harley, partner residential research and global head of research Liam Bailey, in our Intelligence Talks podcast. 

Listen to Intelligence Talks here

Commercial property

Will Matthews, head of commercial research, analyses a fairly predictable raft of measures and identifies commercial real estate opportunities:

Despite Chancellor Hunt’s rapid reversal of September’s mini-budget give-aways, many are worried that today’s Autumn Statement would contain a few more nasty surprises.

In the event, however, there were few changes to what had already made its way into the public domain.

The need for tax rises and spending cuts has been clearly articulated in recent weeks, calming domestic financial markets and reining in spiralling UK 10 year gilt yields, which having risen to a peak of 4.5%, are now back to slightly more palatable levels of around 3.3%.

With much of the renewed fiscal restraint already priced in, further significant reductions in gilt yields were never on the cards today, but in uncertain times, maintaining the status quo is enough to count as a win for real estate debt markets.

Neither were there any major surprises for corporate occupiers or the wider business sector, the planned rise in corporation tax to 25% by April 2023 having previously been confirmed.

The real estate industry will have been watching out for updates on the previously announced investment zones – areas designed to stimulate regeneration in local economies.

Another particular focus for the industry will be the significant investment announced to help reduce the UK’s energy demand over the next decade, for which at least some of the responsibility will fall upon those in the built environment.

Real estate opportunity

This was always going to be a statement full of difficult compromises, but it leads to two potential opportunity areas for the real estate sector, one practical and one structural.

Firstly, as government departments come under even greater financial pressure, there will be an added incentive to release assets or sites for sale or redevelopment.

Secondly, with the state unable to fund all of the infrastructure required for economic and societal development, there will be a growing role for the private sector to take up, should it wish to.

Is that an attractive proposition? The real estate sector’s contribution to the success of UK life sciences, health care, education, housing and countless other areas suggests that for the right opportunity, it certainly can be.

What the budget means for UK economy

Flora Harley, partner, residential research, looks closely at the bigger picture for the UK economy including the market reaction and the latest economic forecasts:

The Chancellor was walking a tightrope of satisfying markets and not plunging the economy into a deep recession.

The former looks to have been done and if the Office for Budget Responsibility (OBR) forecasts are true, the latter may also come to fruition.

Markets have been relatively calm in reaction to the Autumn Statement. There has been a slight uptick in gilts and dip in the pound, but the moves are marginal indicating that the Chancellor has done enough to and restore some of the fiscal credibility.

The rates still have that ‘uncertainty premium’ from the past few months of around 150bps higher than in summer – the 10-year is around 3.2% and the pound at $1.18, from $1.19 at open and the $1.20 briefly touched earlier this week.

The forecasts from the OBR confirm that the UK is already likely in a recession but given the measures announced it will be shallow, with GDP falling 1.4% in 2023 before returning to growth of 1.3% in 2024.

This is a much rosier picture than painted by the Bank of England (BoE) recently, with two years of recession, and there are some upside risks. It also forecasts that unemployment will peak at 4.9% next year, from 3.6% currently – compared to more than 6% forecast by the BoE.

The confirmation that the Energy Price Guarantee will rise to £3,000 per year (for an average household) in April for 12 months gives some stability to households and also keeps inflation in check.

The OBR forecast that inflation will drop sharply over the course of the next year, falling to less than 1% in 2024 and deflation in 2025. This is below consensus but will alleviate some pressure on the Bank of England – which ‘wholeheartedly’ has the support of the government to continue its mandate.

The upside potential is that much of the OBR is predicated on the base rate reaching 5% by the middle of 2024. The current market implications for the base rate are a peak of 4.5%.

Given the inflation forecasts and more dovish tones from Monetary Policy Committee members in recent weeks, even this may be too high.

Many central banks, including Australia and Canada have begun slowing the pace of tightening. It is likely the BoE will increase rates by 50bps in December but perhaps there will be a slowdown in the pace, or a pause, early next year as the impact of the rapid rise feed through the economy.

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