…but is it misplaced?

The last few weeks have seen property industry publications full of the predictions of “experts” and industry “leaders” setting out their views on the forthcoming year.

In the main these are optimistic (as always) and (as always) nearly always inaccurate!

Now as a Grumpy Old Estate Agent of a certain vintage you wouldn’t expect me to be full of joy and holding a rose tinted view of the twelve months ahead – and I’m not.

Whilst I am not suggesting for one minute that the property world is going to end, there are many factors that I feel are going to make the year tougher than many would like, or are predicting.

Undoubtedly there remains an underlying position of demand exceeding supply across both sales and rental markets and it is this, despite higher interest rates over the last couple of years, has seen property values generally hold firm and rents increase.

In July last year, the UK electorate (well, about a third of voters), elected a Labour government on a ticket for change – it can be argued that the outcome was more a negative reaction to the previous Tory administration rather than a powerful endorsement of Labour’s plans but it resulted in a significant majority for the new Government.

Having largely kept their powder dry during the election process and in their manifesto (they didn’t need to do much more than not make any unforced errors) the new regime soon showed their hand with massive tax raising and borrowing plans as their “flagship” economic approach in order to fund their huge public sector increases and, they argue, to fill a £14 billion “black hole” left by the last Government.

Massive pay settlements for a number of public service sectors has removed or reduced the threats of industrial action but set a precedent for others in the months ahead.

Having said that they would not increase taxes for “working people”, tax increases have been aimed at businesses and assets such as pension pots, largely through widening the inheritance tax take. The inheritance tax rules on family farms is causing controversy as many are asset rich but cash poor and it is expected that some farms will need to be sold upon the death of the owner as those inheriting will not have the resources to pay the tax unless they realise the asset. This may, of course, free up cheap land that Ed Miliband can cover with solar panels as part of his ideological and fanatical drive towards net zero.

By far the most sweeping tax change is an increase in employers NI contributions which will come into effect in the tax year 2025-26. This may not be a direct tax on “working people” but it will hugely impact on everyone with employers reducing staffing levels, cutting investment and putting up prices and fuelling inflation.

The Chancellor of the Exchequer Rachel Reeves or Rachel from Accounts as she has become known due to her dubious “over egging” of her career qualifications,  

Market reaction to the new plans has mainly been negative and in the months following the announcements, we have seen growth reduce and inflation increase, these factors alone will mean that the Bank of England will need to steer a difficult course through choppy waters  in the year ahead with interest rates unlikely to reduce as rapidly as most were predicting pre-election.

Huge increases in public expenditure may be regarded as needed and desirable but they will not, in themselves produce growth in the economy, without which, the ability to reduce the tax take and to invest will also suffer.

As part of the sweeping tax changes, the levels of stamp duty paid on a property purchase are also changing with the threshold discounts previously introduced reverting to earlier levels. This will mean the zero rate will only apply up to £125,000 and not £250,00 and the first time buyer zero rate threshold will reduce from £425,000 to £300,000 with the maximum property price for first time buyer stamp duty relief falling from £600,000 to £500,000.

There are also two other key pieces of legislation being introduced by the Labour Government. The Employees Rights Bill and the Renters’ Rights Bill. Both of these will, alongside the economic changes, impact on everybody’s lives.

In simple terms, the Employees Rights Bill will give greater rights to employees. Again, you can decide whether this is a good thing or not but it will increase business costs.

The Renters’ Rights Bill will make wholesale changes to the renting of property with an end to fixed term tenancies, major changes as to how and when a tenant can be evicted and tougher rules around property standards and the rents being charged. With future plans for all rental property to meet higher energy efficiency standards there is a lot that many landlords see as overly punitive and an exodus from the market is undoubtedly underway.

Much has been made of the removal of Section 21 notices, or no-fault evictions as they are emotively called, but no landlord who has a property or properties for investment wants to evict a tenant providing the property is being maintained and the agreed rent is being paid. The manic stories put out by people such as Shelter will, in my opinion, result in them getting what they wished for and the amount of available rental stock is likely to decrease with a corresponding hardening or increase in rental values.

The current court systems that handle such matters is slow and cumbersome but, unlike the Tory approach, which was to say that this needed reforming before new legislation was enacted, Labour are going to make it happen and look to sort out the issues afterwards.

Of course, the best way to address some of the issues in the property market would be to build more new homes. Labour have promised a total of 1.5 million during the lifetime of this Parliament. They intend reducing local democracy and speeding up the planning process to help achieve it but seem to be ignoring the fact that we simply don’t have enough builders and access to materials to meet their aims. Private housebuilders will also, unless they can see a profitable return on their endeavours, sit on their hands or landbanks for the duration. We haven’t built the number of homes proposed at these levels since the late 1960s.

So where does this leave the property market?

In my opinion, whilst there is undoubtedly pent up demand and, as I write, some buoyancy in the market, the majority of changes that the Government are making will not take hold until the start of the new tax year.

There is currently a mad rush by first time buyers to try and beat the stamp duty changes. It remains to be seen whether those that fail to meet the end of March deadline then continue with their purchase, attempt to renegotiate or simply withdraw.

If the job market gets tougher with pressure on wages and job roles due to higher employer NI contributions and the additional costs from the Employees Rights Act then this, coupled with higher inflation and interest rates that may remain at higher levels, will likely cause many to lose confidence and put off their moving plans.

We could see increasing numbers of properties, particularly leasehold flats coming to the market as landlords choose to exit and this may affect the ability of people to move up the housing ladder and market liquidity may reduce.

All that I have spoken of will shake out over time but I feel that 2025 may be a year where the sheer volume of change, of financial and legislative adjustment (particularly if the Government looks to raise even more money via taxes during the year if their policies are falling short), will mean that an increasing element of wait and see creeps in and that New Year optimism quickly turns turtle.