Everyone knew the provisions in the new Budget, which was announced yesterday, would be harsh and we have been bracing ourselves for this for a short while now. The new budget directly impacts on the property market and will affect first time buyers, new build properties, sellers of second homes and the number of properties being marketed.
It is hard to see how the new budget complete with Capital GainsTax increases and other such measures will help the economy grow in the short term. The economy is still extremely fragile and although we have seen a recent growth in the property market it is hard to see how this will continue. Due to vast cuts in public spending, and a rise in Capital Gains Tax (from 18% to 28%) the property market will undoubtedly suffer as a result. Household spending will reduce, as people will be forced to tighten their belts (particularly those on lower or middle incomes) and owners of second properties will be reluctant to sell their homes due to CGT increases, so there will be fewer houses on the market. This will push property prices up with buyers competing to buy the small number of properties being marketed. This will directly impact on first time buyers who continue to struggle to get on to the property ladder since they will simply not be able to afford to buy.
"We knew today's Budget would be hard-hitting across the piece, so it is no surprise that housing has not escaped. We understand the tough choices that the government has to make - but obviously that does not mean they are attractive.
"In a world of imperfect choices, steps that help the economy to recover and help to maintain mortgage rates at affordable levels for most people are the measures that will underpin a healthy housing market in the long term. But in the short term pain is likely, as the effect of tax rises on household finances dampens the already fragile recovery in house-buyers' confidence, housebuilding is affected, and support for housing costs across all tenures is curtailed. ”
Hard times are ahead and we wait with eager anticipation to see the extent to which the Budget will impact on the property market in the current climate.