After weeks of campaigning, Liz Truss has been made the new Prime Minister – gaining 81,326 votes during the Conservative Party leadership contest, whilst her competitor Rishi Sunak garnered 60,399. Throughout her campaign, Truss promised to have 300,000 new homes built every year in the UK if she was elected, but they are more issues she must address in the property market.
Properties in the UK are now more unaffordable than ever, with figures released by the ONS showing that the average home sold in England cost the equivalent of 8.7 times the average annual disposable income – which is the worst affordability ratio in England since records began in 1999. For many Brits, getting onto the property ladder is now an unachievable dream. The industry has been suffering in the past few years with a severe undersupply of housing – which has pushed average house prices to a record £294,260 according to recent statistics from Halifax.
The housing industry is also still suffering from regulatory blocks and red tape which is delaying the construction of new housing and preventing government targets from being met. The rise in the cost of living and rising interest rates have meant that, as far as home buyers and particularly first-time buyers are concerned, it has become increasingly difficult to both raise a deposit and be able to afford the increasing monthly mortgage repayments.
So, what can the new Prime Minister do? David Hannah, Group Chairman of Cornerstone Tax provides some expert insight:
“We all know the challenges Liz Truss is facing in the UK property market. We have got inflation, rising interest rates and a whole raft of issues being caused by these. So, what could Liz possibly do? Well, first we need to understand how all of the issues are going to impact the UK property market. We’ve seen a surge in building costs and building materials which is slowing down construction. At the same time, the affordability of mortgages has worsened and that’s going to impact first-time buyers, but also anybody on a variable rate mortgage. Finally, it will inevitably lead to a slowdown in construction which will exacerbate the under-supply of UK property. So, whilst prices might flatten and the rate of growth may slow, I don’t expect property prices to fall.
“In terms of what Liz Truss and the government can do to address these issues, first and foremost in relation to first-time buyers there is a Help to Buy scheme due to come to an end in October and the first thing she could do is extend that for a further two years. However, the main concern in the property market is not so much being able to afford a deposit, as much as being able to afford a monthly mortgage payment. One of the steps Liz Truss could take to aid this is to have the banks offer a fixed rate first-time buyer’s mortgage. By fixing the interest rate for three to five years at or slightly below the base rate of three or four percent, it will give first-time buyers the predictability needed to know that they can afford their mortgage payments for the first few years. This means that, if property prices keep rising, there will be no danger of them falling into negative equity because whilst their mortgage amount will have remained fixed, the value of their property will have gone up.
“The next issue is going to be solving the under supply of housing. We have a large influx of overseas investors in the UK property market that is exacerbating the situation caused by a slowdown in construction. The government could consider soft loans to developers to help accelerate house building programs. Fundamentally, what the government could do is to cut taxes. The corporation tax increase that was proposed by the previous chancellor and the previous prime minister looks likely not to happen, however, a special corporation tax rate for the next three years for developers, provided they construct housing up to an acceptable number and standard, could be provided. Liz Truss could consider a short-term cut in stamp duty, which is a real cost to developers and home buyers, or even a stamp duty holiday for developers buying sites, provided they can commence construction on them immediately.
“Finally, in order to meet the government’s commitment to reach net zero, all planning restrictions should be removed in relation to green renovations on homes, whether new or existing and including listed buildings. Also, there should be a VAT Zero rating for energy efficiency initiatives, so that the country can move towards its carbon emissions target whilst at the same time stimulating the building industry at a time of national uncertainty and looming recession.”
