Home Property Exclusive: What effect will ‘Trussonomics’ have on residential property?

Exclusive: What effect will ‘Trussonomics’ have on residential property?

by Mark Channer Political Journalist
7th Sep 22 1:56 pm

If, as it has been muted, the new Prime Minister, Liz Truss, and her ‘gang’, temporarily drops VAT, to say 10%, this could have an interesting effect on residential property and the building sector.

Firstly, buyers will scramble to refurbish their homes, rather than re-develop them from scratch, since the saving of 10%, from the prevailing rate of 20%, could amount to quite a big number.  The average re-development cost in London could be circa £200,000, the saving would be £20,000 and for more expensive properties, considerably more, multiples of hundreds of thousands of Pounds.

For your edification, new build development is exempt from VAT whereas re-furbishment carries the full quota, unless the property has been empty for five years, in which case it is 5% of works carried out.

How estate agents love their fees, a joy not necessarily shared by their vendor/landlord clients, and these fees will be cheaper by the reduced VAT liability which could be a saving of £750 on the average sale of a property in London.

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80% of estate agents worried over the impact of the upcoming recession and the cost of living crisis on the private rental sector

For a purchase or rental of a mega-mansion, the saving could be many tens of thousands of Pounds.

Very uncharacteristically, clients will want to pay fees before completion of a sale just in case the new Chancellor changes the VAT rate back again, when the economy looks a little more receptive to this measure.

The reduction in this indirect tax will accelerate the purchase of both white and brown goods and will add an extra stimulus to the retail spending sector, which has been slowing down considerably of late. One hopes that this will not exacerbate the hyper-inflation already raging in the UK.

Although the residential property market will not be in full voice until after the second week of September, after the children go back to school, there are no tangible signs of an increase of supply in property, which could herald a cooling off in values ahead of time.

Clearly the BoE are going to increase Interest Rates, and this will have an impact on Mortgage Rates, which does not help sentiment, but the 15% discount on Sterling, if you are an international buyer, will certainly encourage those investors from abroad to buy in London, as their denomination is usually in Dollars. This could overcome the resistance to the draconian levels of Stamp Duty that exist at present.

These uber buyers are little interested in fears of recession, changes in Prime Minister and issues around Brexit, they are even unfazed in Interest Rates since they deal mainly in cash.

My take is, that there are many reasons for property owners to fear as there are to encourage, and as such, I think values will remain pretty well where they are for the foreseeable future.

The tell-tale sign will be in the level of supply of new properties, either for sale or to rent, and we need to monitor this carefully.

Steady as she goes, I don’t anticipate a cataclysmic collapse in residential property values unless the economic scene changes dramatically from the present.

I wish the new Prime Minister luck, swimming against the tide. Let’s hope her honeymoon period allows her breathing space to deal with the runaway energy crisis, hyper-inflation, and a looming recession.

If she keeps her promises to reduce the NIC and Corporation Tax hikes, these will be very welcome at the moment.

As much as Mr. Sunak was a competent Chancellor, I never understood why he tinkered with Corporation Tax, since in the post Brexit era surely it makes sense to move closer to the southern Irish rate than the European version.

I know that he was trying to claw back the Covid debt increase, but I think he was too premature on this housekeeping point.

Our National Debt is 100% whereas the USA is 108%, Italy has 150% and Greece, an eye-watering 193%. So, there is still headroom for us to borrow more to get us out of the new financial crisis.

There is everything to play for and let’s see how the new Prime Minister fares with reality rather than rhetoric.

Lest we forget that you canvass in poetry and rule in pros.

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