SPECIAL FEATURE: The impact of the budget
It’s always a challenge to predict something before it’s actually happened, but what we do know are facts and sometimes this is all we can work with. The rest has to come solely from our knowledge and understanding of the industry we work with, the people we speak too and the environment around us.
At Mint Bridging, we work with such a varied client base on a daily basis, from broker to solicitors and clients that shape our way of thinking and our way of working.
What we do know is that the summer budget, the first as a government with a majority lead for many years, will be one that hopefully helps shapes the country and allows resources to be applied to the areas that need it. We already know that £13 billion of spending from government departments are already ring fenced and £12 billion from the welfare bill will have to be cut. But how they will do this and what we can influence, remains to be seen.
What the election has given us back is some form of stability in the housing market and we have seen high-end and middle-end sellers (who held off buying and selling property) flood back to the market and are demanding higher prices than before. In London the number of property listings increased by 45% in the two weeks after the election, adding more than £100k to property prices.
One of the many challenges for George Osborne will be to ensure that affordability is still met for all aspects of housing. If prices get pushed up again whilst interest rates are still low, we could end up where we were again in the 90’s: when most people were kept away from buying in the mid levels, as job security was still low and prices too high.
The removal of mansion tax has jolted the high level into renewed life and the number of £2m plus houses has nearly tripled.
George Osborne will have to work closely with the Bank of England on whether to raise base rates early, or risk another unwanted price boom. We have lived through a time of financial instability for too long, to now be thrown back to a time where our false sense of security left many people in the financial state. This is a state they are still currently working themselves out of, many years later.
Pensioner changes in 2014, that allowed for more freedom, were enhanced again by the 2015 budget that allowed them to sell their annuities. It will be interesting to see if Mr Osborne introduces more changes that will again, reduce their thresholds. We are aware that first time buyers are now at an average age of 29, helped on the property ladder by their parents. If these parents allowances are reduced and they know, on average, they will live longer, they’ll be more reluctant to help out their offspring with their first time purchases. They are also now the single largest group providing their grandchildren with childcare and, in some cases, living arrangements. Their lengthened lifestyle now requires considerable thought regarding golden years budgeting yet these pensioners should not be penalised for successful investment strategies, they should be rewarded for them.
The Government’s increase of the personal tax allowance should be watched closely since this was touted as an election winner. Their pre-election manifesto alluded to an increase on the threshold at which you pay 50% higher tax to be increased to £50.000. If this transpires, then the amount of extra disposable income of the squeezed middle class will be considerable. Will they turn to buying larger or more investment properties or will they move to new savings accounts? Or have they been so scared from the economic downturn that they do nothing with their money, but keep it for the next rainy day? In this case, no one wins as they’re clearly dependent on their own personal circumstances. Those of working age on benefits can expect to see little changes whilst those in departments that are expecting cuts, will be nervous about doing anything with their money until a clearer strategy can be sought for them. This will leave them with many months of uncertainty and a tight rein on their purse-strings.
We already know that there will be no increase in VAT, Income Tax or National Insurance until 2020. Therefore, will Mr Osborne play safe and keep the country reassured that we are on the right track to economic recovery? Will he look after small business, take care of the employed and try to get the country moving in the right direction?
Who knows? That’s why the only person who can predict the election is the man with the red tatty brief case who has the complete advantage of hindsight.