Chancellor’s Spring budget hammers furnished Holiday Lets sector

As usual out of the blue a Chancellor of the Exchequer has a bright idea how to raise extra revenue, without thinking through the unintended consequences. Hammering private owners of holiday lets will lead to a decrease in supply and you guessed it an increase in the rents paid by holiday makers.

It would seem that the government is intent upon destroying the PRS, at every turn tightening up legislation to disadvantage the already heavily taxed and increasingly regulated property asset owner.

The full impact of Hunt’s ill-conceived policy will no doubt be another deadweight around second property owners’ necks.  He is ending the current tax advantage for landlords who let short term furnished holiday properties over landlords those who let out residential properties on a longer standard term. Not only will this hit those in the holiday industry both sides, but it may make it uneconomical to run these properties on a different basis. Some initial reaction is given below,

Tom Adcock, Tax Partner at Gravita says “scrapping the Furnished Holiday Let scheme spells bad news for anybody who owns a holiday home/let. Traditionally, owners of these properties benefit from 100% deduction on the interest they incur on their mortgage interest as well as other tax reliefs such as the ability to claim capital allowances on furniture and white goods within their FHL.

However, from April 6th 2025, they will be treated as any other property business. While the government may have removed tax breaks for landlords, people shouldn’t forget this is still VAT applicable.”

On holiday let reform and CGT: Kersten Muller, property tax expert and Managing Director at Alvarez & Marsal adds: “At present furnished holiday lettings benefit from a more generous tax regime allowing them full relief for interest expenses. For investment properties this relief is restricted.

 “There is a question as to whether this will increase supply of affordable rental properties – those used as homes by people – as this is what is needed. There is a concern that the changes increase costs and, even if the holiday homes are coming to the long-term rental market, hence rents charged.”

“The reduction in the higher rate of capital gains tax on residential property is a partial sweetener for existing investors and second homeowners. It remains to be seen whether this encourages current owners to sell up.”

---

Seasonal Spring bounce signals optimism in property market

As the property market moves into the spring season, there is a palpable sense of cautious optimism among industry experts and homeowners alike. This is according to Nicky Stevenson, Managing Director of Fine & Country, who adds that the latest market data reveals encouraging signs of a more buoyant year ahead, driven by increasing home mover activity and a recalibration of market dynamics.

“According to recent statistics compiled by Rightmove, the average new seller asking price experienced a 0.9% rise between January and February. The average prices are now up by 0.1% year-on-year, marking an uptick in market confidence. This increase follows a period of annual declines since August 2023, suggesting a potential turning point in the market,” Stevenson comments. “House prices have displayed more resilience against higher mortgage rates than previously assumed. Lloyds Banking Group has revised its house price forecasts, now anticipating softer price moderation throughout 2024 than was anticipated a few months ago. A -2.2% decline is now projected, with the possibility of returning to positive growth next year, these revised forecasts reflect a more optimistic outlook for the housing market.”

In tandem with these developments, as inflation heads in the right direction, Moneyfacts reveal that average rates on both two-year and five-year fixed-rate mortgages have fallen for six consecutive months. The average two-year fix is now 5.59% and the five-year is 5.23%. A host of lenders are offering rates below 5% and even 4%, whereas in November 2023 no lenders offered fixed rates below this level. Mortgage rates are expected to remain within the 4% to 5% range, potentially moving a little lower over 2024, but this depends on the Bank Rate and if there is a cut later this year. The mortgage market exhibiting stability and accessibility could potentially fuel further growth in home purchases.

HMRC data revealed that transactions have increased 1.9% between December and January, the first monthly rise since August 2023. According to Rightmove, agreed sales are 16% higher than the same period last year and 3% higher than in 2019. This may indicate pent-up demand, with a return to the market of buyers who had previously been delaying a move.

The surge in mortgage approvals in January, reaching their highest levels since October 2022 according to data from the Bank of England, coupled with a 7.2% increase in transactions between December and January, underscores the growing momentum in the housing market as it enters the spring season. This trend is further supported by Zoopla’s report of a 21% year-on-year increase in the stock of homes for sale, indicating greater confidence among vendors and expanding options for buyers.

“The data we’re seeing points towards a more balanced and active property market compared to recent months. With increasing buyer demand, improved supply levels, and more favourable mortgage rates, we are cautiously optimistic about the year ahead,” says Stevenson. “Zoopla data reveals that the market is on track for a 10% increase in sales in 2024 compared to 2023, signalling a more robust year for the property sector. However, the importance of realistic pricing cannot be over emphasised in ensuring successful transactions amidst this evolving market landscape.”

---

Andrew Stanton’s PROPTECH-X ‘Proptech & Property News’ in association with Estate Agent Networking & News Now publications. #proptech #property #realestate #digitaltransformation #startups