The Chancellor has issued the government’s spring statement. His focus has been tackling the rising cost of living in the UK and supporting the already announced Levelling Up programme. Here is the summary of what it means for property investors in particular.
With inflation expected to hit nearly 8% by the end of the year, the cost-of-living crisis is forecast to cause the biggest drop in real household incomes since the 1970s.
Average rents in England have risen by 6% compared to March last year according to the latest data and the energy price cap increase of 54% in April 2022 is expected to jump again when it’s reviewed in October. This is putting a squeeze on tenant’s finances. Unfortunately, this is being worsen by rents having also been low (in real terms) up to the start of the recent rises, so there is likely to be some more increases to come. Whilst it is of course necessary to pass on increased operational costs, it would be prudent for landlords to consider affordability and pay attention, if possible, to the individual circumstances of their tenants when considering any rent increases.
Interest rates have also now risen to 0.75%, to control inflation. Whilst the Bank of England base rate is still low compared to historic levels, recent rises will undoubtedly impact the mortgage payments of many buy-to-let landlords, who have been used to even lower levels for several years.
Steps were also made to incentivise the take up energy efficiency measures. The Chancellor announced that VAT on energy saving materials installed in residential properties throughout the UK will be reduced from 5% to zero for the next five years from 1 April 2022. Applicable energy saving materials include (among other things): insulation for walls, floors, ceilings, roofs, or lofts or for water tanks, pipes or other plumbing fittings, draught stripping for windows and doors, central heating system controls (including thermostatic radiator valves, hot water system controls).
Vulnerable households also received support in the spring statement. Rishi Sunak announced that the government will double the funding available to councils for households to £1 billion, which will be made available from April 2022. As an additional general help, fuel duty on petrol and diesel has been cut by 5p per litre, effective from 6pm on 23 March 2022, lasting until March 2023, which The Chancellor of the Exchequer says is “the biggest cut to all fuel duty rates ever”, and means that “a one-car family will now save on average £100”.
These measures are on top of those already announced by the Chancellor in recent months, including a £9 billion energy bill rebate package, worth up to £350 each for around 28 million households, an increase to the National Living Wage, worth £1,000 for full time workers, and a cut to the Universal Credit taper, worth £1,000 for two million families.
