A government that robs Peter to pay Paul can always count on the votes of Paul.
George Bernard Shaw
Finally we have had the budget - anticipated, feared, pitch-rolled, recanted and leaked. And the end result - not much. Certainly no attempt to deal with any of the slabs and cliff edges in taxation that are structurally so in the way of ambition and growth. No serious look at how to make property taxation more sensible. Just a series of stealth tax rises that are a fig leaf of cover to the pre-election promises not to raise major taxes. Disappointing if you see opportunities lost; a sense of relief if you were expecting worse.
The so-called Mansion Tax was the dog that didn’t bark. A true Mansion Tax is, of course, a wealth tax designed to be a tax on capital - like Inheritance Tax. What we got, to all intents and purposes, was higher council tax bands that will go to central government not local councils and will only come into effect in 2030 and raise potentially £400m. This is certainly not a game changer for the public finances but - though not pleasant (what taxes are?) to those that are asset rich but income poor - a long way from the Mansion Tax that was feared in a potential Ed Miliband government ten years ago. It is worth remembering that local taxes in the UK are low compared with many countries: we had an American client once who assumed that his annual council tax bill in Westminster was monthly.
Yet again landlords were in the firing line with more income tax on rents and dividends. It is axiomatic that Labour doesn’t like landlords, though they have been under relentless assault by all governments over the last twenty years to the extent that the private landlord is in danger of going the way of the Dodo. Why would you take on the hassle of dealing with leaking showers and tenants that you can’t get rid of when you could get rather more by buying a 10 year gilt and going on holiday? The answer used to be capital gain: when the market was going up - sometimes in double digits year on year - the paltry net yield didn’t matter too much. Now the yield is all that’s on offer - along with the possibility of a capital loss. If landlords decide that this is the straw to break the camel’s back and sell up - while demand for rental properties stays the same - rents will rise. Was this the intention?
In real terms, stripping out inflation, prices in London are down about 20% over the last ten years - and more in the smarter postcodes where the non-dom exodus has been most pronounced. But if you glanced into an estate agent’s window, you wouldn’t know it. The problem is that agents are caught in a dilemma. To get the instruction they have to overvalue. However, if they were to give their client their best advice, it would be to pitch the asking price slightly below the true value to stimulate competition between buyers to end up with a higher price. The psychology is simple; buyers feel more comfortable bidding up when they have someone a bid behind them. This rarely happens though, and the result is a market that is at least 20% behind the curve - except for the exceptional items that get the premium they deserve. This is true in the country as well as in London - though in the wider market (as well as the prime) the gap between London and the country is continuing to narrow as affordability becomes more of an issue with higher interest rates: first-time buyers in London are spending 56% of their take-home pay on their mortgage while their equivalent outside are paying 34%.
The Government’s ambition is to deliver 88,000 new homes a year in London. They are way off - with only between 15,000 and 20,000 going to be under construction by 2027 according to Molior, the housing research firm. This compares with between 60,000 and 65,000 being built at any time between 2015 and 2020. Why is this? In short, inflation of construction costs that have left developers struggling. Developing in a bull market is a licence to print money. It covers up inflation in building costs, overpaying for the site and has even been self-funding when developers could forward sell more than half in Hong Kong or Singapore. The long timeline from buying the site, getting planning and then building - maybe six or seven years - with a decline in interest from the Far East, construction costs spiralling in double digits means that the London new development market has effectively ground to a halt.
One country’s loss, as non-doms and ambitious young head out, is another’s gain. Our associates in Italy, Switzerland, Spain and Jersey are reporting brisk business. But it’s not all one way. Americans - taxed wherever they are in the world, and particularly those that are allergic to Trump - are heading towards the UK. As the budget has been followed by the run-up to Christmas, it is difficult to tell how much they, and normal British buyers, are going to be active in the New Year. If our client list is anything to go by, and if what they are telling us is true, then the market might be rather better in 2026 than the commentary would suggest. Life goes on after all.
What is difficult to gauge is how much the relentless negative press is having on animal spirits - in the property market as well as the wider economy. Things have a habit of overshooting. A recent news programme had two South African billionaires opining that Britain was like the Seventies and uninvestible. Really? Worse than South Africa? Worse than the Seventies? For those of us that have been to South Africa and remember the Seventies, this is nonsense with knobs on. The fact that the Chancellor backed away from any real attacks on wealth in this budget (the real damage was done this time last year) is perhaps a sign that common sense, if not competence, might be breaking out. Let’s hope so.
