With reports that inflation will average 7.4% this year, Rishi Sunak’s spring budget was expected to help mitigate the effects of the spiralling cost of living. With a view to doing this, the chancellor announced a 5p cut on fuel duty, a 1% cut in basic rate income tax (to come into force in 2024), and an increase in the National Insurance threshold. So, what does the spring budget mean for existing and prospective investors using UK expat and foreign national mortgage products?
The Short Take on the Spring Budget for UK Expat and Foreign National Investors.
‘Despite the announcements made by the chancellor, the effect should be pretty modest’ says Stuart Marshall. ‘A 5p cut in fuel duty will help household budgets somewhat but not enough to offset the huge rise in fuel prices. Similarly, the cut in basic rate income tax announced for 2024 will be of little use in the immediate future. With this in mind, the rising cost of living will still hit hard for many in the UK and slow activity in the housing market as well as increasing rental demand. This means that there will continue to be good earning opportunities for those investors utilising UK expat and foreign national mortgage products because of the lower prices of property and the upwards pressure on rental prices.’
Opportunities to Buy Using UK Expat and Foreign National Mortgages.
As Stuart Marshall notes above, there have been slight concessions made by the chancellor, but these will be of no significant help in offsetting the effects of the rising cost of living. The majority of the population are currently contending with record high inflation of 6.2%, spiralling fuel costs, and incredible rises in the cost of energy. So, slight cuts to fuel duty and a tax cut scheduled for two years’ time will come as cold comfort to many. In fact, the OBR (Office for Budget Responsibility) actually predicts the situation to worsen with inflation peaking at 8.7% this year, despite its current 30 year high.
‘The impact of the rising cost of living will contribute to increased sales, dampened demand and lower prices in the housing market. There will also be a lack of confidence from domestic buyers to purchase properties or trade up because of economic uncertainty. The increased supply of properties is already beginning to show, with the number of homes for sale in March increasing by 3.5%. And as this number increases and the continued tightening of budgets reduces activity in the market, prices will start to fall. This will mean that UK expat and foreign national investors utilising the excellent range of UK expat and foreign national mortgages will benefit, snagging profitable properties.’
Rental Growth to Remain Strong.
Another effect of the budget’s failure to assuage the fears of those feeling the pressure of the increased cost of living is the continued activity in the rental market. According to Zoopla, the rising cost of living has not had any significant relief from the spring budget, meaning that renters are likely to stay in the rental market longer. This is, of course, because those renting will struggle to graduate into home ownership or lack confidence to buy given the conditions and the threat of further rising costs. Rising mortgage costs will prohibit first time buyers from getting on the ladder and pressure on budgets will limit the numbers of existing property owners trading up. Further, while people are more likely to stay in the rental market longer, they are also likely to stay in their existing rental properties longer too since the demand for rental properties has contributed to an average rise of 8% a year.
For existing UK expat and foreign national mortgage holders, rental earnings will continue to remain high as the high demand for rental properties places upwards pressure on rental prices. For those looking to utilise the wide range of UK expat and foreign national mortgage deals, the combination of lower purchase prices and higher rental asking prices is a potent combination for investment. ‘This is especially true when taking into account the unprecedented choice and flexibility of UK expat and foreign national mortgage deals available at the moment’ adds Stuart Marshall.
The Best Time for Green Renovations.
‘One of the most interesting parts of the spring budget was the announcement that VAT is to be scrapped for energy-saving devices like solar panels, heat pumps, insulation and wind turbines. This is set to reduce the cost of buying these products by 5%. In real terms, this cut will equate to a £1000 saving for those installing solar panels with an annual energy bill saving of £300. This is good news for landlords looking to undertake green renovations on their property to adjust to the new EPC rules that are soon to be incoming. We’ve mentioned a lot about the need for landlords to renovate their existing properties to achieve an EPC rating of a C or higher. With the announced VAT cut to energy-saving technology, it’s a great time to look towards a green re-mortgage and utilise the excellent UK expat and foreign national mortgage deals available while conducting green renovations with the chancellor’s new discount.’
‘For prospective investors, properties that are in need of green renovation are likely to be less sought after by buyers and therefore cheaper. However, some of these properties are highly desirable for renters – for example, larger ‘character’ properties. This will create opportunities for savvy investors to pick up a bargain using a UK expat or foreign national mortgage and renovate the property with the 5% VAT cut. Further, energy efficient properties are highly desirable for consumers who are both more conscious of their carbon footprints and seek to avoid the higher energy costs seen by many at the moment.’
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