"I can only imagine the number of potential first-time buyers who are wondering how they can afford to save for a deposit when their spending power is falling."
These issues were highlighted in a Spring Statement which was always going to be about supporting those cash-strapped people with their finances rather than focusing on a housing market which remains robust and continues to go from strength to strength. As illustrated in the latest UK House Price Index from the ONS and Land Registry which showed that the average UK house increased by 9.6% over the year to January.
In addition, average asking prices for property rose by 1.7% to £354,564 in March, according to the latest Rightmove house price index. The monthly growth was said to be the largest seen at this time of year since March 2014. Rightmove says rising house prices are “being stoked by the greatest imbalance between buyer demand and the number of properties available for sale that we have ever measured at this time of year”.
Having said this, I can only imagine the number of potential first-time buyers who are wondering how they can afford to save for a deposit when their spending power is falling. Predictions from the Office for Budget Responsibility show that the average proportion of income which is saved is going to fall. Last year, owing in part to the pandemic, individuals typically saved more than 10% of their income. Next year it will be 3.1%. However, according to the OBR, the silver lining for young buyers is that the runaway house price rises of recent years will slow. The forecaster suggests that the average UK house price will go up by 7.4% this year, then 1.3% next year, before accelerating again to 1.5%, 2.5% and 3.1% in subsequent years.
There was also some positive news for homeowners who are looking to improve the energy efficiency of their properties after VAT on energy saving materials was scrapped. In response to rising energy costs, Chancellor Rishi Sunak suggested that it was now more important for homeowners to make sure their homes were as energy efficient as possible. For the next five years, VAT will removed entirely on the likes of solar panels, heat pumps and insulation. The tax exemption will not apply in Northern Ireland immediately, but the Northern Ireland Executive will receive a Barnett share of the value of this relief until it can be introduced UK-wide. Prior to this announcement, improvements such as these were subject to a lower 5% VAT rate, but the chancellor criticised the “complex rules about who is eligible”.
We all realise how important energy efficiency is for homeowners, and tenants for that matter, and those homeowners who are in a position to take advantage of these measures could use the tax break to reduce monthly outgoings, add value and improve their carbon footprint.
Despite raising the NI threshold and introducing a 5p cut in fuel duty, a growing number of people are really having to consider their purchase choices in far more detail. How this will impact the implementation of energy efficient measures and the housing market over the coming months remains to be seen but as outlined by Rightmove, the supply gap remains huge whilst demand, at least for now, remains strong. And this is a combination which seems likely to drive sustained activity levels in Q2 when the housing market is likely to make a strong Spring statement of its own.
