We all knew that George Osborne was unlikely to deliver anything but pain in today’s budget but in fact there is much to applaud in his Emergency Budget. The impact of the changes announced to Capital Gains Tax (CGT) are likely to be short lived and the impact on house prices is expected to be neutral.
The Chancellor seems to have pulled off a trick worthy of a member of the Magic Circle. Although the country had been prepared for the past three weeks for a savage budget with pain for everyone in the end the Chancellor has delivered the very least we could expect. The housing market is robust and will deal with the short term drag that the announcements today will cause. Central London in particular is an international market and many foreigners will regard the Budget as ‘prudent’ and see it as one more reason to invest in Britain.
It is clear to all but a vocal minority that we could not continue to pay for a country where one in three employees work for the State. We need to get back to creating wealth and to live within our means. Sitting back whilst your house appreciates at 15% a year may be give you a warm glow but it creates little of real value unless you cash in and it has been a significant cause of many of the issues behind the Credit Crunch and taken prices to the limit of affordability. Osborne clearly hopes that prices will stabilise and the Budget should achieve this.
There is bound to be some fall out in the lettings market. The changes to CGT will alter some in the buy-to-let market but I expect most landlords to continue to view property as a long term investment and learn to accomodate the impact of CGT. The market will quickly catch it’s breath and move on. I for one would welcome an improvement in yields which in many places is now less than the rate of inflation. Rental return will once again become more important than capital appreciation.
It has been clear to many that for some time the property party was getting out of hand – for the last year we have had a few ‘over-refreshed’ guests lingering keeping prices up in a very thin market. Now, as the Governor of the Bank of England said at the Mansion House last week “it’s time to take away the punch bowl”. Short term discomfort tonight is better than a hang over tomorrow and for this, I welcome today’s budget.