The cost of living in the UK is becoming an increasing cause for concern for many. New measures have been put in place by the government to combat the significant rise in interest rates over the past few months as a result of the pandemic and the crisis in Ukraine. Both of these factors have led to the creation of “significant uncertainty in the global economy.”
For letting agents, the spring statement addresses a number of important areas that could impact their company’s success. By scrapping VAT on energy saving materials, increasing the government’s household support fund, raising the threshold at which National Insurance is paid and changing business rates’ relief, the measures implemented by the government directly impacts businesses in the property sector.
The rise in interest rates and the effects
Following the easing of restrictions last year, many companies have been faced with higher wages, increased energy costs and higher shipping costs – these costs are now being passed on to customers, or in this case, renters.
Inflation is now rising faster than wages – making it almost impossible for some to keep their heads above water. The current rate of inflation, according to the office of national statistics sits at 6.2%.
For letting agents, this has contributed to rents on their properties possibly rising, and continuing to rise – putting more strain on tenants that may no longer be able to keep up with their rental payments.
Furthermore, the energy price cap is also rising (following the news that households will face a record energy bill increase of 54% from April), which will make it more difficult for tenants to keep up with their energy bills and could result in letting agents dealing with more arrears. This increase signifies the importance of energy-efficient materials and appliances in households.
The Spring Statement
Chancellor Rishi Sunak has announced a plan that is designed to help reduce the increasing cost of living following reports that “inflation could average at 7.4% or higher this year.”
In the Chancellor’s statement, he covered multiple areas that aim to reduce the effects of the increased inflation rates. The main areas of focus are the national tax threshold, the VAT rates on energy-efficient appliances, the cost of fuel and the employment allowance.
The reduction in VAT on energy-efficient materials
The chancellor has announced that beginning April 1st, the VAT on all energy-saving materials in residential properties will be reduced from 5% to 0%.
The Spring Statement stated that “[In order] to help households improve energy efficiency and keep heating bills down, the government will expand the scope of VAT relief available for energy-saving materials and ensure that households having energy-saving materials installed pay 0% VAT.”
This will aid in the development of the private rental sector minimum efficiency standards “which [is] expected to benefit over 2 million households in England and Wales, helping them save on their energy bills and significantly reducing fuel poverty” within this sector.
According to Rishi Sunak, it is estimated that anyone installing solar panels to a property will save roughly £1,000, along with a decrease of £300 a year on their energy bills.
Although this is more directly beneficial for property owners who will be responsible for installing energy-saving materials, letting agents will still benefit from having more energy-efficient properties in their portfolio, as they can advertise lower energy bills to potential tenants. For letting agents who advertise their rent with bill included, this is also good news as they can advertise lower prices than competitors.
Additionally, letting agents will find this beneficial as it will be easier to achieve their net-zero targets.
A full list of the energy-saving materials can be found within the Spring Statement main document.
The change in the national tax threshold
With households already facing rising energy, food and petrol bills, many are worried about the rise in National Insurance contributions from 12% to 13.25% in April 2022. Although the chancellor has not lowered the rate, he has offset it for some by increasing the threshold.
The new amount that people will have to earn before they pay national insurance will increase by £2,970 beginning in July. The new threshold will begin at £12,570 (instead of £9,600) and will save employees £330 per year.
For letting agents, this is beneficial as tenants that would have otherwise struggled with the increasing national insurance contributions might find it easier to keep up their rental payments.
The reduction in the cost of fuel
The chancellor has announced that the cost of fuels will be reduced by 5p per litre following a steep incline of the petrol price in the UK. This could be beneficial for letting agents that commute to viewings and renters/homeowners that drive.
According to the chancellor, the reduction of 5p “will save the average motorist just £100 a year, or £8 a month.”
*Disclaimer: please note this blog is only intended as a guide, and is not to be taken as legal advice*