What effect will ‘Trussonomics’ have on the property market?

If as it has been suggested the new Prime Minister Liz Truss and her ‘gang’ temporarily drops VAT to 10%, this could have an interesting effect on residential property and the building sector.

Firstly, buyers will scramble to refurbish their homes, rather than re-develop them from scratch, since the saving of 10%, from the prevailing rate of 20%, could amount to quite a big number.

The average re-development cost in London could be circa £200,000, the saving would be £20,000 and for more expensive properties, considerably more, multiples of hundreds of thousands of pounds.

For your edification, new build development is exempt from VAT whereas re-furbishment carries the full quota, unless the property has been empty for five years, in which case it is 5% of works carried out.

How estate agents love their fees, a joy not necessarily shared by their vendor/landlord clients, and these fees will be cheaper by the reduced VAT liability which could be a saving of £750 on the average sale of a property in London.

For a purchase or rental of a mega-mansion, the saving could be considerable.

Very uncharacteristically, clients will want to pay fees before completion of a sale just in case the new Chancellor changes the VAT rate back again, when the economy looks a little more receptive to this measure.

The reduction in this indirect tax will accelerate the purchase of both white and brown goods and will add an extra stimulus to the retail spending sector, which has been slowing down considerably of late.

One hopes that this will not exacerbate the hyper-inflation already raging in the UK.”

Although the property market will not be in full voice until after the second week of September, after the children go back to school, there are no tangible signs of an increase of supply in property, which could herald a cooling off in values ahead of time.

The BoE is going to increase interest rates, and this will have an impact on mortgage rates, which does not help sentiment, but the 15% discount on Sterling, if you are an international buyer, will certainly encourage those investors from abroad to buy in London as their denomination is usually in dollars.

This could overcome the resistance to the draconian levels of Stamp Duty that exist at present.

These wealthy buyers are little interested in fears of recession, changes in Prime Minister and issues around Brexit and they are unfazed over interest rates as they pay in cash.

My take is, that there are many reasons for property owners to fear as there are to encourage and as such, I think values will remain where they are for the foreseeable future.

The tell-tale sign will be in the level of supply of new properties, either for sale or to rent, and we need to monitor this carefully.”

Steady as she goes, I don’t anticipate a cataclysmic collapse in property values unless the economic scene changes dramatically from the present.

I wish the new Prime Minister luck, swimming against the tide. Let’s hope her honeymoon period allows her breathing space to deal with the runaway energy crisis, hyper-inflation, and a looming recession.

Trevor Abrahmsohn is MD of London estate agency Glentree Estates.