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Date: 19 December 2022

Author: Lee Merrifield

It’s the most challenging time for millions of households and businesses. Record inflation, higher energy and food bills, more expensive borrowing.

no surprise the expression ‘cost of living crisis’ is embedded in everyday conversation. But what does the economic outlook really mean for property investors and developers? Lee Merrifield, Underwriting and Credit Manager at MSP Capital, believes cool heads, patience and intelligent decisions can still result in many opportunities.

The property market tends to be cyclical

While it is a challenge to make a positive case for optimism right now, the fact is when conditions become tough successful investors and developers tend to bide their time, think long-term and continue to seek out potential projects.

We have known for a while that global inflation is on the rise, with interest rate policy the main tool in the box to try and combat it here in the UK as elsewhere. Hence, we find ourselves in a new era of higher mortgage payments impacting on affordability and threatening to dampen home buying activity.



But it is also true that in a property market that works to a greater or lesser extent on sentiment, identifying that crucial moment of catalytic change – the turning point – can only ever be done in retrospect.

Only the most starry-eyed commentator would think we are at that point yet, or going to be near there very soon, but after they take stock, investors and developers will move ahead once again and go to where new opportunities arise.

Seeking certainty


Some market analysts predict a further slowing of average house price growth but you have to remember that the national housing market is really a series of local markets with different criteria. Where we are, in the south, it has been more buoyant over the past ten to 15 years than in other parts of the country and there has been recent growth in the market despite some easing of prices involving valuations from 12 to 18 months ago.

It is difficult to predict what will happen regionally over the coming year based on a national house price average. Given the economic headwinds, it’s likely the market will be tougher, with mortgages more difficult to secure, but it doesn’t mean the wheels have to come off. We may see activity cooling in the first part of 2023 before recovering in the second half. A return to smaller increases in house price growth, rather than volatile ups and downs, would create more certainty and stability in the market, which is the medium term preference for most developers and lenders.


Opportunities and risk

There are so many macro-economic factors at play that are beyond the control of most of us. Clearly the government must get inflation and interest rates under control and we need earnings to catch up as well. Once those relationships are back in balance, we can return to the kind of sensible mortgage affordability people have become used to in recent years.

Reasonably priced homes and longer-term market growth would also be supported by supply-side action such as reforms in the planning system. This could unlock more brownfield sites and avoid the green belt being turned over for development. We continue to see insufficient land going through the system or the infrastructure that is needed to go with new homes, so there is always a drag on the property market.

The Autumn Statement was a disappointment in that regard with no mention of the long-standing annual target of 300,000 new homes by the mid-2020s or what the government is doing to move the dial and make it happen.

While it is up to others to separate politics from planning, we want to be able to look back in a year or two’s time and say we have done all we can within our control as an industry to ensure a reasonable amount of transactions, no dramatic falling away of mortgage take-up, no substantial declines in value, people being able to sell and refinance, and liquidity in the market being maintained.

I believe there will be more risk in the coming 12 months but it will also be a period of great opportunity for those developers with the right skills sets. Finding solutions, being entrepreneurial and generating wealth are skills that sit more comfortably with some than others. Developers are resilient people and while there will be those who step back, others will step up.

Accepting the cyclical nature of the market means developers rely on making higher margins in a good run to offset against the times when values go lower. Ideally you want as long a window of sunshine as possible to build up your profitability but you can’t expect to avoid stormy periods altogether.



As a sector, we can lower the impact of market volatility by making sensible, prudent decisions that secure a level of certainty and calmness that helps people to know where they stand. This is a time for a period of reflection, seeing how the market looks and being sensible.

The basics remain the same – the need the take stock of location and target market and go on from there to buy well.

We can be reassured by economic fundamentals such as the high levels of equity and savings people have in this country. Those with a lot of equity will rely less on the need for a mortgage. A rise in equity-driven demand will see investors, developers, lenders and finance specialists increasingly having to accommodate such a customer persona as we change tack to seek out the opportunities.

In so doing, we complement the capability of entrepreneurs in all business sectors, and indeed government strategists, to stimulate growth in new areas by investing where there are likely to be economic returns.

Our job as a property finance specialist making decisions in this challenging period is to work through our ongoing pipeline of deals, price and underwrite as accurately as we can and help our customers continue to generate growth and prosperity.

Chancellors Autumn Statement summary of 2022

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Stamp duty

The September mini budget helped homebuyers by raising the threshold for starting to pay Stamp Duty to £250,000 from £125,000. At the same time, the threshold for first-time buyers was raised from £300,000 to £425,000. In the Autumn Statement, the Chancellor announced that both these measures would be abolished from 31 March 2025. We therefore have a time-limited Stamp Duty allowance.

Stamp duty cont…

While previous Stamp Duty ‘holidays’ have tended to create a short-term rise in demand that pushes up prices artificially, the deadline this time feels quite far away. It will have some impact in making home purchases more achievable in the medium term but I believe developers looking for loan finance for new-build projects, typically 15 to 18 months, will be able to comfortably price in the implications of the end of the allowance period.

Energy efficiency package

As well as helping households pay their bills with a year’s extension to the energy price guarantee, the government wants to reduce the energy consumption of buildings and industry by 15% by 2030. To help meet this target, the Autumn Statement included a £6.6 billion package of support to encourage improvements in home energy efficiency such as insulation and upgraded boilers. While we don’t know to what extent, we can expect this scheme to have some impact. I would urge those interested and eligible to take advantage of what support will become available. Energy efficiency will increasingly be on buyers’ agendas.

Capital Gains Tax (CGT)

The Chancellor is cutting the tax-free threshold on CGT charged on the sale of assets from £12,300 to £6,000 from April 2023 and then to £3,000 a year later. Some tax experts have said these changes could prompt the likes of small business owners and BTL landlords to accelerate the disposal of assets. The jury is out on that. I believe landlords may actually be more worried about refinance arrangements because of higher mortgage rates at a time when the rents they can charge might not have gone up. The message here is that landlords and property owners should carry out regular financial reviews of their properties and portfolios, thinking tactically for the short term and strategically for the long-term.

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