Chancellor Rishi Sunak announced today (23 March) that the government will remove VAT on energy efficient materials.

In Sunak’s spring statement, he cut VAT on energy-efficient materials – such as solar panels, heat pumps and roof insulation – from 5% to zero, over the next five years, with the aim of helping families become more energy efficient.

The Chancellor has extended the National Insurance threshold to £12,570 from July 2022, a reduction worth more than £6billion, saving the typical employee more than £330 a year .

The basic income tax rate will also be cut to 19% in 2024, the first cut in 16 years.

SMEs were also on the agenda, with the job allowance raised from £4,000 to £5,000, effective April 6.

The support for SMEs comes on top of a 50% relief in corporate rates for eligible retail, hospitality and leisure properties, also coming in April.

There will also be no commercial rates due on a range of green technologies used to decarbonise buildings – including solar panels and batteries, while eligible heating networks will receive 100% relief, which is expected to save businesses over £200 million over the next five years. .

The real estate sector reacts to the Spring Statement 2022

“When it comes to VAT relief on energy-efficient materials, that’s a big incentive for those who have the direct funds to invest in these,” said Ross Counsell, director of Good Move.

“Not only will this be more beneficial financially in the long run, but sustainable renovations are also essential to future-proof your home. solar panels and heat pumps just isn’t viable for some.”

Scott Clay, Head of Distribution Development at Together, commented: “It is promising to see the Chancellor push for more green investment and development, not only as it will bring us closer to net zero targets, but also as it will help mitigate future oil shocks. .

“Reducing VAT today for homeowners who install solar panels, heat pumps or insulation over the next five years is another step in the right direction. However, even with average tax savings of £1,000 and over £300 in energy savings per year, the actual cost and installation of eco-materials is still very high and too often vastly underpriced. budgeted. Both families and real estate investors will have to find this financing elsewhere.”

Jason Mountford, financial planning expert at Irwin Mitchell, claimed that while waiving VAT for energy-efficient additions would save homeowners £1,000 on average, “the average cost of installing home solar panels is £4 £800”, and therefore unlikely to have an impact on the most affected by the energy crisis.

Iain McKenzie, CEO of The Guild of Property Professionals, said: “While rising energy prices will increase the cost of powering our homes, action to reduce VAT on environmentally friendly energy sources of the environment and the energy-efficient insulation will relieve homeowners. cheeky.”

Sunand Prasad, director of Perkins&Will, said there was “no doubt” we are reaching boiling point when it comes to creating energy-efficient homes.

“This battle to upgrade our homes is not only vital to combating the climate emergency, it will also help families across the country save on skyrocketing energy bills.

“We warmly welcome the reduction in VAT on energy-efficient materials such as solar panels announced today, and urge the government to continue to prioritize energy efficiency to advance the whole of country towards a greener future.”

Brian Murphy, head of loans at the Mortgage Advice Bureau, believes the cost of buying and installing these materials – even with a reduction in VAT – means it can still be expensive for homeowners.

“A better alternative would be to provide a subsidy or incentive to actually encourage adoption of these products, instead of tinkering at the margins with small tax cuts.”

Paresh Raja, CEO of Market Financial Solutions, said: “The spring statement was never likely to contain any major surprises when it comes to the real estate sector, at least not directly. But action was needed and, positively, it was taken to ease pressure on individuals’ finances in the short term, which will help ensure that the real estate market does not face bad shock waves.

“Rising inflation and interest rates are affecting both homeowners and buyers, hampering the amount they can borrow and save. So it was positive to see the Chancellor reduce taxes on fuel and fuel. Financial support for households across the UK Tax breaks for those who go green improving their homes is also a welcome move, encouraging the right kind of property renovation.

“As for the real estate market, with demand still outstripping supply, it is likely that house prices will continue to rise as they have. But, for lenders, now is the time to take action. We cannot leave it to the Chancellor alone.” to offer support to those hoping to move up or up the property ladder. Rather, lenders should focus on supporting their existing and potential customers as best they can.

“Flexibility will be key; being too rigid in how and when to lend risks alienating some buyers in the current climate, so lenders need to think about how best to meet each borrower’s particular needs and provide support to help them overcome the economic challenges they face.

Stuart Law, CEO of Assetz Group, said: “With the Bank of England again raising rates to fight inflation, the cost of housing – by far people’s biggest monthly expense – is getting more expensive. at the worst possible time.

“While we face an immediate crisis with the cost of energy, we must also address the long-standing structural, economic and political issues that support the continued growth of house prices. Price growth is not only a knee-jerk response to the pandemic or lingering post-Brexit trade issues, although both of course continue to impact the market.

“The way we want to live is fundamentally supporting strong demand, while an onerous planning system, labor and material shortages and high land prices continue to hamper construction output.

“We urgently need to see the content of the much-delayed planning bill to understand how it could unlock development by reducing construction costs and therefore temper price growth to make housing more affordable for all . Ultimately, balancing supply and demand is the only sustainable way to ensure reasonable levels of house price growth and housing affordability for people of all incomes.

Paul Breen, managing director of affordable housing specialist Living Space, said: “We welcome the range of measures Sunak has put in place to recognize and help address the widespread cost of living crisis. However, this only scratches the surface of current problems.

“Rising energy prices are disproportionately hitting low-income people. Much more needs to be done to prevent more households from spiraling into debt by simply using their cars and heating their homes.

“With the right funding, the affordable housing sector can lead the way in decarbonising the UK housing stock. The increased cost of building an A EPC rated home is a fraction of the price of retrofitting an existing home with the same energy saving technology.

“Air source heat pumps, rooftop solar photovoltaic panels and improved levels of insulation are measures that cost more to install, but have a short payback period. With that in mind, we believe the Future Homes standard should be much more ambitious, with homebuilders having a strong incentive to deliver zero-carbon homes.

Russell Pedley, co-founder and director of Assael Architecture, said: “The growing cost of living crisis continues to spiral wages and prices, pushing inflation into high gear.

“The same prevailing trends are apparent in the construction industry, where shortages of materials still recovering from Covid-19 have forced commodity prices to near 40-year highs.

“Depressed consumer confidence, which threatens to block life decisions, such as buying or renting a property, should not mean the government abandons the figure of 300,000 homes per year first announced in 2015.

“These delays mask an alarming undersupply that has long introduced systemic uncertainty in housing affordability, now exacerbated by spiraling costs at all levels, which desperately require government intervention.”

John Phillips, National Operations Manager at Just Mortgages, said: “As expected, there was nothing directly related to the mortgage industry in the spring statement.

“The housing market has shown its resilience recently and while the stamp duty suspension has certainly sparked a frenzy over the past few years, another SDLT pause is not needed to keep the market moving.

“It is encouraging that measures have been put in place to alleviate the cost of living crisis, and although inflation and rising energy prices may have an impact, there are still people who are looking to move to keep the market buoyant and brokers busy.

“As activity returns to pre-pandemic levels, there is still a steady flow of buyers, and with the recent increase in base rate by the Monetary Policy Committee, broker advice will be even more reviews than usual.

“Rates are expected to continue to rise, and this could trigger moves and remortgages as borrowers and brokers look to correct before rates peak.”