HOW WILL THE BUDGET EFFECT THE LOCAL PROPERTY MARKET?
Fri 22 Dec 2017
Commenting on housing measures in the Budget, Jeremy Leaf, North London Estate Agent Owner and former RICS residential chairman, says: “The words of the Chancellor were interesting almost as much for what he said as for what he didn’t!
The abolition of stamp duty for around 80% of first time buyers and a cut for 95% on new and existing homes in England up to £300,000 or the first £300,000 on those up to £500,000, was the main talking point.
However, the Government’s own independent financial watchdog as well as the RICS believe the impact of the stamp duty change on the housing market will be minimal. The Office of Budget Responsibility (OBR) said house prices will increase by an average of 0.3% next year as sellers try to raise asking prices to take advantage of improved first time buyer spending power. The organisation believes the abolition will only generate 3,500 new first time buyers who could save up to £5,000 but an average of just £1,600.
Mr Hammond hopes that first time buyer chances of saving a deposit and obtaining an affordable mortgage will improve and consolidate their advantage over investors who have had to pay a 3% stamp duty surcharge since April last year.
The £10bn extension of Help to Buy in October will continue to benefit first time buyers moving into brand new homes but has contributed more to a rise in prices than volumes, in our view.
The Budget sought to address rapidly falling home ownership especially among 20 to 30 year olds by trying again to increase housing supply. The Chancellor said £44 billion will be spent over the next 5 years on capital funding, loans and guarantees aiming to raise the number of new homes to 300,000 a year by the mid-2020s which may be tough bearing in mind only £15.3bn is said to be ‘new’ money.
The Housing Infrastructure Fund will also be doubled to £2.7bn and £8bn is to be spent on new financial guarantees to support private housebuilding and Build to Rent. A new Land Assembly Fund should enable the government to work with developers on “new settlements and urban regeneration schemes” whereas £34 million is to be set aside for improving construction skills.
In particular, Councils will be encouraged to permit more homes for local first time buyers and affordable renters in areas of high demand.
The government hopes the money will generate additional houses and flats on sites where construction has been held up perhaps by NIMBYs, developers seeking better returns or planning delays caused by utility companies and/or the need for remediation.
An early review will take place into the delay between the grant of planning permission and housing starts.
Extra land will be made available too for housing in towns and cities which should mean less pressure to release land for development in the green belt.
Small and medium sized housebuilders have been singled out for special assistance otherwise the Chancellor believes the market will “remain dependant on the major housebuilders that dominate the industry”.
I would have preferred to hear of a bolder plan to deliver additional publicly-owned land for housing as well as radical improvements to planning, finance and skills shortages.
More relaxed borrowing restrictions on local authorities and housing associations would probably stimulate the construction of more genuinely affordable new homes.
Mr Hammond announced in the speech that local authorities will be able to double the empty homes council tax premium on property “unoccupied and substantially unfurnished for two years or more.” Such a small uplift is unlikely to make much difference. According to a recent report in The Times, the premium has been charged on only 60,516 properties this year which explains why the Treasury expects to receive just £5 million more a year from 2021 as a result of the uplift. In addition, 79,347 owners of homes empty for less than two years have received a discount on their Council tax this year with 39,313 qualifying for full discount i.e. pay nothing.
In my view, radical Council tax reform is urgently required including more frequent revaluations (the last was in 1992!?) bearing in mind the present obligation to pay a lower proportional charge on more expensive than cheaper properties. This helps to keep older people in generally larger, more expensive properties while discouraging a large proportion from downsizing at a time when demand for housing in many areas substantially exceeds supply.
However, Mr Hammond did include a stealth tax for landlords. Capital gains tax on buy-to-let properties held in corporate structures will be increased by freezing of the ‘indexation allowance’ tax break from January 2018 when a second home is sold by a company by taking the effect of retail price inflation into account.
Many landlords have moved properties into company structures to reduce their tax liability over the past few years following the phasing in the reduction in mortgage interest relief to the basic rate from April 2016 until April 2021 when landlords will no longer be able to offset mortgage interest payments against profits.
The rules do not apply to properties kept in a corporate structure, where a lower 19% Corporation Tax rate is payable which is expected to fall to 17%, compared with individuals paying up to 45%. It remains to be seen whether the government will attempt to make it less attractive to keep buy-to-let properties in a company
The move could have a detrimental impact on the supply of affordable property to rent, following a series of tax and regulatory changes.
Finally, the Chancellor announced a consultation into how landlords could be encouraged to offer longer tenancies required by some tenants seeking extra security.
The abolition of stamp duty for around 80% of first time buyers and a cut for 95% on new and existing homes in England up to £300,000 or the first £300,000 on those up to £500,000, was the main talking point.
However, the Government’s own independent financial watchdog as well as the RICS believe the impact of the stamp duty change on the housing market will be minimal. The Office of Budget Responsibility (OBR) said house prices will increase by an average of 0.3% next year as sellers try to raise asking prices to take advantage of improved first time buyer spending power. The organisation believes the abolition will only generate 3,500 new first time buyers who could save up to £5,000 but an average of just £1,600.
Mr Hammond hopes that first time buyer chances of saving a deposit and obtaining an affordable mortgage will improve and consolidate their advantage over investors who have had to pay a 3% stamp duty surcharge since April last year.
The £10bn extension of Help to Buy in October will continue to benefit first time buyers moving into brand new homes but has contributed more to a rise in prices than volumes, in our view.
The Budget sought to address rapidly falling home ownership especially among 20 to 30 year olds by trying again to increase housing supply. The Chancellor said £44 billion will be spent over the next 5 years on capital funding, loans and guarantees aiming to raise the number of new homes to 300,000 a year by the mid-2020s which may be tough bearing in mind only £15.3bn is said to be ‘new’ money.
The Housing Infrastructure Fund will also be doubled to £2.7bn and £8bn is to be spent on new financial guarantees to support private housebuilding and Build to Rent. A new Land Assembly Fund should enable the government to work with developers on “new settlements and urban regeneration schemes” whereas £34 million is to be set aside for improving construction skills.
In particular, Councils will be encouraged to permit more homes for local first time buyers and affordable renters in areas of high demand.
The government hopes the money will generate additional houses and flats on sites where construction has been held up perhaps by NIMBYs, developers seeking better returns or planning delays caused by utility companies and/or the need for remediation.
An early review will take place into the delay between the grant of planning permission and housing starts.
Extra land will be made available too for housing in towns and cities which should mean less pressure to release land for development in the green belt.
Small and medium sized housebuilders have been singled out for special assistance otherwise the Chancellor believes the market will “remain dependant on the major housebuilders that dominate the industry”.
I would have preferred to hear of a bolder plan to deliver additional publicly-owned land for housing as well as radical improvements to planning, finance and skills shortages.
More relaxed borrowing restrictions on local authorities and housing associations would probably stimulate the construction of more genuinely affordable new homes.
Mr Hammond announced in the speech that local authorities will be able to double the empty homes council tax premium on property “unoccupied and substantially unfurnished for two years or more.” Such a small uplift is unlikely to make much difference. According to a recent report in The Times, the premium has been charged on only 60,516 properties this year which explains why the Treasury expects to receive just £5 million more a year from 2021 as a result of the uplift. In addition, 79,347 owners of homes empty for less than two years have received a discount on their Council tax this year with 39,313 qualifying for full discount i.e. pay nothing.
In my view, radical Council tax reform is urgently required including more frequent revaluations (the last was in 1992!?) bearing in mind the present obligation to pay a lower proportional charge on more expensive than cheaper properties. This helps to keep older people in generally larger, more expensive properties while discouraging a large proportion from downsizing at a time when demand for housing in many areas substantially exceeds supply.
However, Mr Hammond did include a stealth tax for landlords. Capital gains tax on buy-to-let properties held in corporate structures will be increased by freezing of the ‘indexation allowance’ tax break from January 2018 when a second home is sold by a company by taking the effect of retail price inflation into account.
Many landlords have moved properties into company structures to reduce their tax liability over the past few years following the phasing in the reduction in mortgage interest relief to the basic rate from April 2016 until April 2021 when landlords will no longer be able to offset mortgage interest payments against profits.
The rules do not apply to properties kept in a corporate structure, where a lower 19% Corporation Tax rate is payable which is expected to fall to 17%, compared with individuals paying up to 45%. It remains to be seen whether the government will attempt to make it less attractive to keep buy-to-let properties in a company
The move could have a detrimental impact on the supply of affordable property to rent, following a series of tax and regulatory changes.
Finally, the Chancellor announced a consultation into how landlords could be encouraged to offer longer tenancies required by some tenants seeking extra security.
Jeremy Leaf, a former RICS residential chairman & Principal of an independent North London Estate Agency.
December 2017