Feature: What will the Budget deliver for the mortgage market?

Speculation is rising that next week’s Budget may contain a number of measures designed to boost a struggling housing market.

The Chancellor will deliver his first Autumn Budget next week. Although the contents remain under wraps, many industry experts are expecting announcements to boost house-building, as well as “targeted” changes to stamp duty land tax.

The Prime Minister has promised to make it her “mission” to increase the number of homes built in the UK by building “more homes, more quickly”.

She said: “[The Government] must get back into the business of building the good quality new homes for people who need them most.”

Meanwhile  communities secretary Sajid Javid has pledged to do more to make housing affordable in the UK. Without this, he said, there was the risk a younger generation becoming “rootless” and resentful of both capitalism and politicians.

Royal Institute of Chartered Surveyors chairman Jeremy Leaf says: “Recent high-level housing industry meetings at No 10 and a succession of ministerial announcements encourage us to believe the government may finally appreciate why our housing market may be ‘broken’.”

However, details on how they intend to fix this problem have been few and far between. Leaf says that while political and economic uncertainty remains, Philip Hammond is unlikely to be able to announce “radical action” to reform the housing market.

However, he says there is a “distinct possibility” of more limited changes. These may be targeted to help first-time buyers, down-sizers and house-builders.

So what changes could we see?

Stamp duty

Revenue from stamp duty on property prices has hit an all-time high. In 2016-17 the Exchequer raised £8.6bn from stamp duty on just over 1m property transactions, an increase of 17 per cent on the previous year.

However, the accountancy firm EY points out that these figures mask some serious problems in the housing market.

Head of tax policy Chris Sanger explains: “The recent stamp duty changes appear to be a success, with increased revenue. But most of this increase has come from the additional 3 per cent surcharge on second homes and buy-to-let properties. This disguises an 8 per cent drop in transactions on average across the country.”

“This has a particular impact in London, with 30 per cent of the stamp duty receipts being paid by the 2 per cent of properties that are sold for more than £1m.”

This has raised speculation that the Treasury may raise stamp duty thresholds at the lower end, in order to boost transactions, or remove this tax altogether for first-time buyers.

Alternatively, there may be an exemption – or other tax benefits offered – for those over retirement age, which could encourage retirement homeowners to downsize, potentially freeing up more family homes within the property market.

Blick Rothenberg’s corporate tax director Helena Kanczula suggested that the Chancellor may introduce a stamp duty “holiday” for FTBs.

She also says he may be considering an “instalment payment regime” for those purchasing higher value properties, allowing them to spread the cost of this stamp duty.  “It’s often the upfront costs that can be prohibitive,” she points out. This solution would also mean no overall reduction in receipts for the Exchequer.

PwC’s head of real estate tax, Rob Walker adds: “High stamp duty rates are dissuading people from upsizing and downsizing, affecting both ends of the market.”

Leaf adds: “On the high street we have found that stamp duty at more affordable price levels remains a significant tax on mobility and barrier to activity. Increasing the lowest stamp duty threshold in line with inflation would help aspiring FTBs address their biggest obstacle – raising a deposit.”

Buy-to-let

While many in the industry would welcome the removal of the 3 per cent stamp duty surcharges – imposed on BTL properties and second homes – most think Hammond is unlikely to include this in his Budget speech.

Leaf says: “A removal or reduction of the 3 per cent stamp duty surcharges would benefit the whole market.” However, he concedes that this is likely to be seen as “a political u-turn” and is unlikely, particularly when revenues from this tax are rising.

Desbruslais Chartered Surveyors director Rob Desbruslais says he’d like to see the Chancellor re-introduce tax relief for buy-to-let landlords, which may go some way to offsetting these higher stamp duty charges.

“Removal of this relief was an own goal, causing an inevitable reduction in the private rental supply, which can only serve to increase rents.”

He adds: “Speaking to many local agents it seems there is strong evidence to suggest that many landlords are bailing out, now prices have peaked, interest relief has reduce and rising interest rates will cut minimal margins further.”

As many property experts point out, if the Chancellor’s stated aim is to help FTBs, measures that encourage landlords to quite the BTL market and end up pushing up rents make it harder for this key demographic to save for a deposit.

Homebuilders 

Most pre-budget speculation has been focused on ministerial tip-offs that the Chancellor will announce measures to further boost housebuilding.

The Prime Minister’s speech certainly set out the moral case for building more homes, and making housing more affordable, particularly for a younger generation. But to date there have been few specific details on how this will be achieved. Most commentators are hoping the Budget will address this.

Coffin New Solicitors head of commercial property Nick Leavey says: “Commercial housebuilders will be hoping for some more radical measures that we have seen before.”

But he adds: “More likely, we may see tinkering around the edges, alongside the release of some public land and money and other incentives to more house-building, all targeted very firmly at those would be FTBs and other under-45s who have been turning their backs on the Conservatives recently.”

Most housing experts agree that the supply of housing in the UK remains one of the biggest problems in the housing market.

Leaf adds: “More could be done to encourage local authorities and housing association to build more genuinely affordable homes for sale and to let. Allowing higher retention of Right to Buy receipts and more relaxed renting and borrowing rules by using housing revenues as collateral may assist.”

But Leaf says it will take more than just additional housebuilding to solve the supply problems in the UK housing market. He points out sales of new build property “constitute only a small proportion of the 1.1m transactions which take place every year.”

He also called for a re-appraisal of the green belt, which he described as “long overdue”. “It’s all very well encouraging Help to Buy, which is actually regarded more as ‘Help to Sell’ by many in the industry. But this should be complemented by  faster delivery of planning consents and infrastructure, especially on publically-owned land.”

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