Joe Rabbit is head of intermediary development at Nationwide
Aside from the headline-grabbing cut of two pence off the basic Income Tax rate, there were a raft of measures in the Budget which were interesting for mortgage lenders and product development.
Gordon Brown is keen to encourage more lenders to embrace affordable home ownership. The Shared Equity Taskforce reported in the 2006 pre-Budget report that the government now expects over 160,000 households to access home ownership through private or public shared equity products by 2010, double the original plan.
One element of the government’s response to this report is to extend the reach of the Open Market HomeBuy scheme to households on lower incomes. Brown announced the launch of the first stage of a competition inviting lenders to work with the Housing Corporation in developing affordable shared equity products for first-time buyers.
As one of the few lenders involved in the Open Market HomeBuy scheme, we will be interested to see what this entails. As a supporter of affordable home ownership, we welcome any initiative to get more lenders involved. But even if more do participate, this is unlikely to drive prices down, as margins on this type of business are already tight.
Gordon Brown also announced a pledge to work towards green mortgages for energy-efficient homes. He said the government would be opening dialogue between banks and societies to develop products of this type. HBOS and Abbey were quick to announce the launch of green propositions. Nationwide does not offer a green mortgage although we haven’t ruled this out. We believe that it is just as important for lenders to be green. We encourage our own members to be energy-efficient through a range of initiatives.
One initiative not mentioned in the Budget which should go some way to encouraging people to be green is the introduction of Energy Performance Certificates with Home Information Packs. Although the packs have been criticised for the exclusion of Home Condition Reports, EPCs should have an impact on the environment.
Another pledge was the promise that until 2012 all new carbon-neutral homes up to 500,000 will be exempt from Stamp Duty. While Nationwide welcomes this concession, we feel that it is important to do more to help home buyers. We have calculated that if the Stamp Duty threshold had been raised in line with house price inflation since 1993 it would now stand at 206,000 and are disappointed that the chancellor has not to increased the thresholds.
Clare Hartnell is head of property at Grant Thornton
In the Budget the chancellor responded to calls for simplification of parts of the UK tax regime. But it was not a boost for the property sector. The proposed capital allowance changes were unexpected and a significant proportion of the Corporation Tax rate reduction may be indirectly funded by these proposals. There are some positive changes for landlords such as the carbon-neutral homes initiative but unfortunately for developers, the planning gain supplement has not been dropped. From October, carbon-neutral homes costing up to 500,000 will be exempt from Stamp Duty but there was no relief for first-time buyers. Much like Inheritance Tax, Stamp Duty thresholds have not kept up with inflation and first-time buyers have been caught in its net. For foreign property ownership, where a UK resident individual is a director of a company who owns a property abroad for their use, they are potentially liable to Income Tax and National Insurance on the benefit in kind they derive from using the property. The chancellor is to introduce a measure which will remove that tax. There are conditions to be met, namely that the property is the company’s only or main asset and that its only activities relate to the ownership of that property. The company must also be owned by individuals and must not be funded by a connected company. This will help many who have purchased holiday homes in countries which favour ownership via corporate structures. A framework has been developed which will enable companies which invest predominantly in property and shares in UK real estate investment trusts, to benefit from broadly the same tax regime as applies to REITs. Landlords’ energy-saving allowance which gives relief for the cost of installing certain energy-saving items, is to be extended to include floor insulation. Consultation with the European Union continues in respect of extending this to residential landlords within the charge to corporation tax. Consultation is to be launched on the tax treatment of onerous leases, aimed at further encouraging the efficient use of commercial land and property. And the much-maligned planning gain supplement appears to live on. This is akin to a tax on development and many commentators think it should be shelved without further discussion but there was no such solace in the Budget. In summary, the Budget presented a mixed bag for the commercial and residential property markets.