News, Culture & Society

What’s in store for homeowners in the Budget?

Housing has been widely tipped to steal the show in Wednesday’s Budget, with the Prime Minister saying this week it’s now her ‘personal mission’ to build more homes.

How exactly she plans to do this is still to be revealed but a stamp duty holiday for first-time buyers, more money for Help to Buy and less red tape have all been mooted.

It’s believed Theresa May and her communities minister Sajid Javid also favour borrowing a lot more money to build a lot more homes – the princely sum of £50billion has been bandied about. 

But the Chancellor Philip Hammond has been rather tight lipped, playing down suggestions the government plans to rack up more debt.

Theresa May, Sajid Javid and Philip Hammond are likely to announce measures to support Britain building more new homes after May called it her ‘personal mission’

If Number 10 and Number 11 appear not to agree, the experts are even more diverse in their predictions for housing policy. 

Many are arguing (as they do in the weeks before every Budget) for a radical overhaul of stamp duty land tax, incentives for downsizers and/or first-time buyers and some, even, for a wholesale reversal of George Osborne’s reform of tax relief for landlords. 

There’s a veritable mire of information out there, so to help you get your heads round it, we’ve rounded up the top predictions ahead of Wednesday’s Budget.

What the politicians have promised

Theresa May’s government has been proactive on housing since taking over the reins from David Cameron and George Osborne back in summer 2016. 

They spent nine months figuring out what the problems in the market are and then published a white paper in February this year outlining the government’s priorities.

Since then, they’ve extended Help to Buy equity loans, set up a £3billion Home Building Fund, done some simplifying of planning policy, announced more funding for building new council homes for rent and backed several garden towns. 

They’ve also passed a bill giving tenants in the private sector more protection and banned costly letting agent fees. 

And they’ve stuck with Osborne’s raid on landlords with tax relief on buy-to-let mortgages being phased out from April this year. 

When it comes to housing and the Budget, there are three key players to listen to. 

May: I have made it my mission to build the homes the country needs

May: I have made it my mission to build the homes the country needs

Theresa May

Trailing next week’s Budget, Theresa May said earlier this week: ‘For decades we simply have not been building enough homes, nor have we been building them quickly enough, and we have seen prices rise.

‘We must get back into the business of building the good quality new homes for people who need them most. That is why I have made it my mission to build the homes the country needs and take personal charge of the government’s response.

‘Today I am seeing the work now underway to put this right and, in coming weeks and months, my government will be going further to ensure that we build more homes, more quickly.

‘This will be a long journey and it will take time for us to fix the broken housing market – but I am determined to build a Britain fit for the future.’

It’s a bold promise and one she hasn’t yet told us how she plans to deliver. 

Javid: There are many, many faults in our housing market, dating back years

Javid: There are many, many faults in our housing market, dating back years

Sajid Javid

Communities secretary Sajid Javid has also been busy this week, revealing plans to transfer more than £60billion of housing association debt off the Government’s balance sheet, placing it back in the private sector, which he said will boost house building.

‘I know it sounds like a piece of bureaucratic box-ticking. But the results will be far-reaching,’ he said.

‘Freed from the distractions of the public sector, housing associations will be able to concentrate on developing innovative ways of doing their business, which is what matters most: building more homes.’

Javid also hinted that this was just one part of the puzzle. 

‘There are many, many faults in our housing market, dating back many, many years,’ he said.

‘If you only fix one, yes you’ll make some progress, sure enough. But this is a big problem and we have to think big. 

‘We can’t allow ourselves to be pulled into one silo or another, and I don’t intend to let that happen. So there is much that central government can do.’ 

He also promised something big on housing from the Chancellor on Wednesday.

Hammond: There's 'no silver bullet' to fix the UK's broken housing market

Hammond: There’s ‘no silver bullet’ to fix the UK’s broken housing market

‘In next week’s Budget you’ll see just how seriously we take this challenge, just how hard we’re willing to fight to get Britain building,’ he said.

Philip Hammond

Arguably it’s Hammond himself we all need to listen to – he’s the Chancellor, he runs the Treasury and it’s his Budget. 

While he hasn’t contradicted either May or Javid in public, he has gone on record being less enthusiastic about housing policy, warning earlier this week that there’s ‘no silver bullet’ to fix the UK’s broken housing market.

What might be announced on housing? 

1. Stamp duty 

The most widely trailed prediction has been that Hammond will announce something to do with stamp duty.

What exactly is less clear. Government could give a stamp duty holiday to first-time buyers or to pension-age homeowners downsizing.

Alternatively, it could change the thresholds to reflect that house prices have risen so much. 

It’s highly unlikely they’ll scrap the tax completely, though that hasn’t stopped pundits asking them to. 

Ray Boulger, of mortgage broker John Charcol, says: ‘I’m expecting the threshold for stamp duty to be increased to at least £150,000 from £125,000, however if government is serious about helping first-time buyers they should increase the threshold to £200,000.’ 

STAMP DUTY BANDS IN THE UK 
Property value SDLT rate
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5million) 10%
The remaining amount (the portion above £1.5million) 12%

The percentage of SDLT raised from properties sold at up to £200,000 is tiny and, Boulger argues, by changing the rates on higher bands the Chancellor could mitigate the otherwise small loss in revenue if he felt the need to do so.

‘There is good anecdotal evidence that increased levels of stamp duty at the higher levels have had a material influence on the number of property transactions,’ he adds. 

‘A 12 per cent tax may not inhibit someone buying a £10million property but it will stop many potential purchases in the £1.5million to £5million range. 

‘Every sale thwarted in this region means that other transactions lower down a potential chain also don’t take place. 

‘Reducing the rate of tax on properties up to £5million will not only increase activity in that price range but those extra sales will facilitate the creation of chains and in some cases, several other transactions which otherwise would not happen. This will increase other tax revenue, such as VAT.’

>> Read more on stamp duty and what the government could do

2. Build more homes

This is the backbone of what the government wants to do, the question is how?

It could announce more funding for affordable housing – there’s already £9billion committed to this. 

More money for the Home Building Fund is also a possibility – this has £3billion at the moment and is money earmarked specifically for smaller and medium-sized builders.

Building a better Britain? The Government has a long way to go if it is to surpass the building rate of the mid 1990s 

Building a better Britain? The Government has a long way to go if it is to surpass the building rate of the mid 1990s 

The housing White Paper specifically pointed to wanting to support smaller builders and the Prime Minister and communities secretary recently held a meeting with developers and housing associations in Downing Street to discuss actions needed to remove the barriers they are facing in building new homes.

‘The number of homes built by major developers has now recovered to where it was 10 years ago but the number built by small and medium-sized builders is still much lower,’ says Boulger.

‘The main reason for this is that SME builders often still find obtaining finance a challenge and expensive. 

‘The Chancellor, in conjunction with the Department for Communities and Local Government, needs to find a way, perhaps through tax incentives, of encouraging more risk capital to be available for this sector to stimulate more activity. 

‘However, any increase in activity will accentuate the shortage of skilled labour, which is a separate problem difficult to deal with until the Brexit negotiations are finalised,’ he adds.

3. Land and the green belt

The next biggest barrier to house building is land. More land is needed and in the right place. How the government deals with this issue has apparently been a bone of contention between May and Hammond.

The crux of it is whether government allows building on some greenfield sites as well as on brownfield land. 

Protecting the green belt is a highly emotive subject for politicians, so even though it might make sense to build on some bits of it – abandoned railway sidings for example – it’s often seen as political suicide to suggest it. 

It’s therefore seriously unlikely that we’ll see this proposed, which means land has to come from elsewhere. 

Javid has already been vocal in pressuring private developers not to landbank – it’s possible we might see this formalised in the form of financial penalties for those firms seen to be sitting on land to maximise profit. 

4. Help to Buy

The government has already promised a further £10billion to fund more Help to Buy equity loans until 2021 but developers are hoping they’ll extend this end date.

The reason is largely that around a quarter of new homes built are bought using Help to Buy money – it’s a huge slug of demand that could dry up if the scheme is pulled in 2021.

The problem is not extending it now could having a meaningful impact as developers are already considering how many homes to build for sale in 2021 today. If they think a third of their prospective customers won’t be able to afford to buy without Help to Buy, they won’t build as many new homes.

While most people support the Help to Buy scheme, there are those who point out the scheme is fuelling house price inflation, particularly in London and the South East where prices are already astronomical.

‘The Chancellor is likely to reiterate his pledge to find an extra £10billion for the Help to Buy equity scheme to help another estimated 135,000 people, 80 per cent of whom will be first-time buyers, to buy a property,’ says Boulger. 

‘However, this additional money is needed simply to meet the significant extra demand on the scheme after London Help to Buy was introduced, with a 40 per cent equity share. 

‘We suggest the Chancellor should announce a two-year extension of the Help to Buy scheme but also that the maximum government second charge will be reduced to 10 per cent outside London and 25 per cent in London.’

Some 9,807 Help to Buy equity loans were advanced in England in 2016/17, according to DCLG figures, compared with 183,570 additional dwellings added via new build completions and 217,350 additional dwellings added in total. 

Peter Williams, of the Intermediary Mortgage Lenders Association, warned: ‘Almost one in four new build completions and one in five additional homes overall is being supported by the Help to Buy equity loan scheme.

‘There needs to be clarity on what happens next long before its scheduled closure in 2021.’

5. Buy-to-let

Landlords in the private sector have had a tough few Budgets – they’ve seen tax relief on buy-to-let mortgage interest rolled back, a shift in how they’re taxed away from profit but to revenue instead. And all new buy-to-let purchases have been subject to a 3 per cent stamp duty surcharge since April 2016. 

Former Chancellor George Osborne announced the tax raid on landlords in 2015

Former Chancellor George Osborne announced the tax raid on landlords in 2015

Unsurprisingly, activity in the buy-to-let market has come down with property group Savills warning it’s beginning to see real signs of a slowdown. 

Landlords and buy-to-let specialists have been lobbying hard for the government to u-turn on the partial removal of tax relief as a result.

Angus Stewart, of buy-to-let mortgage broker Property Master, believes the Budget ‘is an opportunity for the government to press the reset button on the relationship between the state and an increasingly significant private rental sector’. 

‘My hope for the Budget is that Philip Hammond sees the private landlords who have chosen to make a strategic investment as part of the solution to the housing crisis rather than part of the problem,’ he says. 

‘I would like to see tax being used as a carrot and not just a stick, for example, if the government wants more secure, family friendly tenancies then why not offer tax incentives to landlords that choose to provide such agreements? 

 We should be incentivising landlords not punishing them further.                                               Paul Smith, haart

‘Similarly, tax relief could be used to encourage landlords to improve properties, for example, make them more energy efficient. 

‘Finally, the government could encourage landlords who do want to sell properties to sitting tenants by applying the new 20 per cent rate of capital gains tax in such circumstances, which would also be in line with the government’s home ownership ambitions.’ 

Paul Smith, chief executive of estate agency haart, meanwhile, reveals that his branch data shows there were 68 per cent fewer landlords registering to buy across the country in 2017 than there were before the stamp duty surcharge was announced in 2015.

‘We should be incentivising landlords not punishing them further. Another round of draconian measures will only see increased costs filtered down to the tenants – bringing us full circle and hitting those most in need – aspiring first-time buyers.’

Sajid Javid has previously hinted at incentives by way of tax perks for landlords offering longer-term tenancies. 

‘This would be one way for the government to start recognising that George Osborne’s income tax changes on rental income were too onerous without having egg on its face,’ says Boulger. 

‘However, not all tenants want a longer-term tenancy and so whilst making such a tenancy easier to obtain for tenants who want it is important, there needs to be recognition that signing up to a longer-term contract imposes additional obligations on tenants as well.’

ANALYSIS: WHAT WE WANT TO SEE 

Sarah Davidson, of This is Money

Sarah Davidson, of This is Money

There is always a lot of noise surrounding Budgets, especially when governments are desperate to win back political and public support, as this one most definitely is. 

Amid waves of sexual harrassment claims, cabinet member defections and unplanned shuffling of ministerial positions we are still in the throes of negotiating Brexit and Mrs May’s tenability as Britain’s premier looks increasingly shaky. 

This is perhaps partly why both she and Sajid Javid have come out all guns blazing on housing this week. 

It’s a deeply emotive subject for the UK electorate and it’s one we are all used to being let down on by politicians. 

That a win on housing could shore up confidence for May’s government is clear; that any policy announcements made on Wednesday will constitute a win is far less so.

There is so much that government could do to start the process of fixing our broken housing market, but I suspect they’ll do a little bit here and a little bit there and it’ll help – a little bit. 

It’s also entirely predictable that they’ll opt for the easiest soundbite on housing policy, rather than the harder sell that would actually make far more of a difference. 

Here’s what we at This is Money think is likely to happen and what we’d really like to see. 

What the government is likely to announce

1. A temporary stamp duty holiday for first-time buyers – this is easy to explain and plays to younger voters, a key target for May who has really suffered from Jeremy Corbyn’s popularity with this group.

However, this would be a waste of time and money if your objective is housing not winning votes. It will simply move the timing of housing transactions, most of which would have happened anyway. It also doesn’t address the lack of stock – if there aren’t homes for sale, stamp duty holiday or no, first-time buyers are stuck.

2. More funding for small and medium-sized house builders to help them deliver more new homes. Currently they’ve got £3billion. Times that by 10 and we could be in business. 

3. An extension of the Help to Buy scheme past 2021. Unlikely we’ll see more money committed to that at this stage.  

What the government should announce, but probably won’t 

1. Rejig the stamp duty thresholds to reflect the fact house prices have risen. This could be done nationally, but would help free up stock in areas where prices are particularly expensive. It could therefore be geographical. 

2. Offer downsizers a stamp duty holiday. Come on Conservatives, these are your core voters, support them. 

Also, bother to think through the logic that says older homeowners are staying in five-bed family houses rather than downsizing partly because they don’t feel like writing a £100,000 cheque to the Revenue. 

Remove that barrier and more of them will move, which frees up the whole chain. Younger families can move up the ladder, freeing up homes for first-time buyers. This would also be a massive boost to the wider economy. 

3. Incentives for builders, electricians and plumbers to take on apprentices. We’re never going to build more homes unless we train more people to do it.

4. Housing has been used as a political football for far too long and it’s the single biggest reason we don’t have enough homes in the UK. 

Year after year politicians promise to build, and fail, but because it takes years to get from plan to delivery on housing, those politicians are no longer in power so no-one is held accountable for the failure.

 Housing has been used as a political football for far too long and it’s the single biggest reason we don’t have enough homes in the UK

Bite the bullet and set up an independent housing commission that has government-set mandated targets for house building. Give it power and treat it as independent from party politics in the same way the Bank of England or Financial Conduct Authority is.

Make it responsible for meeting targets and hold it to account if it fails.

 5. Fine developers who landbank. Nuff said. 

6. Raise public money and build a lot more council homes – these can be affordable, shared equity, social rent – the tenure doesn’t really matter so much as the fact government pays for it. 

It’s an incontrovertible truth that private companies cannot – due to strict corporate governance protecting their shareholders – flood a market with supply, pulling prices down and hurting their profits. 

Relying on them to increase the supply of new homes without a financial incentive is idiotic and will fail. 

7. Review council tax. This is long overdue and the longer it’s put off, the more it’ll hurt. Grasp the nettle now. 

9. More funding for small and medium-sized builders and incentives for using modern methods of construction. Everyone knows this is how to speed up construction volumes, so put your money where your mouth is.

mortgage rates

 

 

Read more at DailyMail.co.uk


Do you like it? Share with your friends!


Comments are closed.