Although many individuals may feel worse off than before due to tax or spending changes, the Budget has been relatively benign for the housing market.
The UK's emergency budget has turned out to be less threatening than expected and may even provide an indirect long-term boost for the private flat and house rentals sector.
These are the key reasons to remain upbeat:
-- Capital Gains Tax for higher income earners rises to 28% from 23 June. This is much better than the 40% and 50% predictions, and its immediacy avoids a spike in sales (and thus falling prices) in the period leading up to implementation. In effect, this takes us back to roughly pre-2008 CGT levels;
-- No CGT 'taper relief'. This is disappointing but it is a cloud with a silver lining. Some long-term investors will be deterred by not having CGT falling with the duration of their ownership; that deterrent may lead over some years to a reduced supply of lettings stock to meet demand, with upward pressure on rents as a result;
-- Higher VAT level not introduced until January 1, 2011. This gives a useful period for landlords to implement renovation or redecoration programmes for their units before the 20% rate is introduced in the New Year;
-- The 25% reduction in the budget of the Department of Communities and Local Government over the next four years throws into doubt a large number of housing projects, exacerbating the shortage of new homes. This indirectly boosts demand for private rented sector properties by those unable to afford or find social-sector homes to buy or rent;
-- Confirmation that Holiday Lettings Tax Relief will not be withdrawn. This is buried in the budget but is important to those investors whose portfolios included holiday lettings. The last government's threat to stop landlords writing off improvement work against tax has now been buried.
Reaction from the industry
Investors in London property have specific reasons to be optimistic as the most severe effects of the public spending cuts will be felt in the Midlands and north, not in London," says Anita Mehra, Managing Director of Benham and Reeves Residential Lettings, a London-based rentals agency with ten London lettings offices.
"With no dramatic increase in stock availability through forced sales, capital values will remain steady, thus suggesting that the current difficulties for first time buyers will remain -- a fact which inevitably boosts the private rented sector," says Mehra.
Stuart Law, Chief Executive of Assetz: "“Osborne’s Capital Gains Tax increase to 28% remains lower than the rates we had three years ago, of up to 40%, before Labour introduced the 18% rate. This move is not likely to have a negative impact on the UK property market as speculative investors are unlikely to sell off their buy-to-let property. Professional investors are generally looking for long-term benefits and the regular income rather than short term capital gains.”
Ian Potter, operations manager of the Association of Residential Lettings Agents: “The planned rise of CGT may not be as extreme as anticipated, but it still comes with little consideration for the needs of landlords. The Chancellor risks driving those landlords paying the higher rate of tax from an already very fragile housing market, at a time when they should be actively encouraged to stay and, ideally, invest further.
The Council of Mortgage Lenders director general Michael Coogan: "The effect of tax rises on household finances will dampen the already fragile recovery in house-buyers' confidence. This may be the ‘age of aspiration’ as the housing minister said recently, but there is a long way to go before the supply of housing, or the ability of would-be home-owners to achieve their aspiration, will show any significant pickup."
Jonathan Moore, director of easyroommate comments on the government’s announcement in the budget that it will review the stamp duty tax exemption for first-time buyers: “Removing the stamp duty break for first-time buyers would be a shame – but it doesn’t make much difference to first-time buyer finances anyway. Getting a mortgage is the key hurdle for first-time buyers.
Lenders still expect buyers to stump up huge sums of cash, requiring deposits of 25%, this is impossible for thousands of first-timers. A more effective measure than tax breaks would be for first-timers to incorporate flatmate income when lenders assess how much they can borrow. ‘Flatmate Mortgages’ would offer a real shot in the arm to the first-time buyer market, allowing the average first-timer to access an additional £11,000 for their mortgage.”
For more information go to Budget June 2010, housing.
