Hammond's house party falls flat for the mortgage market

Building on the strategies of recent years to encourage long-term savings among the nation’s youth and to help them on the housing ladder, the big-ticket draw in Mr Hammond’s Autumn Budget 2017 was stamp duty relief.

The government announced stamp duty land tax (SDLT) relief for first-time buyers on properties up to £300,000, or on the first £300,000 of properties of up to £500,000 in London and the south east.

This Budget pledge was definitely skewed towards the younger first-time buyer; those older Britons who may have considered downsizing to a property within those values and thought they might be in for SDLT relief will be disappointed. Downsizing is not included.

Responding to this, Steven Cameron, head of pensions for Aegon, says: “We would like the chancellor to go a step further and cut stamp duty for those downsizing or buying cheaper properties.

"This would have the double benefit of freeing up family homes for families while boosting funds to pay for retirement.”

Big buts

The SDLT relief for first-time buyers is good news on the face of it, and certainly marked the climactic end to Mr Hammond’s hour-and-two-minute long speech.

Yet as with so many headline-grabbing announcements, there is usually a big but to add. In this case, there seem to be two. 

First of all, the fact that house prices have risen so strongly, particularly in London and the south-east, means there simply won’t be enough properties lying within this £300,000 limit to benefit enough people.

Worse, the largesse of this Budget move to attract millennials might end up escalating the problem of high house prices. FTAdviser reported that even the Office for Budget Responsibility (OBR) believes the stamp duty boost will benefit sellers rather than buyers.

Mike Hodges, partner at accountancy firm Saffery Champness, explained: "The risk is that sellers will be tempted to negotiate harder on price if they know the purchaser is not paying stamp duty."

The abolition of SDLT is a response to the recent election’s ‘Canterbury kids’ in a bid to turn them back from Labour. Simon Blowey

The OBR also claims the abolition of SDLT could see house prices rise by twice the amount saved by the buyer, because it is a permanent measure rather than a temporary holiday. 

Moreover, the predicted savings might not actually be that great, when worked out on paper. 

According to Tom Selby, senior analyst at AJ Bell, the cut will not benefit people outside of London and the south east to the same degree, because of the high house price differential. 

He explains: “The saving based on the average house price for first-time buyers in the UK will be £1,654. However, this more than doubles in the south east to £3,839 and in London it would be £5,000. 

“Whereas, in the north, the average house price for first-time buyers barely exceeded the previous stamp duty threshold so the benefit for many people will be almost non-existent.”

Moreover, there is still the question of a deposit: with ever-stringent affordability criteria imposed on lenders and borrowers by successive legislation such as the Mortgage Market Review and the European Union’s Mortgage Credit Directive, many lenders still require a significant deposit.

Given estimates put the average deposit for a first-time buyer in the UK at £32,899, this means the the stamp duty saving of £1,654 will only represent around 5 per cent of their deposit.

Mr Selby adds: “While that will help, it is difficult to see how this is going to fundamentally change the affordability of house purchases for first-time buyers.”

Simon Blowey, director of financial planning at Brewin Dolphin, is less convinced by the ‘helpful’ nature of this first-time buyer giveaway.

He opines: “The abolition of SDLT is a response to the recent election’s ‘Canterbury kids’ in a bid to turn them back from Labour, as well as a centrist fillip for aspirational professionals."

Housing starts

To address the lack of affordable housing in the UK, Mr Hammond reiterated pledges made by former cabinet ministers and repeated earlier in November by the Prime Minister Theresa May, who stated that construction of homes was a priority for the government.

Previous reviews, such as the Barker review of housing supply in 2004, cited a need for 200,000 homes to be built. Even as recently as this autumn, the Department for Communities and Local Government's (DCLG's) 21-page report, Housing supply - net additional dwellings, England: 2016 to 2017, indicated a shortage in supply.

Moreover, a combination of exponential house price rises, tightening lending criteria and lower construction output has created a problem with supply and demand: fewer affordable homes means fewer millennials getting onto the property ladder.

Over the past 13 years, the number of 25 to 34-year-olds owning a property (outright or with a mortgage) has dropped from 59 per cent to 38 per cent.

Mr Hammond told the House of Commons: "Put simply, successive governments over decades have failed to build enough homes to deliver the home-owning dream this country has always been proud of."

He cited the coalition government's Help to Buy scheme, which has helped more than 320,000 people buy a home, and the 1.1m new homes built since 2010, 350,000 of which fall into the 'affordable homes' category.

He pledged at least £44bn of capital funding, loans and guarantees to support the housing market, to "create the financial incentives necessary to deliver 300,000 net additional homes a year on average by the mid-2020s".

Other pledges for housebuilding include:

• New money for the Home Builders Fund.
• £630m small sites fund to unstick the delivery of 40,000 homes.
• £2.7bn to double the Housing Infrastructure Fund.
• £400m for estate generation.
• £1.1bn fund to unlock strategic sites.
• A lifting of HRA caps for councils in high-demand areas to get them building again.
• £34m to develop construction skills across the UK.
• £8bn of new financial guarantees to support private housebuilding.
• Establishing an "urgent review", chaired by Oliver Letwin, MP for West Dorset, to examine the gap between planning permissions and housing starts.

However, commentators were disappointed by the headline-grabbing pledges which, in their opinion, have not gone far enough to help build more homes.

Gemma Penny, associate at city law firm DMH Stallard, says: “I am completely underwhelmed by that Budget from a planning point of view.

“It’s more of the same, and more waiting for the radical change needed.”

Peter Williams, executive director of IMLA, also agreed the measures announced by the chancellor “lacked the scale of ambition to really solve our housing problems” – a situation that cannot be offset by a reduction in SDLT for first-time buyers.

Mr Williams opines: “The political resolution to improve prospects for aspiring homeowners that has seen stamp duty abolished for the majority of first-time buyers will be welcomed by many but in practice it may simply inflate house prices even further. 

“Ultimately, there is a real risk that we will see a stoking up on the demand side at a time when there is already a severe imbalance in supply. The government is working hard to boost supply and is making progress. 

“We note that the 300,000 more homes promise has now slipped out to the mid-2020s and that it is for net additions rather than newly built homes.”

One of the more far-reaching changes is the extension of the taxation of disposals of UK property by non-UK residents to all gains on the disposal of interests in UK land and buildings. Mike Hodges

While he is glad the government recognises the need for a diversity of supply, including local authorities, and more focus on land holdings and garden towns, this is still not enough, in his opinion.

Mr Williams adds: “An underwhelming sense of déjà vu remains. In every Budget new housebuilding pledges are made, yet supply remains too low and prices unobtainable.

“When it comes to the success of the housing aspects of Mr Hammond’s latest Budget, the devil will be in the detail and in moving forward at speed. The clock is ticking ever louder.”

Buy-to-let

Polls on Twitter in the run-up to the Budget had predicted even more pain for landlords, given the recent form of fiscal announcements in favour of first-time homeowners and against later-life professional landlords. 

So it was a nice surprise, commentators say, to discover there were no further tax hikes on buy-to-let properties, nor a clamping down on investments such as holiday lets or student accommodation.

Now is the time to ask whether bricks and mortar are quite as secure as you thought. James Horniman

Tim Walford-Fitzgerald, private client tax partner at the chartered accountants HW Fisher & Company, comments: “Buy-to-let landlords could be forgiven for pinching themselves. For once they’ve not been the whipping boys of a Budget.

“After years of being portrayed as the villains of the property market, they’ve escaped further unwanted attention from a Chancellor who has instead chosen to focus on the housing market’s fundamentals rather than seeking scapegoats.”

James Horniman, portfolio manager at James Hambro & Partners, says while the Budget was relatively quiet on buy-to-let, there could be some side-effects to Budget pledges, which buy-to-let investors would do well to heed.

He suggests: "The commitment to building 300,000 homes a year by the 2020s could make a substantial difference to stemming rising property prices.

"Coupled with rising interest rates, it may be enough to prick the property bubble in areas like the south east, which in turn might encourage buy-to-let owners to sell up, releasing more homes on to the market.

"Certainly, now is the time to ask whether bricks and mortar are quite as secure as you thought."

Mr Hammond announced the launch of a consultation on barriers to longer tenancies in the private rented sector, in a bid to provide more security for renters, which might indicate more pressure on buy-to-let in the future.

Sting in the tail for empty properties

In the Budget, Mr Hammond also stated it was unacceptable to see so many properties lie empty, when there is a housing shortage.

In his speech to the House, he said: “I want to address the issue of empty properties.

"It can't be right to leave property empty when so many are desperate for a place to live. So we will give local authorities the power to charge a 100 per cent council tax premium on empty properties."

The current rules already allow councils the discretion to increase the council tax by 50 per cent where properties have been empty for over two years, and this new power doubles that potential increase.

On the face of this, it could pose problems for buy-to-let investors who are in the middle of renovating a property or seeking planning permission for the property from the council. 

Branding this move a “triumph of symbolism over substance”, Mr Walford-Fitzgerald says: “There is a grey area buy-to-let investors can use: the law indicates that a property is not subject to the premium if it is 'substantially unfurnished'.

"Where a property is furnished it is treated as a second home, even if no-one ever lives there. Whether this rule and the grace period allowed are changed as this new legislation passes through parliament is to be seen."

Moreover, the people at whom Mr Hammond is really targeting with this move – those overseas property owners who buy high-end properties and leave them dormant for a few years while the price appreciates – might not care.

Mr Walford-Fitzgerald adds: “For wealthy buyers who snap up UK property just to hold as a rapidly appreciating investment, the measure is likely to be an annoyance that will come off the bottom line rather than persuade them to let properties they see primarily as an asset rather than a home.”

However, the capital gains tax avoidance technique of using a company that holds UK property instead of selling the property itself looks set to be shut down from April 2019 as part of Mr Hammond’s tax crack down, which could affect professional landlords who have looked to mitigate higher tax through putting properties within a portfolio company.

You may have missed...

Within the volumes of documents accompanying the Budget announcement were several other measures, not least the moves to increase taxes for non-UK residents when they sell UK property.

Mr Hodges explains: "However, one of the more far-reaching changes is the extension of the taxation of disposals of UK property by non-UK residents to all gains on the disposal of interests in UK land and buildings."

At present the tax charge on non-residents is restricted to residential property only.

"While Budget day sees the launch of a consultation process, the key planks are fixed," says Mr Hodges. "The new rules will come into effect from April 2019 and will apply for both capital gains tax and corporation tax purposes. 

"The foreign ownership of residential property has been a matter of some controversy, especially in the London property market.

"Therefore, this is a significant – and somewhat unexpected – change, and only time will tell what impact it will have on the appetite for foreign investment in UK real estate."

The chancellor also delayed the introduction of the 30-day time limit for the payment of capital gains arising on the disposal of a residential property until April 2020.

Simoney Kyriakou is content plus editor for FTAdviser