Hammond's housing measures fail to help landlords and older buyers

A key highlight of housing policy measures announced in Chancellor of the Exchequer Philip Hammond’s address was the widely anticipated extension of the Help to Buy equity loan scheme from 2021 to 2023.

Mixed reviews

The Help to Buy equity loan scheme was launched in 2013 and is open to first-time buyers, as well as those looking to move, but is restricted to new build properties.

From April 2021, the new scheme will be available for first-time buyers only, and there will be a price cap for properties eligible for the Help to Buy equity loan scheme from April 2021 to March 2023. In London, for example, Help to Buy will be capped at properties valued at £600,000 but in the North West a cap of £224,400 will apply. 

In the Budget documents, it confirms: "The government does not intend to introduce a further Help to Buy Equity Loan scheme after March 2023."

Kevin Roberts, director of Legal & General Mortgage Club welcomes the move. 

The scheme has had mixed reviews, with some accusing it of simply serving to massively inflate housebuilder share prices alongside the unintended consequence that some first-time buyers have been left as mortgage prisonersGemma Harle

“Not only do housebuilders now have more certainty for longer-term planning and building the thousands of new homes our country so desperately needs, but [extension of the scheme] also gives potential buyers who are saving for a deposit the peace of mind that they too can benefit from the scheme over the coming years.”

But Craig McKinlay, new business director of Kensington Mortgages, says while the scheme has been helpful in assisting thousands of first-time buyers, “it isn’t the only solution to the housing crisis”. 

With a Help to Buy Equity Loan the Government lends borrowers up to 20 per cent of the cost of a newly-built home, or up to 40 per cent in London, so the individual only needs a 5 per cent deposit, and a 75 per cent mortgage to make up the rest.

Gemma Harle, managing director of Intrinsic mortgage network, which is part of Quilter, acknowledges there will be some in the industry unhappy the scheme has not been scrapped altogether though.

"The scheme has had mixed reviews, with some accusing it of simply serving to massively inflate housebuilder share prices alongside the unintended consequence that some first-time buyers have been left as mortgage prisoners," she explains.

SDLT exemption 

In the Autumn Budget 2017, Mr Hammond introduced a five-year £44bn housing programme, and banned stamp duty land tax (SDLT) for first-time buyers on properties priced up to £300,000.

In this year’s budget, Mr Hammond announced he is abolishing the stamp duty for first-time buyers on shared ownership properties valued up to £500,000. 

This change will be applied retrospectively to first-time buyers who bought a shared ownership property since the previous budget. 

This Budget also saw the introduction of a surcharge of 1 per cent for non-residents buying residential property in England and Northern Ireland. 

In 2016, Mr Hammond’s predecessor George Osborne introduced a 3 per cent surcharge on buy-to-let landlords and anybody purchasing a second home. 

Simon Bath, chief executive of When You Move, says: “The stamp duty increase of 1 per cent for homebuyers who do not pay tax in Britain has the potential to work to the advantage and the disadvantage of the property market.

“With such high levels of property investment coming from East Asia in regions such as Birmingham, Liverpool and London, this could work to the detriment of the market."

Daniel Hegarty, chief executive and founder of digital mortgage broker Habito, notes: “According to the Office for Budget Responsibility, the cost of the SDLT relief for shared ownership to HMRC will only be £5m total, so this new policy is not that transformative.”

Downsizing properties 

While some welcomed the move to extend the stamp duty exemption to properties up to £500,000, many argue the exemption should cover older people looking to downsize. 

Helen Morrissey, specialist in long-term savings at Royal London, says: “While first-time buyers can buy a home, what of those further up the ladder who cannot afford to either move to a larger home to accommodate their growing families or those looking to downsize?

"We would urge the government to look at reliefs for those further up the housing ladder if we really want to free up the housing market.”

Richard Pike, marketing and sales director at Phoebus Software, agrees: “Given the massive increase in equity release in the past year why, with an ageing population, aren’t we doing more to help the older generation move down the ladder rather than continuing to make it cost prohibitive to downsize.” 

Lettings relief to encourage selling?

Buy-to-let landlords suffered another blow with Mr Hammond’s announcement that from April 2020 lettings relief will be reformed.

Lettings relief helps lower Capital Gains Tax (CGT) on the sale of a property that was at some point used as the seller’s residence but has since been let out as residential accommodation. 

Under the previous Private Residence Relief (PRR) system, the owner gets relief on the years they have lived in the home and on the last 18 months they owned the home, even if the person was not living there in that time period. This is now being lowered to nine months. 

Ian Dyall, head of estate planning at Tilney, notes: “The Chancellor announced that from April 2020 the Government will reform lettings relief so that it will only apply where the owner of the property is in shared occupancy with the tenant and that the final period exemption will also be reduced from 18 months to nine months.

He recalls: "Three years ago, George Osborne hit property investors hard by announcing an increase on stamp duty for second homes and limited mortgage interest tax relief. [This] announcement is another nail in the coffin for buy-to-let property investors.”

Lilla Dilliway, director of BlueWing Financials, thinks the reduction in lettings relief will not harm landlords though.

“In my experience, most people who share their home with a tenant do not officially admit it, so the rental income is unlikely to make it onto their tax return,” she points out.

Ms Dilliway adds: “As a result, I am not sure that people are even aware of this lettings relief, let alone make use of it. Overall, I would assume that the changes will only impact a relative minority.”

But Sam Mitchell, chief executive of HouseSimple, warns: "By cutting lettings relief and reducing the CGT exemption period to the final nine months of ownership, any homeowners who were thinking of let-to-buy as an option, will now have second thoughts as they'll likely face a much larger capital gains tax now if they do."

He adds: “And anyone who rented out their previous home, and has equity locked up in that property, will now be thinking it's best to sell sooner rather than later if they want to avoid a massive capital gains bill further down the line.”

saloni.sardana@ft.com