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Small cheer for landlords in Sunak’s latest Budget

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‘We want to turn Generation Rent into Generation Buy’, said Chancellor Rishi Sunak when delivering his 2021 Budget this week.

It contained an extension of the stamp duty holiday, but freezing of allowances for capital gains tax and inheritance tax. A more fundamental change to CGT rules, feared by many landlords, did not materialise.

Neither did the Chancellor raise income tax, national insurance or VAT rates.

‘We’ve nearly doubled the income tax personal allowance over the last decade’, he said. ‘We will of course deliver our promise to increase it again next year to £12,570, but we will then keep it at this more generous level until April 2026.

‘The Higher Rate threshold will similarly be increased next year, to £50,270, and will then also remain at that level for the same period.

‘But I want to be clear with all Members that this policy does remove the incremental benefit created had thresholds continued to increase with inflation’.

And, for two years from April 2022, the VAT registration threshold of £85,000 will remain unchanged.

Delivered against the backdrop of a 10 per cent contraction in the economy – the largest fall in over 300 years – and borrowing at its highest ever outside wartime, the Chancellor announced an intention to increase corporation tax to 25 per cent from 2023. But the 6 per cent increase will not apply to small business with profits of less than £50,000. They will benefit from a new ‘small profits rate’.

‘This means around 70 per cent of companies – 1.4m businesses – will be completely unaffected’, said Sunak. Further, taper relief will mean only 10 per cent of companies will pay the full 25 per cent rate.

‘It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover’, said the Chancellor.

Stamp duty and deposits

‘The housing sector supports over half a million jobs’, said Sunak, explaining his stamp duty measures.

‘The cut in stamp duty I announced last summer has helped hundreds of thousands of people buy a home and supported the economy at a critical time.

‘But due to the sheer volume of transactions we’re seeing, many new purchases won’t complete in time for the end of March.

‘So I can announce today the £500,000 nil rate band will not end on the 31st of March, it will end on the 30th of June.

‘Then, to smooth the transition back to normal, the nil rate band will be £250,000, double its standard level, until the end of September – and we will only return to the usual level of £125,000 from October 1st.

‘Even with the stamp duty cut, there is still a significant barrier to people getting on the housing ladder – the cost of a deposit.

‘So I’m announcing today a new policy to stand behind homebuyers: a mortgage guarantee.

‘Lenders who provide mortgages to home buyers who can only afford a five percent deposit, will benefit from a government guarantee on those mortgages.

‘And I’m pleased to say that several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95 per cent mortgages from next month, and I know more, including Virgin Money will follow shortly after.

‘A policy that gives people who can’t afford a big deposit the chance to buy their own home’.

Property industry reaction

Timothy Douglas, Policy & Campaigns Manager for Propertymark;

Extending the increase to the Universal Credit Standard Allowance and the furlough scheme until September will help tenants plan ahead but much more is required to avoid a mounting crisis in the private rented sector. As the impact of Covid continues to bite and unemployment rates rise, we are increasingly concerned about how tenants will avoid future rent arrears and landlords will remain incentivised to stay in the rental market. There is a real need for the UK Government to ensure a wider package of measures to help tenants and landlords keep the rent flowing.

Mark Arnold, CEO, Kensington Mortgages:

“The stamp duty threshold extension and phased reduction is great for those still transacting. However, we fear that there will merely be another cliff edge in September, as homebuyers rush to complete amid a flurry of activity, causing conveyancing bottlenecks. We hope that the Chancellor has still left permanent reform of the thresholds on the table, and that we are simply on a journey towards this. Even if the threshold was maintained at the £250,000 it would still be beneficial to all parties, including the Treasury. Research we commissioned suggests that a £250,000 threshold would deliver a tax surplus of up to £540m compared to the £125,000 level

Mark Gordon, director of mortgages at comparethemarket.com: 

Homebuyers with purchases in progress will breathe a sigh of relief because of the Chancellor’s extension of the stamp duty holiday. Our latest research shows three out of four homeowners, and two-thirds of first-time buyersbelieve a stamp duty holiday extension will benefit the property market. 

‘However, there’s a concern that the Chancellor may just be kicking the can down the road, since it is likely that there will be another rush to complete ahead of the new deadline.

Nigel Purves, chief executive of Wayhome:

The headline-grabbing 95 per cent mortgage policy is politically astute, but it is a band-aid on a bullet wound. The affordability issue for renters goes much deeper than the deposit. Mortgage lenders calculate their lending by multiplying household income – and with the average house price in England coming in at just under £270,000, it means that you’ll need quite a hefty household income to get a 95 per cent mortgage to afford to buy it. If the Government is truly committed to turning Generation Rent into Generation Buy, it must work together with the property industry to raise awareness of innovative ways to help people take their first step onto the homeownership ladder.

Kevin Mountford, co-founder of the savings platform, Raisin UK:

Lenders will benefit from a government guarantee on mortgages for those with a 5 per cent deposit, with many high-street banks offering 5 per cent mortgages from next month. It’s a policy the Government is introducing to breathe new life into the housing market. This will be welcome news for buyers who are struggling to save a 10 per cent deposit throughout the pandemic, and hopefully see more first-time buyers accessing the housing market before the end of the year. 

Tahir Farooqui, CEO of private rental platform Canopy:

House prices have become so high that turning ‘Generation Rent’ into ‘Generation Buy’ will take more than an extension to temporary stamp duty tax relief. While the tax holiday has done its job of stimulating the housing market during the pandemic, it has also prompted sellers to up their prices due to high demand. Introducing 95 per cent mortgages will help renters raise a deposit for their first home, but it doesn’t change the fact that securing an affordable mortgage is a pipe-dream for many.

One way to prevent getting stuck in the cycle of renting is to make rental payments count toward future homeownership by contributing to their credit score. Renters spend around £64k before they finally save up to buy their first home, and this is money that shouldn’t go to waste. Open Banking-based rent tracking is already helping people build a good credit score, which is critical to secure a mortgage. Support from the Government to advance affordable financial products may do more to help first-time-buyers than temporary measures to reduce the hefty upfront costs.”

Lee Pickett, partner and housing law specialist at global legal business, DWF:

Whilst this will be welcome news for the housing market, it will also be met with caution as it merely kicks the can of the withdrawal effect down the road a little. We have certainly seen developers concerned about unhappy customers who, through no fault of theirs, would miss out on the SDLT holiday due their new home not being ready for legal completion in time. Equally, various supply chain and labour availability pressures resulting from the pandemic and/or Brexit, are likely to be key factors in developers being unable to deliver homes before expiry of the SDLT concession period.

There is an alternative view that the market was functioning well enough when the SDLT holiday was introduced and it simply pushed up prices, removed the advantage first-time buyers had and reduced tax revenue at time when it is most needed. Perhaps the compromise might have been to distinguish between transactions and chains involving new build properties and those which only involve existing housing stock. That, however is not what the Chancellor has decided to do and perhaps that is to do with simplicity of application among other factors.

Sam Mitchell, chief executive of online estate agent Strike:

Buyers and sellers couldn’t have asked for much more from today’s budget and I’m sure many will be celebrating tonight – or perhaps just breathing a sigh of relief if they’re amidst a sale.

With the stamp duty holiday now running until the end of June, and the nil rate band rising to £250,000 until the end of September, thousands more will be able to benefit from the exemption. Plus, a mortgage guarantee scheme to encourage lenders to lend mortgages of up to 95 per cent will be a massive help to those with little in the way of a deposit.

‘Caution does need to be applied longer term to those looking to benefit from the stamp duty holiday and there is a risk that extending it will lead to people expecting it to be extended again. The same pressure we’re seeing currently will be on buyers and sellers to complete three months down the line – but a smoother transition back to normal rates will at least help to soften the blow for some.

Lending a hand to the property market is a great way of boosting our emptied economy, and clearly the government is sticking to its promise of turning generation rent into generation buy. Today’s announcements will no doubt stimulate feverish demand in the months ahead and could easily create the busiest boom we’ve ever seen.

Kevin Shaw, group managing director of residential sales at LRG:

The Stamp Duty Holiday extension is positive news for both the property sector and the wider economy. In the past year it has been a crucial boost for the UK economy, and the ongoing momentum will certainly help to increase public confidence in the post-COVID recovery.

At the moment, the property market is set to be stronger than initial forecasts have suggested and we expect Q2 to perform well. The Stamp Duty Holiday extension will certainly help with this, enabling buyers who didn’t get through in time to still take advantage of the reduction in Duty. While there is still the opportunity for buyers to move and take advantage of the reduction, it’s also important that anyone looking to sell starts the process now to have any hope of completing before the new deadline.