I was pleasantly surprised at the Government Budget yesterday. It was inevitable we were going to see some tax rises to start paying for the costs of the pandemic, but Mr Sunak seems to have taken a pragmatic view and deferred the commencement of the tax rises until 2023. Given the expectation we’ll see a V-shaped recovery of the economy, this deferment should enable businesses to reopen and re-establish their cashflows before facing the prospect of higher taxes. I noticed the Stock Market and the pound didn’t initially like the tax rises after Mr Sunak sat down, but by close of business the markets had rallied, accepting the inevitable.
From a property perspective there wasn’t anything for me to complain about. The cliff-edge of 31st March for the ending of the Stamp Duty Land Tax (SDLT) holiday has now been removed. Our industry had been calling for that since before Christmas, and it appeared until recently we were being ignored. Some within our industry had hoped Mr Sunak would be more generous, and use this opportunity to reform SDLT completely. But we have to be realistic – the ‘holiday’ was only introduced to give a boost to the property market and keep some relatively Covid-safe aspects of the economy moving (apparently, every house move adds on average £37,000 to the country’s GDP). Mr Sunak knows this is not the right time to start re-inventing the wheel. Let’s get the economy working again, first.
What I hadn’t expected was the taper relief Mr Sunak introduced. The nil rate band of £500,000 has been extended to the end of June, but after that there is then taper relief with the nil rate band set at £250,000, until the end of September. Anyone buying a £400,000 property up to the end of June will pay no Stamp Duty Land Tax. If they fail to complete their purchase before the end of June but manage to complete before the end of September, the tax will be £7,500, instead of £10,000. I appreciate £7,500 is still a significant amount of money to pay in tax, but the £2,500 saving has to be better than nothing!
Many property pundits were expecting house prices to fall back from the 31st March if the ‘cliff-edge’ had remained in place. With the extension of the SDLT holiday and then a tapering relief until September the property market will be able to ‘adjust’ to the changes. I am not expecting house prices to drop at all now, especially with the Government’s plan to offer a guarantee to banks for 95% mortgages.
I recall back in 1979 when I first started as a trainee estate agent, Local Authorities provided guarantees/top-up’s for 95% mortgages. It was a time of ‘mortgage queues’, with many first time buyers having to wait 10, 12 and 14 weeks before being eligible to even apply for a mortgage. What Mr Sunak is proposing will, I assume, work in a similar way. The reintroduction of 95% mortgages will open up the property market to a new audience of buyers, who simply have not been able to save the 15% to 20% cash deposit needed for most mortgage products. With the average price of a property in England now over £210,000, buyers were needing £30,000 to £40,000 plus fees and expenses to be able to get onto the housing ladder.
I know many people, especially the younger element of society, have had a very rough time financially over the past year but I also know that many in secure jobs/professions have been able to save substantial sums each month during the lockdowns. I imagine many hopeful first-time buyers will now have well over £10,000 in savings enabling them to apply for a 95% mortgage. As a consequence, I’m expecting to see first-time buyer demand rocket in the next few months, subject to the fine-print of the 95% mortgages which become available.
Any 95% mortgages which are offered to the market are going to need to be at sensible rates of interest. We haven’t seen the detail of the loans that will be made available, and as always, the devil is in the detail. Most first-time buyers will be looking at 5-year fixed rate deals I suspect, wanting some security over their repayments in case interest rates rise. The current 5-year fixed rate offerings from lenders are at rates between 3.6% and 4.2%, but these are subject to 15% to 20% deposit. I hope the new 95% deals aren’t going to be at 5%+!
For those aspiring home owners who haven’t accumulated at least a 5% deposit by now, I would suggest you do everything possible to rectify that. With more money in the market for buyers, there’s only one direction house prices are going to go, and that’s upwards.
For those landlords in the buy-to-let market who have recently had a nasty shock with their latest tax bills, especially those highly geared having lost much of the benefit of tax relief on loans, don’t part with your property in haste! With demand for housing likely to shoot upwards in the next couple of years as the Government continues its policy of moving from Generation Rent to Generation Buy, you may miss-out on a sudden rise in prices and a windfall capital gain. I have no doubt Capital Gains Tax (CGT) is going to be reformed (it’s been on the Government’s agenda for some time now) but it was left alone in this budget). Any changes to CGT will be controversial, and although in theory CGT changes could take place in the March 2022 budget, I suspect it will be spring 2023 before any changes are actually implemented.
I am continuing to research all the above and will update our website and blog posts as and when I have new information.
– A blog post by Director Michael Moore