The Chancellor’s budget & the implications for the property market

March 2021

In this edition of the newsletter we take a look at the implications of Wednesday’s budget for the property market. The Chancellor’s speech was greeted as good news for the sector, with measures being announced that would both directly and indirectly stimulate the market.

Firstly, as widely predicted, Rishi Sunak announced the extension of the stamp duty holiday until 30 June. This was welcome news, not only for buyers who were struggling to meet the original March 31 deadline, but also for sellers fearing deals could fall through once the deadline passed. It has been estimated that almost 200,000 property transactions may be saved by the move. Buyers wanting to take advantage of the stamp duty relief now have an extra three months in which to do so. Even after 30 June, there will still be stamp duty relief on the first £250,000 of the value of a property until 1 October when the rate will decrease to its usual level of £125,000. It is hoped this tapering of relief will help avoid the feared “cliff-edge” of a sudden and dramatic fall in the nil rate band.

There’s no doubt that the stamp duty holiday has had a positive impact on the property market since its introduction last July. In the UK as a whole, there have been over 250,000 sales agreed in the last three months alone and 20% of these have been in the South East where buyers have made savings of £271 million in stamp duty. Given these positive figures, there are continued calls from the industry for the stamp duty system to be fully reviewed. This will be a topic to watch closely.

The extension of stamp duty relief is also a boost for property investors who, despite the 3% surcharge on BTL properties, can continue to make significant savings if they are looking to expand their property portfolios.

More good news for property investors came in the shape of the absence of an announcement about a rise in Capital Gains Tax. There had been speculation that, as part of a wider change to taxation, CGT could be raised to 40% for higher rate taxpayers to bring it into line with income tax rates. The fear in the rental sector was that this change would result in a dramatic reduction in the supply of rental properties as large numbers of BTL landlords sold up in order to avoid the new CGT rate. It would also act as a disincentive to new landlords thinking of entering the BTL market.

There is speculation that a rise in CGT is still on the horizon as the government looks for ways to reduce the enormous budget deficit the country has built up during the pandemic. However, for the moment at least, the rental market is breathing a collective sigh of relief.

The chancellor also confirmed in his speech the widely publicised Introduction of a new government backed 95% mortgage guarantee scheme. The scheme is designed to facilitate the return of the 95% mortgage which largely disappeared as the economy went into recession last year. The scheme provides government backing to cover outstanding loans if borrowers default on repayments. Lenders will no longer have to rely on rising property markets to insure themselves against losses caused by mortgage defaults and repossessions thus removing an obstacle to offering high LTV mortgages.

Although the scheme is primarily aimed at helping more firsttime buyers get on the housing ladder, the 95% mortgages will be available to any purchaser of a property up to a value of £600,000. And unlike the Help to Buy scheme, it is not restricted to new-build property.

Rightmove has calculated that obtaining a 95% mortgage would reduce the deposit required by a typical first-time buyer in Greater London to £31,000 and in the South East to £20,7000. The scheme seems a bold step. The government is in effect taking direct action in the property market to try to keep property prices high and avoid a fall in prices that too many forced sales of repossessed homes could trigger. Rising house prices are, of course, something of a mixed blessing for first time buyers. The Nationwide recently reported a rise in the UK annual growth rate of property prices from 6.4% to 6.9%. Buyers anxious to take advantage of lower deposits will need to act quickly before the benefit of the smaller deposit becomes eroded by increasing house prices.

Despite the scheme, buyers in London and the South East will still need healthy incomes to buy a property. Those in Greater London and South East would need an income of almost £100,000 or £85,000 respectively to secure a 95% mortgage using the current affordability tests. These were set in 2014 and there have been calls for it to be updated. However, with the current economic uncertainly, it is considered unlikely to happen in the short term and so it will remain difficult for younger people to buy property in London and the South East.

Finally, the extension of the furlough scheme until the end of September also spells good news for the property market. The scheme will continue to cover 80% of salary and further grants will be available for the self-employed. This continued income security will indirectly support the property market by reducing the risk of large numbers of homeowners defaulting on mortgages and the market being flooded with repossessions. The health of the rental market will also be protected as tenants covered by the furlough scheme will be less likely to ask for reductions in rent or payment holidays.

The recent budget is regarded by many as one of the most important in living memory as the government seeks to help the country recover from the economic turmoil caused by the pandemic. The measures taken to stimulate the property market is recognition of the important role it will continue to play in the UK’s recovery.

“Rightmove has calculated that obtaining a 95% mortgage would reduce the deposit required by a typical first-time buyer in Greater London to £31,000 and in the South East to £20,7000.”

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