What does the Autumn Budget mean for the housing market?

As always there are winners and losers, with property investors potentially feeling the pinch and first-time buyers may be in line for savings on their first property.

First-time buyers

Probably the biggest headline from the 2017 Autumn budget is the new stamp duty rate for first-time buyers.

In his second budget as Chancellor Philip Hammond announced that first-time buyers will be entirely exempt from stamp duty on the first £300,000 of any property purchase up to £500,000, with the portion between £300,001 and £500,000 of such a property charged at the standard rate of 5%.

So a first-time buyer spending £204,000 (the average cost of a first home in the UK) will see their stamp duty fall from £1,660 before the budget to £0, while a first-time buyer spending the London average of £410,000 will now pay £5,500, down from £10,500.

The Treasury estimate that 95% of first time buyers will see a reduction in their stamp duty, with 80% paying no duty at all.

With these savings, first-time buyers will be able to put up a larger deposit, which they can use to qualify for a larger mortgage or to obtain a more favourable mortgage deal.

Some buyers could even find the savings are enough to finally put a house purchase within reach. However, the OBR (Office for Budget Responsibility) predicts that an 0.3% rise in property prices will result from this change, meaning property sellers could have more to gain than the first-time buyers who are the intended beneficiaries.

The rule change has taken immediate effect in England, Wales and Northern Ireland, but does not apply to property in Scotland as there is a separate system of land tax north of the border and any decision on extending this benefit to first-time buyers in Scotland rests with the Scottish Parliament.

In addition, the new rates could potentially be a very limited-term offer for buyers in Wales — authority over stamp duty on Welsh properties is due to devolve to the Welsh Assembly in March 2018, when they will decide whether these favourable terms for new homeowners will continue.

In addition, what may be good news for people aiming to get on the housing ladder, the Chancellor has pledged £15 billion to support the building of 300,000 new homes each year for the next five years, and to act to improve the availability of new land for home building.

Existing homeowners

There is little in this budget directly targeting homeowners, but with reductions in projected growth rates and inflation predicted to fall to the target rate of 2% over the following year, further interest rate hikes by the Bank of England have become less likely according to some City economists.

This will not necessarily affect mortgage rates, but it does reduce the risk of ballooning interest rates and, more importantly to homeowners, mortgage payments. And those planning to sell a property valued less than £500,000 could well find themselves attracting offers from first-time buyers taking advantage of the new stamp duty rate.

Those who own a second home in England could be facing higher council taxes on their holiday home.

Local authorities have been given the power to charge a 100% premium on the council tax bill for unoccupied properties.

This surcharge, raised from the current 50% rate puts English councils in line with those in Wales and Scotland, although it remains to be seen how many will take advantage of this new ability.

Divorcing couples

Couples in the midst of a divorce have at least one thing to be happy about following this budget.

In 2016, then Chancellor George Osbourne implemented a policy imposing a stamp duty surcharge of 3% on purchases of properties not intended for use as a primary residence.

This move, which was meant to target the buy-to-let market, had the unintended consequence of imposing extra costs on couples in the process of divorce.

When one spouse left the family home and needed to purchase a new property before the divorce was final, they were considered to be buying a second home and charged the extra stamp duty — amounting to an extra £15,000 on the cost of a £500,000 property.

In an effort to correct this error Philip Hammond has announced an exemption for people in this situation, although it is likely that a court ordered notice of separation will be required to take advantage of the new rule.

Property investors

Property investors will find little to enjoy in the new budget.

The Chancellor has introduced measures which will increase the capital gains tax paid by incorporated landlords—those who own their properties through a company— when they sell their properties.

At issue is the indexation allowance which, in effect, allows companies owning property to offset the effects of inflation when the tax due on the proceeds of sale is calculated. This allowance will come to an end in January 2018, and could be especially painful to long-established property investors.

In addition 'buy-to-leave' investors could be hit with the new council tax surcharge, and the stamp duty deal for first-time buyers could raise prices across the board — not ideal for those planning to expand their portfolio.

Home ownership was a key theme in this year’s budget – but while the headlines were arresting, many of the initiatives will require more detail before they can be completely assessed.

No stamp duty for first-time buyers

First-time buyers purchasing properties worth up to £300,000 will no longer pay stamp duty.

The Chancellor’s move is good news for buyers taking their first steps onto the housing ladder - in 2016, 340,000 first-time buyers had mortgages approved.

In London, first time buyers purchasing more expensive properties, will now get the first £300,000 free of stamp duty.

The Chancellor mentioned “London and other expensive areas” – we will need to wait for detail on what those areas are or how the list of qualifying areas has been drawn up.

As the measure is being implemented immediately, a list must presumably already exist. And if a couple is buying, must both be first time buyers or is it sufficient for one of them to be? As always with budgets, there’s a wait while the civil servants in the Treasury get the details out.

However, the BBC reports that 95% of first time buyers will qualify and that 80% of them will pay no stamp duty at all.

The problem remains that mortgage borrowers still need large deposits to qualify for a mortgage on their first property.

The Halifax stated recently that the average deposit paid by a first time buyer is £33,000 and this is a major stumbling block for many young people in modestly paid jobs.

Welsh and Scottish arrangements to be confirmed

The reduction in stamp duty will come into effect straight away in England, Wales and Northern Ireland. However power over stamp duty is being devolved to the Welsh government in April next year, so the Welsh will need to decide whether or not to continue with the Chancellor’s policy once they take control of stamp duty taxation.

In Scotland, power over the collection and levels of stamp duty is already devolved to the Scottish government, so it will be up to them whether or not they follow the Chancellor’s lead.

Housebuilding measures

Developers who have bought land and are holding it while its value rises may be subject to compulsory purchase of the land if they do not have plans for developing it.

It is not clear how the government would decide that a given developer fell into this category however.

Certainly, the Chancellor has his sights set on developers who apply for, and are granted, planning permission then fail to carry out the permitted development. He has initiated a review into the reasons for these delays.

Some of the Chancellor’s other measures are easier to implement, such as the power given to councils to charge double council tax on empty properties. Most councils won’t need to be told twice that they can do this.

There was a grant of £400m to upgrade housing estates and the work to bring strategic sites into development attracted a £1.1bn grant.

Of course, the big news for future homeowners and those struggling to get onto the housing ladder, was the £44bn allocated to the building of 300,00 homes a year, by the middle of the 2020s.

This measure was welcomed by many but was also criticised, in light of the failure to meet current, less demanding house building targets.

OBR says stamp duty abolition will boost house prices

The Office for Budget Responsibility (OBR) immediately warned about the effect of the stamp duty tax relief for first time buyers.

Reminding the public that there has been a previous stamp duty holiday, it pointed out that subsequent evaluation of that holiday had concluded that most of the tax relief simply fed straight through into higher house prices. It didn’t therefore improve affordability for first time buyers.

In a somewhat gloomy critique, the OBR points out that the number of first time buyers has recently increased from 40% to 45% of the total number of mortgages taken out.

It sees the Chancellor’s stamp tax measure as increasing house prices by about 0.3% and it expects this rise to happen quite rapidly.

Some first-time buyers may be able to borrow a little more, as they will now effectively have more deposit money. But they may be borrowing to buy a property that is more expensive than it would have been without the stamp duty abolition.

As always with the housing market in England and Wales, it is difficult for any Chancellor to avoid the law of unintended consequences when making changes to reliefs and taxes

Eddison Wells Financial are able to advise on a wide range of financial products. Providing the highest quality service at the most affordable price is a prerequisite and a firm ethos. If you’re thinking of taking your first mortgage, call now on 0800 808 9981 - a member of their team will be willing to help, and provide advice based on your own circumstances.