The housing market has stalled in the past few months, with buyers holding off amid Brexit uncertainty. House prices are currently rising at their lowest annual rate in five years, according to the latest release from the Office for National Statistics, while in London prices are falling. Some economists, including the Governor of the Bank of England, have said house prices will plunge by as much as a third if the UK leaves the EU on 29 March 2019 without a deal. Buyers are therefore reluctant to put their hands in their pocket if there’s a chance they could be trapped in negative equity in the coming years. It’s this fear that has caused the market to slow, along with other changes such as higher taxes for landlords.
Here are the announcements in Budget that could have an impact on house prices.
Stamp duty removed on shared ownership
Stamp duty has been abolished for all first-time buyers of shared ownership homes with a market value of up to £500,000. Those who bought a shared ownership property within the past year will still benefit, as the policy is being applied retrospective from the 2017 Budget. First-time buyers already do not have to pay stamp duty on properties worth up to £300,000, so the relief would be on anything above this.
Homes worth up to £125,000: 0% £125,001 to £250,000: 2% £250,001 to £925,000: 5% £925,001 to £1.5m: 10% £1.5m+: 12%
There is also a 3% surcharge for people who own more than one property, while first-time buyers do not pay any stamp duty on homes below £300,000. This could encourage more first-time buyers to buy a home under shared ownership, helping keep prices stable across the sector.
The Help to Buy scheme
Is also being tweaked. The scheme provides a Government-backed loan to people who want to buy a new-build home but cannot afford the required deposit. It was announced today the scheme is being extended from 2021 until 2023, and will only be available to first-time buyers between these two years. Budget documents said housing market conditions have improved since 2013, with a growing number of low-deposit mortgages available to help first-time buyers. Stamp duty has been abolished for all first-time buyers of shared ownership homes with a market value of up to £500,000
Extra stamp duty for overseas investors.
As trailed earlier this month, the Government is introducing a new tax on foreign property buyers. They will face a surcharge of 1-3 per cent when they buy a property in the UK, on top of the current stamp duty charges already in place. The new tax could dissuade foreign individuals and firms from buying property, particularly in the most expensive parts of London. This would reduce competition among buyers and lower prices. Around 13 per cent of all new builds in London are bought by people outside the UK.
An extra £500m is being given to councils, through the Housing Infrastructure Fund, to promote the building of 650,000 more homes. This will help ease pressure on supply, but some commentators are sceptical at whether the funding boost will have a significant impact. "The new funding and support for house building in both the private and social sectors are welcome but will take years to actually deliver any new houses," said Mike Scott, chief property analyst at online estate agent Yopa. The housing shortage has been the driving force behind rising property prices over the past decade. The Government aims to build 300,000 homes a year but is currently well short of this target. The Chancellor, Philip Hammond, also announced a consultation into planning reform. The plan is to allow housebuilders to build higher above commercial premises, and for it to be easier to demolish commercial buildings replaced then with homes.
Capital Gains allowance reduction
An issue that could affect homeowners is a rise in tax for people who rent out their homes. At the moment, the family home is exempt from capital gains tax. If someone decides to move out of their property and let it out to tenants - for example if they get a job abroad - they only become liable for paying the tax from the time they have lived away from the property. Every homeowner also gets relief for the last 18 months they owned the property, even though they weren’t living in it. This allowance is being reduced to nine months. Caroline Le Jeune, a partner at accountancy firm Blick Rothenberg, says: “Reducing the period that qualifies for relief once the owner has moved out from 18 to nine months is extremely unhelpful when the property market is so slow. This has the potential to bring genuine sales of family homes at least partly within the scope of tax." Under current rules, homeowners selling a rental property have to pay 18 or 28 per cent capital gains tax on profits they make (however, everyone has an allowance each year of £11,700 and people who have lived in the property at some point will also get a reduction).