Budget 2017: Ray Boulger's Predictions
Posted on 15 November 2017 by
Stamp Duty must be overhauled in next week’s Budget to help young people get on the property ladder, the chairman of the influential Commons’ Treasury Select Committee has said – so in what is widely expected to be a budget that favours the young – we asked our expert Ray Boulger for his predictions.
Prediction One: Stamp Duty Land Tax
There are very strong reasons to expect an increase in the starting point of Stamp Duty Land Tax (SDLT) to be announced in the budget for England and Northern Ireland. Currently the starting point for SDLT in England, Wales and Northern Ireland is £125,000 but with housing being a devolved matter Wales is now joining Scotland in setting its own tax rates from 1 April 2018, and is also giving the tax a new name - Land Transaction Tax.*
The Welsh Assembly has set the starting point at £150,000 and in Scotland it is already £145,000. With average property prices in Scotland and Wales being lower than in the UK it is untenable for the starting point for this tax to remain as low as £125,000 in England and Northern Ireland.
Therefore, I expect the threshold for SDLT to be increased to at least £150,000. However, building on platitudes from the government about helping First Time Buyers, a really good way of targeting help on that demographic would be to increase the threshold to £200,000. Some adjustment to the other thresholds would also be needed.
The percentage of SDLT raised from properties sold at up to £200,000 is tiny and by tinkering with the rates charged at the higher bands the Chancellor could mitigate the otherwise small loss in revenue on higher value properties if he felt the need to do so.
The number of housing transactions in 2016 was still 26% below the number 10 years earlier, despite transaction numbers increasing in each of the last five years. This decline is even more marked when one factors in the increase in the number of homes available and the increase in the population over the last 10 years. Furthermore, transaction numbers in the first nine months of 2017 are 3% (26,000) down on the same period of 2016 and with the current flat housing market little, if any, of that shortfall will be recovered by the end of the year.
There is good anecdotal evidence that increased levels of SDLT have had a material influence on the number of property transactions. In particular, following the recent increases at the top end to 10% and 12% transactions above £2m have fallen dramatically, even before the 3% surcharge introduced last year on second homes and buy to let.
Every sale thwarted at the top end by the high level of tax means that other transactions lower down a potential chain also don’t take place. A 12% tax may not inhibit someone buying a £10m property but it will stop many potential purchases in the £1.5m - £5m range.
Reducing the rate of tax on properties up to £5m will not only increase activity in that price range but by those extra sales will facilitate the creation of chains and in some cases several other transactions which otherwise would not happen. This will not only increase the overall SDLT take but also stimulate other economic activity which will, e.g. generate more VAT receipts.
Therefore, when considering stamp duty changes The Chancellor needs to look at both end of the scale.
Prediction Two: Housebuilding
The number of homes built by major developers has now recovered to where it was 10 years ago but the number built by small and medium enterprise (SME) builders is still much lower. A key reason for this is that most of the major developers are awash with cash, whereas SME builders often still find obtaining finance a challenge and expensive.
The Chancellor, in conjunction with the Department for Communities and Local Government (DCLG), needs to find a way, perhaps through tax incentives, of encouraging more risk capital to be available for this sector to stimulate more activity. However, any increase in activity will accentuate the shortage of skilled labour, which is a separate problem difficult to deal with until the Brexit negotiations are finalised.
The Chancellor is likely to reiterate his pledge to find an extra £10bn for the Help to Buy second charge equity share scheme to help another estimated 135,000 people, 80% of which will be first time buyers, to buy a property. However, this additional money is needed simply to meet the significant extra demand on the scheme after London Help to Buy was introduced, with a 40% equity share.
If we assume an average purchase price in London of £500,000 and that everyone using the scheme opts for the maximum 40% equity share, £10bn is only enough for 50,000 properties, i.e. 10,000 p.a. from its introduction in 2016 to when the scheme is currently due to close in 2021.
With the very long lead times for home builders, with the time from land acquisition to the completed sale of a development often taking several years, more certainty required if Help to Buy is to be continued beyond 2021. However, the mortgage market has improved considerably since the scheme was introduced and the Government needs to find a way to extricate itself from being a mortgage lender. 85% LTV mortgages are now readily available, obviously subject to credit status and affordability, and the difference in rates between a 75% and 85% LTV mortgage is now quite small.
Therefore, I suggest The Chancellor should announce a two year extension of the scheme but also that the maximum Government second charge will be reduced to 10% outside London and 25% in London. This will still achieve the key objective of facilitating the sale of new build properties and be cost effective for purchasers by avoiding them having to pay the much higher mortgage rates charged above 90% LTV, but will be a first step towards the Government exiting the second charge mortgage market.
The Secretary of State for Communities and Local Government has hinted at incentives by way of tax perks for landlords offering longer-term tenancies. This would be a one way for the Government to start recognising that George Osborne’s income tax changes on rental income were too onerous without having egg on its face. However, not all tenants want a longer-term tenancy and so whilst making such a tenancy easier to obtain for tenants who want it is important, there needs to be recognition that signing up to a longer-term contract imposes additional obligations on tenants as well as landlords.
To get ahead of the changes in the housing market call our experts now on 0344 346 3672 or submit an enquiry here.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.