John Charcol: Autumn Statement 2016 Analysis
Posted on 24 November 2016 by
Philip Hammond’s first and last autumn statement (the Budget will now be in the autumn with a spring statement) may have disappointed those who expected Prime Minister Teresa May’s “Jam”-focused government to provide a radical new direction from that of David Cameron. Despite the fact that when May came to power in July she stated that her focus would be on those who are ‘just about managing’, or Jams as they are have been named, yesterday’s autumn statement didn’t really signal a sea change.
Prior to the referendum, Hammond had warned of the dangers of Brexit, and so yesterday, with a half-smile, he stated that although the “economy was strong and resilient” there was a sobering £122bn hit to government finances that Brexit will have on the UK economy.
However, the autumn statement did contain some progressive measures, as letting agent fees for tenants were banned, plus there was a £6.85bn investment in new and affordable housing and the promise of a future white paper on the UK Housing market.
Below, our expert Ray Boulger analyse yesterday’s statement and the potential impact it will have on the UK housing market:
The Chancellor’s announcement of a £2.3bn housing infrastructure fund to build 100,000 new homes (£23,000 per home) in areas of high demand and £3.15bn for 90,000 new homes in London contained little detail.
Developers are normally required to pay substantial amounts by way of the Community Infrastructure Levy or a Section 106 agreement as part of a planning agreement in order to fund infrastructure improvements. They also have to include a proportion of affordable homes in all developments other than small-scale ones.
So there are many questions how this new £2.3bn infrastructure fund is going to be used. Will it be a loan to help developers’ cash flow? The major developers are already cash rich, and so don’t need this, but for many small and medium developers it could make a big difference. If it’s not a loan what will developers have to do in exchange? Offer a higher proportion of so-called affordable homes in their developments?
The statement was equally notable for what it didn’t say but we need to reserve judgment on these omissions until we see what is included in the Housing White Paper, expected shortly. For example there was no mention of the Starter Homes Initiative, which was first announced over two years ago with a claim 100,000 such homes would be built by 2020.
Many local authority planning departments are struggling to meet the statutory timetables they are required to keep and one of the biggest, if not the biggest, complaints developers consistently voice is of planning delays. Because planning officers have to consult with a wide variety of other departments in their own local authority and outside before determining a planning application or sending a recommendation to the Planning Committee, it is not a quick process.
However, developers have to pay a fee before their application is considered. Therefore, despite the financial constraints local authorities are under, lack of funds should not be an excuse for the planning process being so extended. Either the fees payable cover planning departments’ costs, in which lack of resource is not an excuse for inefficiency and more resources should be made available, or the fees charged do not cover costs, in which case they should be increased so that planning departments become more efficient.
A combination of releasing more public land for development and speeding up the planning process should be a key focus in the Housing White Paper.
Landlords told to pay letting agency fees
Although some letting agents play fair with tenants too many don’t, and charge unjustifiably high fees to tenants for things which should be the landlord’s responsibility. For example, unlike many letting agents, mortgage lenders don’t charge a separate fee for credit checks, which only cost a few pounds.
The balance of power is important here. If a tenant finds a property they want to rent they normally have no choice which letting agent they deal with. On the other hand landlords can choose whether to use a letting agent, and if so which one.
Therefore banning letting agents (which presumably will also apply to landlords who don’t use a letting agent) from charging fees should make the system more competitive with competition restricting any increase in fees to landlords. Increasing competition from online agents may also have the same effect.
Scotland has already banned letting agents’ fees and it appears to have had no identifiable impact on the level of rents. Other factors, such as landlords’ gross rental income being subject to income tax rather than net profit will be much more relevant in affecting landlords’ costs.
Bad news for Landlords For those in the buy to let market yesterday’s autumn statement may have come as a disappointment. There was no reversal of stamp duty charges for second homes or any cuts to the planned mortgage tax relief.
Some may have seen this as good news for first-time buyers as it could reduce competition in the starter home market, while others would argue that less activity in the buy to let market will mean fewer rental properties or higher rents for the ever growing population of renters – we’ll have to wait and see what the true impact will be.
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