Next week’s forthcoming budget promises some interesting decisions from the government, Nicholas Barnes, Head of Research for Chesterton Humberts comments on what he would like to see come out of the budget speech from the Chancellor.
WHAT I WOULD LIKE TO SEE IN THE BUDGET
1. A SIGNIFICANT AND RAPID BOOST TO HOUSING SUPPLY
At the root of our housing problems is the chronic mismatch between supply and demand. We simply have not built enough houses since World War II (WW2) and our growing population means that this gap is widening.
The highest number of houses built in the last 5 decades was in the financial year 1969/70 when a total of 378,000 dwellings were completed across the UK. However, the annual average over this period was 225,000. Compare this to annual average population growth of 192,000 households – and a projected 266,000 over the period 2013-2021.
We urgently need more housing to dampen the price growth seen over the past 18 months. Moreover, affordability will become an even more pressing issue when interest rates begin to rise and the mortgage market becomes less favourable.
2. FURTHER SUPPORT FOR THE EXPANSION OF THE PRIVATE RENTED SECTOR
The Government has made encouraging steps towards making the private rented sector more ‘a tenure of choice’ rather than of necessity for many households. However, I would like to see the creation of a new order for “build-to-let”, with a regulatory framework which could provide an incentive for institutions to enter the market, as it would represent a distinct and tradable asset. It could also pave the way for the development of a stock of modern bespoke accommodation, professionally managed by financial institutions and other large investors. This would be easier to regulate because of its size and market presence.
3. CLARIFICATION OF THE RULES REGARDING THE INTRODUCTION OF CGT: FOR RESIDENTIAL PROPERTIES OWNED BY NON-RESIDENTS
In his Autumn Statement, the Chancellor announced his intention to impose Capital Gains Tax on non-UK owners selling their residential properties from April 2015. He also promised that a consultation paper would be sent out in early 2014 to assist in preparing the details of the new tax – which has yet to be delivered.
What is the likely impact of this measure? A possible outcome is that this will trigger a wave of sales before the extended tax is implemented. However, this is unlikely as the tax will not be applied retrospectively. Another scenario is that this may push non-residents towards enveloping their properties.
There are also suggestions that this will be viewed by overseas purchasers as yet another example of the UK becoming less attractive. However, I doubt this will deter foreign purchasers, for one thing, many other developed economies take this stance with taxation and the UK has other attractions.
4. MORE HELP FOR FLOOD DAMAGED HOUSEHOLDS
It would be a welcome gesture if the Government were to offer more substantial assistance to flood damage victims than just waiving council tax for a limited period of time.
5. INCREASE IN THE STAMP DUTY LAND TAX THRESHOLD RATE
I would like to see an increase in the point at which SDLT is applied to a level which more fairly reflects the average national house price (£168,356 in England &Wales as at December 2013 according to Land Registry). The current threshold starts at values in excess of £125,000. This would provide further assistance, albeit minimal, to those less affluent households struggling to buy their own home.
WHAT I THINK WE MIGHT SEE IN THE BUDGET AND ITS IMPLICATIONS
With a General Election a little more than a year away, we can expect a fairly benign Budget aimed at appealing to as wide a cross-section of voters as possible.
1. CURTAILING OR REMOVAL OF GOVERNMENT MORTGAGE SCHEMES
As the economic recovery gains momentum and households are becoming more confident about the future, attention is increasingly turning towards the possibility of overheating in the housing market. Much of the recent surge in sales transactions has been due to a very favourable mortgage market and it may be that the Chancellor will shorten or possibly end altogether some of the mortgage support schemes which have attracted criticism from some quarters – notably Help to Buy.
However, the housing recovery outside London remains fragile and by removing or reducing this support, many households who might otherwise have made that first step onto the housing ladder may find themselves excluded.
2. INHERITANCE TAX AND TRUSTS
The Government has already talked about changing IHT charges payable by property trusts, by proposing a flat 6% rate to the value of trust property in excess of the available nil rate band every 10 years, with a pro-rata charge applying where property is distributed from trusts.
3. CONFIRMATION OF THE CAPITAL GAINS TAX CHANGES ON FORMER PRIVATE PRICIPAL RESIDENCES
The Draft Finance Bill 2014 confirmed the Capital Gains Tax Private Residence Relief final period exemption will be reduced from 36 months to 18 months. This change will have effect where contracts for the sale of the property are exchanged on or after 6 April 2014.
WHAT I DON’T WANT TO SEE IN THE BUDGET AND WHY
1. MANSION TAX
Mansion Tax has been proposed by both the LibDems and Labour, although the Conservatives have so far resisted all moves in this direction. We would be opposed to it as it represents a shotgun approach which would not just catch the wealthy but would also hit those long term property owners who have seen the value of their properties rise but who are otherwise not wealthy in terms of earnings.
2. VAT ON PRIVATE SECTOR RESIDENTIAL RENTS
Although the administrative cost would be high, the revenue for the Treasury would be substantial, given that 18% of English households (ca. 4 million) now rent privately and the number is likely to grow. However, the cost of the VAT would push rents even higher at a time when rents are already becoming difficult for many.
3. FURTHER MEASURES WHICH DISCRIMINATE AGAINST FOREIGN BUYERS
In some prime London locations there is certainly a high proportion of foreign purchasers. In an increasingly global economic environment where cross border capital and labour flows are constantly rising, we should be thankful that London is a favoured destination for investors. Moreover, with major economies such as China and India expanding we can expect a further wave of outward investment which we should encourage, rather than bemoan, as the wider economy will benefit.
About Nick BarnesHead of Research – Chesterton Humberts
Nick has over 20 years experience within the property research arena, having worked for DTZ and Knight Frank before moving to Chesterton Humberts to head up the Research Department. His career has covered both the commercial and residential sectors in the UK and international markets and includes market research covering investor and occupier markets. He has additionally provided bespoke consultancy services for major investors, developers and lenders.
Nick is passionate about research, without which he believes it is not possible to take balanced decisions regarding any property transaction. It is his long term aim to try to help elevate residential property research up to the same standing as that of the commercial property sector.
Outside of work, Nick is equally passionate about sport and photography and is partial to the occasional glass of red wine!