All the Budget changes you need to know
By Laura Miller -
Chancellor Rishi Sunak used his Spring Budget to scaffold the property market through the choppy next few months and beyond in a significant extension of previously announced support. But there was silence on increasing supply, a sting in the tax tail further down the road for businesses.
Stamp duty land tax holiday
The stamp duty holiday on the first £500,000 of a house purchase price has been extended for a further three months until June 30. After that the nil rate band will be set at £250,000 – double its standard level – until the end of September.
The original stamp duty holiday is expected to save homebuyers an estimated £1.5bn and with the extension in place this should increase to £2bn, with 360,000 transactions likely to benefit until the new June deadline, according to research by estate agents Keller Williams.
With the minimum threshold increasing to £250,000 until the end of September comes a further saving and a softer landing as the market returns to normality. Keller Williams calculated this equates to a further cut of £2,500 for those completing once the main deadline has expired.
Paresh Raja, CEO of Market Financial Solutions, said extending the stamp duty holiday is exactly what the property market needs. “Appetite among buyers remains strong, and it makes sense for the government to build on this momentum through targeted tax reliefs. I anticipate agencies and lenders will receive another surge of enquiries in the coming 24 hours, and this should lead to a rise in property listings.”
Last year saw a six-year high for residential price growth at 7%, partly driven by the first stamp duty holiday. Analysts predicted stable growth in 2021 of 1% to 1.5%. But Matthew Tooth, chief commercial officer at LendInvest, forecasted this will change following the Budget. “We can expect the extension to have a positive effect on house prices. Combined with the highly successful vaccination drive in the UK, we can now expect higher growth for the market over the next quarter,” he said.
With mortgage providers taking longer to process applications, however loan delays could increase the risk of transactions not being completed in time even with the extension. In the two months following the initial announcement of the stamp duty holiday on 8 July, a survey by MFS revealed 32% of prospective buyers had been denied a mortgage.
Matthew Cooper, founder and managing Director of Yes Homebuyers, a cash residential property purchaser, said market delays at present were “huge”. He added: “While a staggered return to normality is likely to reduce the impact of the current cliff edge, it’s still likely to bring a shower of transaction fall throughs and house price decline down on the market.”
Capital gains tax
Pre-Budget rumours the Chancellor would raise capital gains tax rates to equalise them with the marginal rates of income tax, which would in some cases see them double, proved unfounded. There was no announcement on changes to CGT in the Budget.
Phil Greaves, co-founder of student accommodation provider UniHomes, welcomed the non-event for Britain’s landlords. “Great news to see that for once the government has decided to ease the pressure on the throats of hard pressed landlords in recent years, with no increase in capital gains tax announcement and no further tax relief reductions,” he said.
Deterring landlords, he added, reduces the level of rental stock available to those reliant on renting a home. “Let’s hope the government has realised that without landlords providing the infrastructure that underpins much of our social housing they will end up with a rental crisis of their own making,” Greaves said.
95% mortgage guarantee scheme
The government is to offer homebuyers with small deposits a helping hand with a new 95% mortgage guarantee scheme for properties worth up to £600,000. Lloyds, NatWest, Santander, Barclays and HSBC will offer these mortgages from next month, with Virgin Money to follow shortly. Unlike other iterations of Help to Buy schemes the mortgage guarantee scheme is open to everyone, not just first-time buyers.
Guy Harrington, CEO of residential lender Glenhawk, applauded the extension of help to current homeowners, and for including older stock in the eligibility criteria. “For too long too many have been priced out of the market,” he said. First time buyers will find this measure “a game changer”, he added, as “the roots of the market and nurturing them will only benefit the rest of the housing tree”.
Estate agent comparison site GetAgent.co.uk has looked at how the mortgage guarantee could impact the market and where homebuyers are due to save the most. With the average UK house price coming in at £251,500, buyers purchasing a home with a 5% deposit instead of the average requirement of 15% are set to save £25,150.
London buyers will see the biggest saving, with the initial financial hurdle of a mortgage deposit cut by just shy of £50,000 on average, needing £24,803 as a deposit instead of the current average of £74,410. In the North West and Northern Ireland a reduction of 10% in the required mortgage deposit will save homebuyers between £14,000 and £15,000.
Haringey in north London is home to the biggest saving in the UK. With average prices at £568,561, just under the threshold, a 15% deposit needs a savings pot of £85,284. With the 5% government scheme this is cut by £56,856 to £28,428. Outside London, St Albans is home to the biggest saving; from £79,481 to £26,494; a saving of £52,987.
However Islay Robinson, CEO of high-net-worth mortgage broker Enness Global Mortgages, warned 95% mortgage products “take the market into pretty overheated, dangerous territory”. He said: “We’ve previously seen the results of this kind of precarious lending to those who aren’t really in the financial position to commit to it, and many lenders have already tightened their belts in terms of their high loan to value offerings”.
Although many big lenders have committed to the government’s announcement today, it will be interesting to see just how many buyers are able to secure such a product when it comes to actually applying, he said.
No new announcement on home building featured in the Spring Budget. Marc von Grundherr, director of lettings and estate agent Benham and Reeves, said rolling out a 5% mortgage guarantee to the whole market without addressing the need for more homes was “counterproductive”.
“While Help to Buy in its various forms has helped homebuyers to an extent, it’s also done a good job of pushing house prices higher and homeownership even further out of reach for many,” he said. It wouldn’t be so bad if the government also addressed the issue of supply, he added. “If you have trouble climbing the stairs you need to add a handrail, not increase the size of the staircase. However, the government has, yet again, chosen to do just this,” he pointed out.
In 2023 the rate of corporation tax will rise to 25%, but not for all companies.
Firms with profits of £50,000 or less will continue to pay corporation tax at the current rate of 19%. This will be around 70% of companies, 1.4 million businesses, according to the Chancellor.
Businesses with profits of £250,000 or greater will be taxed at the full 25% rate, around 10% of firms. There will be a tapered corporation tax rise for businesses with profits between £50,000 and £250,000.
The government estimates raising corporation tax by 1% to 20% would generate £3bn a year.
Beverley Wakefield, co-founder of Vibrant Accountancy, said: “It feels like the Chancellor has got this bit right. The challenge now for small businesses is how the economy holds up, and whether people spend. There is a huge amount of uncertainty ahead.”
Laura Miller is a freelance journalist who writes about money and business. She regularly appears in UK national and trade newspapers and magazines, and has previously worked for ITV News and the Telegraph among others. Find her on twitter @thatlaurawrites