The Chancellor of the Exchequer Rishi Sunak, who was appointed only a month ago, delivered the first Budget in over a year on 11th March.
While the coronavirus was the primary theme, with the Chancellor vowing to pump billions into the economy to combat its spread, there were also some interesting announcements and pledges related to the property market.
Here’s our summary of the key points that landlords, property owners and renters across the UK should be aware of.
Extra stamp duty surcharge on non-UK residents
The biggest announcement related to the property market was the 2% increase on Stamp Duty Land Tax for non-UK residents starting in April 2021. This is 1% lower than the previously touted 3%. The government said it will put the money from this surcharge towards reducing rough sleeping.
The stamp duty increase is expected to impact the prime London property market the most. It’s estimated that 13% of properties bought in the capital between 2014 and 2016 were bought by non-residents. The extra surcharge could lead to a shortage in rental properties as overseas-based landlords and investors look elsewhere. On the other hand, this could free up some competition for domestic landlords.
This announcement comes four years after former Chancellor of the Exchequer Philip Hammond brought forward the extra 3% stamp duty for those buying second and buy-to-let properties. With the new announcement, this will mean overseas investors who already own a property could pay up to 17% in stamp duty on the property price exceeding £1.5m.
Because of this, overseas landlords and investors are likely to move quickly to secure deals before the deadline next year. Across the property industry, there are mixed reviews on this new policy. Many property professionals feel there still needs to be a wider look into stamp duty and that reducing the burden of the surcharge on certain homebuyers and landlords could give the property market a boost.
Any relevant announcements for landlords and first-time buyers?
Prior to the budget, many property professionals expected to see more benefits brought forward for first-time buyers and landlords. However, Sunak didn’t mention the government’s proposed new First Homes scheme, which promised a 30% discount for first-time buyers, in addition to ex-service personnel and key workers buying in their local area.
There were also rumours that the stamp duty threshold would be raised for first-time buyers, but luckily this wasn’t included in the budget. There are still initiatives available for first-time buyers, including Help to Buy
, Right to Buy and the Starter Home scheme.
In the past couple of years, landlords have had to deal with a barrage of regulatory and tax changes
, and some have left the buy-to-let sector as a result. Landlords have to pay higher tax
thanks to the 3% stamp duty surcharge and the reduction of mortgage interest tax relief. And at the beginning of April, landlords will no longer be able to deduct any mortgage interest costs
Although the Budget didn’t uncover any new tax relief options for landlords, there weren’t any major blows either. Property investment can still be extremely profitable if you invest smartly, diversify your portfolio and make the most of the historically low interest rates.
What is expected to happen to house prices?
The Office for Budgetary Responsibility released its predictions for house price growth with Sunak’s Budget. According to their predictions, house prices will increase by 23% from the fourth quarter of 2019 to the first quarter of 2024. This is up from 17% in their previous forecast which is mostly due to stronger household income growth and lower interest rates.
Former Prime Minister Tory Blair’s recent housing report forecasts a 26% rise in property prices by 2030 if Conservative manifesto proposals are carried out and 200,000 new homes are built. This would be great news for landlords, property investors and homeowners looking to earn capital growth. A potentially significant increase in property prices could be an incentive for those considering investing in property to get in while both prices and interest rates are lower.
Read More: London Property Market Report And Forecast
Investing in the North of England
Increased spending on infrastructure in regional cities was announced in the Budget. Sunak stated: "We are also going to build better railways; with spades going into the ground for HS2, we remain committed to fund Manchester, Leeds and the Northern Powerhouse rail.”
Transport upgrades in the North of England are expected to bring more economic growth and investment to the region. Better connectivity is also likely to draw more people to the Northern Powerhouse, which will boost an already thriving property market.
The Chancellor also announced £600bn worth of investment towards infrastructure projects throughout the next five years that will spark additional regeneration of the North and the Midlands, create more job opportunities and stimulate the local economies. This could also increase property prices and demand in rental accommodation in cities across the North, such as Manchester and Liverpool.
Landlords looking for lower property prices and higher rental yields and homeowners searching for lower entry prices with opportunities to earn capital gains should look to the North.
Manchester and Liverpool are becoming property hotspots with opportunities to purchase houses below the £200,000 mark, and with strong levels of investment slated for both cities, prices and demand are expected to increase.
What’s more, at Portico we now offer Portico Portfolio, a service which enables landlords to make smarter property investments up north, using a company structure that maximises tax efficiency. We will create and manage bespoke northern-based property portfolios for clients, which will be specifically designed to achieve high yields through both long term and short lets.
Here’s an example portfolio we set up with a £600k budget and a target location of Liverpool:
You can find out more about this here, or give us a call on 0207 099 4000 or email !!!!firstname.lastname@example.org.
Read More: The Booming Liverpool Airbnb Market: Statistics And Predictions
Housing funding announced in the Budget
In the Budget, the government announced multiple pledges of funding to help tackle the housing crisis and build more homes.
- £650m to help rough sleepers into accommodation through purchasing 6,000 new living places
- £400 million for brownfield fund to support the development of new homes on brownfield sites
- A new multi-year settlement of £12bn will be given to extend the Affordable Home Programme
- £1bn Grenfell building safety fund to help remove cladding from buildings over 18 meters
Housing Infrastructure Fund of £1.1bn that will be used towards the building of 70,000 new homes in nine high demand areas.
Taxation changes and freezes
As tax has been a headache for many landlords in recent years, taxation changes and freezes are an important area to cover. Corporation tax will remain at 19%, while entrepreneurs relief will be lowered from £10m to £1m lifetime limit per person.
The threshold for National Insurance contributions will be increased from £8,632 to £9,500. This will save people just over £100 each year. The amount of income earned before entering the 20% income tax will be frozen at £12,500, and the threshold of £50,000 for when people pay the 40% rate of income tax has also been frozen.
In the 2020/21 financial year, private landlords, including those running their businesses as Partnerships or LLP’s, will not be able to treat any finance costs as business expenses. Instead, landlords will only receive a tax credit of 20% on their finance costs. This could push more landlords to operate their business as a limited company.
Read More: Should You Incorporate Or Form An LLC?
Reduction in interest rates stole the show
A few hours before the Budget, the Bank of England announced a reduction in interest rates with the base rate now at 0.25%, which is a cut of 0.5 percentage points. With interest rates back at the lowest level in history, these rates mean borrowing costs are lower.
Homeowners with variable and tracker mortgages should see their mortgage rates drop. Rates of new mortgage fixes are expected to decrease as well. This means it will be a cheaper time to get a mortgage or remortgage.
To cut your interest costs, we also recommend getting an up to date valuation on your property. Your lender will then need to recalculate your LTV. A lower LTV typically means you’ll get a better interest rate and have access to a larger selection of lenders.
If you have any questions, reach out to Portico Finance to help you learn more about your finance options. Drop them an email at email@example.com or give them a call on 020 7731 9860.!! Or, if you’re searching for your first home, give us a call on 0207 099 4000!! to find out how we can help.