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Autumn Budget 2017: What to expect – analysis

  • 20/11/2017
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Autumn Budget 2017: What to expect – analysis
On Wednesday November 22, at 12.30 after Prime Minister's Questions, chancellor Philip Hammond will announce the details of his second budget.

Given the need to attract younger voters to the Tory base and the perennial woes of under-supply, the speculative limelight is on measures to tackle stamp duty and encouraging new build.

However, with a minority government, Brexit, tight public finances and economic uncertainties, expectations for a major housing overhaul – or radical moves in any area — are low.

Jeremy Leaf, a former RICS residential chairman and north London estate agent, said that while recent high-level housing industry meetings at No 10 and a succession of ministerial announcements indicate that “the government may finally appreciate why our housing market may be ‘broken’,” major moves are unlikely “while political and economic uncertainty prevails.”

So what can we expect from the budget?


Stamp Duty

Several changes to stamp duty could be on the cards as the tax is seen to be contributing to a property market slowdown.

In the 2016-17 period, the treasury raised some £11.8bn from stamp duty – but this has also dissuaded consumers at both ends of the spectrum from making moves, according to Rob Walker, head of real estate tax at PwC: “High stamp duty rates are dissuading people from upsizing and downsizing – affecting both ends of the market.”

“Simplification of the over-complicated taxation of residential property would be a welcome move,” said Walker.

A stamp duty “holiday” could be introduced for first-time buyers (FTBs), or a cut to the tax altogether — especially as the government is targeting the younger vote.

“Inter-generational fairness continues to be a concern for the Government, and the chancellor will be seeking out ways to help younger taxpayers,” said Iain McCluskey, PwC partner.

McCluskey added: “A stamp duty holiday for first-time buyers of homes costing up to a certain amount, say £450,000, would be seen as a much-needed concession for young people.”

However, whilst a stamp duty cut will help FTBs get onto the property ladder, it doesn’t address underlying issues, and would “only stoke demand rather than solving under-supply,” noted PwC’s Jane Forbes.

Old and Young

Cuts could also be in store for older owners to encourage downsizing, release homes and relieve pressure on renting households – because supply needs to be driven into the “pinch points” of the market, according to Richard Donnell, insight director at Hometrack.

“The government is right to target more supply but we should be looking to drive supply into the ‘pinch points’ of the market – homes for first time buyers and those looking to trade down the market.  This is the quickest way to supply homes that are in most need and start to make housing more affordable for a wider group of households,” said Donnell.

Jeremy Duncombe, director of Legal & General Mortgage Club, also said: “An exemption for some would help stimulate the housing market for new buyers, whilst allowing older homeowners to downsize and free up thousands of existing properties. If we can incentivise people to move by removing some of these financial barriers, we can address some of the bottlenecks choking up the housing market.”

Currently, stamp duty of 2% is slapped on any residential sales above £125,001 and up to £250,000. Transactions above this level and up to £925,000 must pay the tax at a rate of 5%. Purchases above £925,000 are taxed at 10% and from £1.5m buyers are charged 12%.


New Build

With the Prime Minister pledging to address the housing shortage by building “more homes, more quickly”, stakeholders are hoping for an injection of fresh strategies into the long-stagnating sector.

Property Partner, the online investment platform, thinks that the government “needs to build 300,000 homes per year, for the next ten years” in order to bring housing supply and demand levels back to the same balance as 2007 — a target that Hammond intends to meet in the budget, the chancellor revealed this Monday ahead of the official announcement.

Modern Construction

Building capacity could be addressed by encouraging the industry to embrace Modern Methods of Construction (MMC) such as modular housing, according to Craig Hall, new build manager at Legal & General.

“The government has expressed it is keen to embrace modern methods of construction, due to improved efficiency in both speed and precision,” Hall said.

He added: “Couple this with the potential impact Brexit could have on the availability of skilled labour in the UK, an update on the Housing White Paper’s proposal for a single accreditation scheme for MMCs needs to be considered.”

Green Belted

Yet, increasing construction efficiency is a platitude without having land to build on – which is why stakeholders are also hoping for a re-appraisal of the green belt to free up space.

“It makes no sense for derelict and unused green belt land to remain untouched when not enough homes are being built. The major parties pledged to protect green belt land during the General Election. That doesn’t mean concreting over the countryside but using available land as constructively as possible,” said L&G’s Jeremy Duncombe

New Players

New players might also be brought into the market by encouraging local authorities and housing associations to build more homes – which would not only improve supply but also stoke competition.

PwC’s Rob Walker added: “It has been mooted that some less verdant green belt land could be released for development, but a stronger possibility might be reforming compulsory purchase order powers to support local authorities to assemble land. Other options include relaxing the borrowing cap for local authorities, allowing them to invest in quality existing stock and deliver new social housing stock.”

“Allowing higher retention of Right to Buy receipts and more relaxed renting and borrowing rules by using housing revenues as collateral may assist,” Leaf suggested.

Indeed, the Mayor of London, Sadiq Khan, along with 21 London boroughs, wrote to the chancellor urging him to allow councils more powers to invest in new housing and release land for home building.

“We want to build more affordable homes, including new council housing – and Londoners are desperate for us to do so. But we urgently need Government to play its part by giving the capital the resources, powers, and freedoms we need to underpin a step change in what we can do,” said Khan.

“Archaic rules need to be reformed, a legacy of underinvestment needs to be reversed, and new powers need to be devolved,” he added.

Help to Buy

Given its successes in helping thousands onto the property ladder (particularly FTBs), the scheme might be extended to accommodate for developers’ long-term plans.

“Affordable housing offers little incentive for developers if they are not given enough funding or reassurance by the Government.,” said Duncombe.

He continued: “Help to Buy has only been guaranteed until 2021, and we expect to see an extension announced in the Budget. Coupled with more funding for local developers and a relaxation of some planning rules, all parties would benefit from greater certainty and it would incentivise more building programmes to be started.”

However, Leaf disagreed on exactly how much help can come from the Help to Buy programme: “It’s all very well encouraging Help to Buy, which is actually regarded more as ‘Help to Sell’ by many in the industry, but it should be complemented by more supply i.e. faster delivery of planning consents and infrastructure, especially on publicly-owned land. Viability assessments must be fair and seen to be fair for all concerned.”


Buy to Let

Owing to recent regulatory shifts in the buy-to-let (BTL) market, coupled with the numerous pressing issues on the agenda, expectations for further changes to the BTL sphere are low.

“It is unlikely that we will see any further attack on a buy-to-let market that has already taken several blows in previous budgets and since,” said eMoov.

Angus Stewart, chief executive of online buy-to-let mortgage broker, Property Master, commented: “I think that with issues like Brexit on the chancellor’s agenda which he’s trying to address, there are so many priorities that BTL may not be one of them.”

Stewart added: “However, the PM has stated that housing is key to her strategy, and I don’t think they can look at housing without understanding the impact and role of BTL landlords within the broader housing market.”

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