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Budget 2018: Offer CGT relief on landlord sales to drive FTB purchases – Pannell

by: Bob Pannell, independent economic consultant
  • 24/10/2018
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While remortgages and product transfers have been flying off the shelves this year, it has been a very different story for house purchases.


The number of movers is edging lower and first-time buyers appear to be treading water, according to the latest monthly figures from UK Finance.

Bank of England figures point to a modest pick-up in house purchase approvals, but this only returns us to where we were a year ago. Estate agencies testify to the absence of a post-summer bounce in buyer interest.

We don’t have to look far to understand the market’s torpor.

Although the jobs market appears robust, wages and salaries have been playing cat and mouse with consumer prices until very recently, and the resulting lack of growth in real earnings saps any feel good factor on the part of households.

House prices look fully-valued across much of the country, and policy interest rates (if not yet market rates) have begun to move higher.

Meanwhile, the political wrangling over Brexit creates both heightened uncertainty for businesses and households and an acute sense of domestic policy drift. In such an environment, sitting on your hands feels like a very sensible position to adopt.

There is an opportunity for the chancellor, Philip Hammond, to underpin the housing market when he presents his Autumn Budget on 29 October.

The minimum that the mortgage sector is looking for is strong reaffirmation of the government’s Help to Buy Equity Loan scheme, reassurance that it will continue in material form beyond March 2021 and details of any proposed refinements on eligibility.


Landlord sellers outstrip buyers

But there is also an opportunity for the chancellor to make sense of the buy-to-let measures introduced by his predecessor, George Osborne.

The restrictions in tax relief and extra 3% stamp duty liability have clearly tilted the market away from landlords. Since they took effect, the monthly volume of house purchases by landlords has averaged less than 6,000 – about half the previous level.

When the activities of all investors – not just those using buy-to-let mortgages – are looked at, the position looks even more negative. The latest analysis by Hamptons International indicates that landlords in aggregate have sold more properties than they have purchased so far this year.

While the change of tide for landlord investors is clear, there has been little obvious benefit for first-time buyers.

This may change as the reductions in mortgage interest tax relief continue to be phased in, but I would not hold my breath. A significant proportion of rental properties (nearly 40%) are owned outright by individuals who are unaffected by such tax measures (or may even benefit if supply shortfall drives rents up).

Even where landlords are directly affected and profitability is adversely affected, this may still compare favourably with alternative homes for their money. The government’s measures certainly shrink the appetite and ability of landlords to expand their portfolios, but they do not offer investors an attractive exit strategy.

The government could of course decide to ratchet up the financial pressure on landlords still further, but this would risk destabilising the landlord sector, tenants and the wider housing market.


Tax relief for ex-BTL properties

A better approach, and one advocated in recent papers from two think tanks – Onward and the Centre for Policy Studies – would be to introduce some capital gains tax relief for properties sold by landlords to tenants or other first-time buyers.

Although the details of the two proposals vary, the core idea in both cases, would be for the saving in capital gains tax to be shared between the landlord and buyer.

Both schemes purport to offer a win-win-win: an exit route for landlords; a means of contributing to the deposit needed by tenants to get a mortgage; modest or nil cost to the exchequer.

The basic idea is not new – the Residential Landlord Association advocated the use of capital gains tax relief a few years back – nor perfect.

But it may offer the chancellor a tempting – and relatively low cost – opportunity to build on last year’s surprise stamp duty relief for first-time buyers, which has so far failed to ignite first-time buyer activity.

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