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Budget plans could indirectly benefit first-time buyers – reaction

  • 06/03/2024
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Budget plans could indirectly benefit first-time buyers – reaction
Reducing the higher rate of capital gains tax (CGT) could encourage homeowners to downsize and landlords to sell up, perhaps inadvertently helping potential buyers, industry commentators have said.

In today’s Spring Budget, Chancellor Jeremy Hunt announced the higher rate would be reduced from 28 per cent to 24 per cent. 

The lower rate has been maintained at 18 per cent. 

Stamp duty relief on multiple dwellings is set to be abolished, as is the furnished holiday lettings tax regime. 

Lucian Cook, head of residential research at Savills, said this had “bigger implications for private landlords and second homeowners than current and aspiring homeowners”.

Cook said: “The abolition of multiple dwellings relief is likely to temper investment among landlords, while the targeted cut in capital gains tax (CGT) on residential properties may tip the balance for a few landlords who have questioned their ongoing investment in the sector.

“That won’t do much for rental supply, in combination with changes in rental regulation. But neither will it necessarily make it substantially easier for people to get on the housing ladder.”

Cook said with no specific measures for first-time buyers, these changes could speed up the restructuring of the BTL sector and lead to bigger, fewer mortgaged landlords and bolster stock for potential buyers.

Katie Pender, managing director of Target, agreed that while there was no direct help for first-time buyers, the measures “could indirectly help with affordability” by encouraging long-term lets and removing incentives for multiple property owners.


Missed LISA and stamp duty opportunities 

Despite this, some commentators criticised the “missed opportunity” to introduce stamp duty measures specifically for first-time buyers or reforms to the Lifetime ISA (LISA). 

Danny Belton, head of lending at Mortgage Advice Bureau (MAB), said the market was “back at square one”, adding that a 99 per cent mortgage would’ve been a “good step” towards helping prospective buyers. 

He said: “Focus now must shift to innovation in the market. Lenders must look at products that focus on rental track records and provide more options for first-time buyers.” 

Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said the lack of substantial changes to stamp duty was “bizarre”. 

He added: “It’s one tax that is so ripe for the change it practically fell into the Chancellor’s lap – yet he still missed it.”

Stinton said this was a “blow” to future homebuyers who now had just over a year to benefit from the temporarily reduced thresholds, adding: “Come April next year, the tax bill on an average-priced home is going to shoot up by £2,500, which means future buyers need to save an extra £208 per month to cover the difference.” 

Of first-time buyers, Stinton said they “weren’t even tossed a crumb and the silence around housebuilding is deafening. This Budget could have been an opportunity to present new innovative schemes which help buyers with affordability as well as saving for a deposit – but not even the bare minimum was done. 

“It’s not only incredibly disappointing, it feels like a big misstep on the Chancellor’s part. First-time buyers are the foundation on which the rest of the housing market stands. Failing to give them proper help is failing to help the rest of the market.” 

Rob Clifford, chief executive of Stonebridge, said all the talk of a 99 per cent mortgage or replacement for Help to Buy was absent from the announcement, and instead the policies set out to make property investment more expensive.

Clifford added: “Perhaps some will say this will indirectly increase property transaction levels and make these homes available to first-time buyers. That remains to be seen, however what it might also do is further reduce the number of homes available to rent, at a time when tenant demand remains incredibly strong – that is likely to mean further increases in rent levels.

Peter Stimson, head of product at MPowered Mortgages, said he would have liked to see greater incentives for first-time buyers to save with a LISA. 

This view was backed by Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, who said reducing the early exit penalty from 25 per cent to 20 per cent would entice more people. 

She also said the decision not to increase the property value limit would negatively affect buyers in London and the South East. 

Morrisey said: “This limit hasn’t budged since LISAs were introduced and yet house prices have surged. By leaving this untouched, the Chancellor hasn’t just made it more difficult for these people to get a foothold on the housing ladder, he has essentially kicked the ladder out from underneath their prospects.” 


Helpful for indecisive landlords 

Acknowledging the CGT could cause landlords to sell up, commentators said this may help them consider their place in the private rented sector (PRS). 

Richard Rowntree, managing director for mortgages at Paragon Bank, said the reduction in CGT was welcome, adding: “The move will hopefully increase fluidity within the property market, spanning both the owner-occupier and PRS, and mean more people will be incentivised to buy and sell properties in a way that best meets their needs and those of society more broadly.” 

Ryan Etchells, COO at Together, also welcomed the policy and said this would extend the market to “a new wave of buyers and property professionals”. 

He added: “This will offer confidence to those who have put off the option of downsizing, opening up more family homes and spaces for first-time buyers. This should provide the property market with a much needed shot in the arm.” 

Jeremy Leaf, north London estate agent and a former Royal Institute of Chartered Surveyors (RICS) residential chairperson, was unsure whether this would increase the supply of “badly needed” affordable homes. 

“The reduction in CGT could encourage even more BTL investors who were thinking of selling up to leave the market in case a Labour government increases CGT again in the future. This could further reduce the availability of rental property and push up rents, making it more difficult for tenants and young people in particular,” Leaf added. 

Rod Lockhart, CEO of LendInvest, said the reduction was “strategically positioned” to support the BTL market by lowering exit costs and improving returns. 

He said this could also boost housing stock for “first-time buyers, first-time landlords, and existing professional landlords looking to expand their portfolios.” 


Constrained rental supply 

Not all saw the upside, as Tomer Aboody, director of MT Finance, said encouraging landlords to sell could reduce the number of available rental properties and result in higher rents. 

Additionally, Mark Harris, chief executive of SPF Private Clients, disagreed that the CGT change would lead to a “flurry of sales” as landlords invested for long-term gains. 

Harris added: “Professional landlords are committed and not going to start selling because of a slight reduction in CGT. Perhaps, with rents so high, the last thing we need is a reduction in homes to rent anyway?” 

Neil Cobbold, managing director of PayProp UK, said the multiple dwellings stamp duty relief and changes to the non-dom status for property owners were not likely to “bring about the investment needed in new PRS stock to reduce rents in the PRS, and the lack of new measures to help landlords or tenants with their costs or tax liability could be remembered at the ballot box”. 

Cobbold said the changes to holiday let tax might encourage second home owners to rent their properties on a long-term basis instead, but questioned whether the PRS tax and regulatory changes would convince short-term let landlords.

Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), said the CGT plan was of little benefit to landlords who were forced to exit the PRS due to costs and taxation, particularly as the tax-free allowance for CGT was set to decrease from £6,000 to £3,000 next month. 

She said the Chancellor should have reduced the three per cent stamp duty surcharge on second and additional properties, saying it was an “added financial burden” on private landlords. 

Davies said the abolition of multiple dwellings relief was also a “surprising blow” to landlords. 


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