Your Thoughts: Property & Stamp Duty in the Autumn Budget

In and amongst tomorrow’s autumn budget announcement from UK Chancellor Philip Hammond, questions have been raised regarding housing, property and first-time buyers.

The Help to Buy scheme is set to end in 2020, that’s just over two years away. So what does the future of the UK property conundrum look like?

This week’s Your Thoughts focuses on relaying the opinions of professionals and experts across the sector on the autumn budget’s outcomes on property legislation, build to rent, stamp duty and investment into the nation’s future.

Dominic Martin, Operations Director, Atlas Residential:

With the UK’s housing sector still racing to try and keep up in the face of supply outstripping demand, and many would-be first-time buyers renting for longer and longer, it will be interesting to see how the Government plans to tackle the current issues in the Autumn Budget.

It’s recognised across the board that our housing market has changed dramatically over the past two decades, with young people now increasingly unable to get a foot on the ladder. One positive outcome has been the emergence of the professionally managed build to rent sector, which is offering some outstanding accommodation options to renters of all ages and backgrounds, which is changing the way that we think about the relationship between where we live, where we work and where we relax.

The Government could certainly do more to promote the growth of the build to rent (BTR) sector and give families more choice over their accommodation options. For example, BTR is referenced in the National Planning Policy Framework, but omitted from the National Planning Policy Guidance. Therefore, Local Authority planning officers aren’t taking the sector into account in the way that they could and should be. We can but hope that the Autumn Budget recognises this situation and prompts the government to push forward the inclusion of BTR in the National Planning Policy Guidance.

Of course, radical reform is always risky and with the current uncertainty around the impact that Brexit will have on the housing market, the government does need to tread carefully. Despite that, there are a number of factors that could be improved upon. There is a desperate need to regulate and professionalise the estate agency process, from leasing to management. The government’s ‘call for evidence’ closes at the end of November and it would be a shame to see this push for professionalisation become mired in red tape thereafter. The IRPM have helpfully launched their BTR qualification, but the faster the formal consultation process can be carried out, the sooner the results can start benefitting the UK’s renters and ensuring that the BTR sector flourishes and professionalises in the way that it has the potential to.

It would also be great to see the Autumn Budget tackle the issue of development finance in order to help future proof the construction of sufficient levels of housing (both for purchase and to rent) in the UK. A government construction debt guarantee scheme would be one innovative way to stimulate growth in the sector, as happens in the US and helps underpin new ‘multi-family’ (BTR) development. Unfortunately, many lenders are still cautious when financing this asset class and to often lump ‘Build to Rent’ in with traditional ‘Build to Sale’, when they should be offering a product that recognises the different risk profile. Government support could make a significant difference.

Of course, while we’re wishing for things from the Autumn Budget, an early Christmas present would be the reduction or removal of VAT on operational cost items, including management fees, which would help improve the marginality of the BTR sector. This would further help the sector to compete for land against the major housebuilders in urban locations and ultimately deliver more homes. Forgiving the increase in Stamp Duty Land Tax (SDLT) on BTR property investments would also help the sector to compete on a more level playing field. BTR landlords are ultimately providing significantly better customer service to their residents and invest more in staff, training and so forth. It would be fantastic to see this recognised through some form of SDLT relief. But then Santa isn’t real is he….

If the government is serious about recognizing the changing shape of the housing market – in which private renters now make up the second largest tenure, one that is growing all the time – then it needs to ensure that BTR is able to live up to its full potential and contribute to a future where the housing needs of all UK residents are met, not just a few.

Lucy Brennan, Partner, Saffery Champness:

The property conundrum continues to be a real headache across the board. First time buyers are struggling to get on the housing ladder, existing homeowners are struggling to move or downsize, and all the while the public purse is missing out on stamp duty income.

At the top of the market, stamp duty levels for the most valuable properties continues to contribute to stagnation. A cut for pensioners looking to downsize is reportedly on the cards and may kick-start movement. At the other end of the spectrum, there is growing chatter around the idea of a stamp duty cut for first time buyers who are struggling with the burden of finding deposits and financing mortgages – particularly in London and the South East. With Help to Buy set to end in 2020, we can certainly expect the Chancellor to try and address the nervousness among younger people and indeed housebuilders who are having to hedge their bets against uncertain future demand.

Similarly, pensions seem to be in the Budget cross-hairs yet again. While slashing pensions relief has been mooted as a potential route to financing a cut to NIC for younger earners it is difficult to see whether the government actually has the ability, and political will, to roll out significant reform. One of the few options on the table is a potential cut to the fairly generous carry-forward system, but the potential returns for the exchequer are limited and the risk of alienating the Conservative’s core demographic may outweigh any perceived fiscal upside.

Stacy Eden, Head of Property & Construction, Crowe Clark Whitehill:

For the UK to keep up with changing economic conditions, the Chancellor should consider more frequent business rates revaluations and a broader look at real estate tax as part of tomorrow’s announcement.

Stamp Duty Land Tax (SDLT) has consistently been perceived by the industry as the biggest tax barrier to business growth, and reductions at the top-end would be widely welcomed. This would free-up liquidity in the market, which will ultimately increase housing transactions and sales. We may even find that it raises more money.

Additionally, I am looking out for the Chancellor’s approach to simplifying the planning process. He could reinvigorate UK house-building by freeing up more areas of green belt land. Investing in planning departments to try and get closer to house-building targets is of great importance. We are currently well short of targets and this is contributing to higher house prices in certain area.”

Rob Marchant, VAT Partner, Crowe Clark Whitehill:

While it may be an ambitious ask, I would like to see VAT law changes that encourage the residential build-to-rent market. If rental income is treated as zero-rated rather than VAT exempt, it would allow landlords to reclaim VAT on running, management and repair costs.

Consequently, a potential barrier to housing stock maintenance would be removed. Such a change would particularly benefit Housing Associations, which incur costs on cladding and other building repairs to their social housing, where the VAT is often irrecoverable.

Paul Fay, Property Tax Partner, Crowe Clark Whitehill:

A stable and competitive tax system is vital. There have been too many changes in recent years and these have negatively affected the market. We need a period of tax stability.”

An exclusion of the 3% second home surcharge from affordable private rental housing would encourage the provision of affordable housing for lower paid workers.

Simon Heawood, CEO and Founder, Bricklane.com:

It is welcome news that the Chancellor is considering helping first time buyers who are almost priced out of home ownership, particularly in London where average first homes now cost £428,526. Lowering stamp duty for new entrants would be positive but, even if it were removed entirely, it would not address the deep underlying issues that mean the average first home deposit required in London is now above £100,000. We need structural improvements to increase supply of the right types of homes alongside alternative ways of investing in the property market so that those who cannot yet afford to buy do not miss out.

Jason Harris-Cohen, Property Specialist and Founder, Open Property Group:

There is a lot of speculation that the Chancellor is drawing up plans to reduce or temporarily suspend stamp duty for first-time buyers, in a bid to help young people get on the property ladder. This would be a breath of fresh air at a time when stamp duty is almost £11,500 for the average first-time buyer in London, and would also encourage older people to downsize and free up cash for their retirement. At the moment this tax is disrupting the flow of the UK housing market though it is unclear whether any stamp duty changes will apply country-wide, should they be introduced tomorrow.

In addition, there is also talk of the Chancellor reversing the stamp duty changes that were introduced in 2016 for buy-to-let and second homes, though this seems less likely. It’s not unheard of for the Government to throw a curveball, however, and the Chancellor must be aware that this tax is currently deterring people from investing in the private rented sector. The longer it is around the more of a knock on effect it will have on the growing homelessness crisis, with the number of homeless in Britain already expected to double by 2041.

Mark Homer, Co-Founder, Progressive Property:

Still trying to rein back the support of younger voters from Jeremy Corbyn, the Government is under growing pressure to ease the path for first time buyers to buy their home.

Top of the list for the Chancellor is a cut in stamp duty specifically for this group, odds on favourite seems to be a reduction in the % payable on purchases whilst retaining the tiered non slab- sided system of the past.

Clearly also under pressure from the Treasury to retain stamp duty revenues which have risen sharply in recent years following a series of legislative reforms, a possible solution could

be a stamp duty holiday for buyers under a certain age or those that haven’t owned before. This would protect longer term tax revenues and indeed extend this to other areas of the market to combat the general slowdown in residential sales.

Further extension of the Help to Buy scheme is likely to have the biggest positive effect on younger buyers. It is widely accepted that a reduction in the deposit size required to obtain a mortgage would offer the biggest boost to first time buyers, even more than a stamp duty cut. With promises of cash for a large- scale building programme in the budget, done properly a widening of the scope for Help to Buy could only provide positive support.

Stuart Law, CEO and Founder, Assetz Capital:

Despite Theresa May’s recent vow to fix the “broken housing market”, the steps taken so far have been lacklustre at best. Simply introducing an extra £2bn for affordable homes over five years is just not enough, so we need to see something more radical announced in the budget to address the housing crisis. There is growing pressure from the Conservative party members, led in many ways by Sajid Javid, to implement new policies that could radically improve housing supply, but whether these ideas get through Phillip Hammond into the Budget is anyone’s guess at present.

One potential route to increased housing supply could come via a fundamental revision of the Greenbelt. If local authorities issued compulsory purchase orders of farmland directly next to villages and towns with population pressure and proven housing demand, there could be a huge new supply of housing plots in places people want to live. The funding for this could come from the Treasury under the existing funding line from the Public Works Loan Board. Having just moved Housing Association funding off the Government’s balance sheet, there is £70bn that could be redeployed for this right away.

One solution could be that farmers and landowners could be paid double the agricultural field value; at around £15,000 per acre, which obviously compares poorly to the hundreds of thousands, or even millions, that land with planning permission is valued at. By avoiding gifting large planning gains to landowners, local authorities could be able to pass on materials savings to renters and homebuyers by either developing new council houses themselves, using new Treasury money perhaps, or passing on land to developers with price controls to limit rents and house prices.

The profits that the local authorities could see would need to be modest and regulated, and would need to fund additional local infrastructure. Crucially, this would have to be achieved without increasing council tax for existing residents, relying more so on the new council tax income created by the addition of more housing.

The government needs to think this through carefully but it may well be achievable. If landowners don’t have the opportunity to contest the compulsory purchase order with evidence of materially reduced farm viability, this is likely to cause significant backlash.

However, if introduced carefully, these measures could help in areas that suffer unreasonably high house prices in comparison to the average income for first and second-time buyers. In addition, stamp duty for first time buyers up to modest house price levels should be scrapped.

We are entering a new political era, and although this would be a compromise, it reflects a new populist middle ground that the Tories, and indeed Labour, should take ownership of, or else a new ‘Socialist-Capitalist’ party may rise from the recent populist awakening, to take both of their places.

Ian Hobday, CEO, WAY Investments:

Although this sounds like a move that will help many young people get on the property ladder, the expected axe on stamp duty for first-time buyers, is unfortunately not as simple as that. With house prices as they are in the south of the country it’s the deposit that is the main hurdle when it comes to buying a house.

In the South West for example, the average house price is £208,004 meaning the current stamp duty tax is £1,660. Your average first-time buyer will still need to find a 10% deposit which would be £20,800. This figure is simply unobtainable for most young people and impossible to save for with high rental prices in this area of the country. As a result, many first-time buyers are now turning to their families for support and a leg up onto the housing ladder, this approach not only has benefits for the first-time buyer but for many can also help mitigate future inheritance tax issues. While every little helps for first-time buyers, families gifting money during their lifetimes will see them on the housing ladder much more effectively than axing stamp duty.

Claire Fallows, Partner, Charles Russell Speechlys:

The government acknowledges that there is much to be done to boost housing supply. A critical question is whether Theresa May has the political appetite to open up the question of the green belt. Claims that the green belt remains sacrosanct are disingenuous, given that numerous authorities are releasing sites from green belt allocation through local plan reviews. In light of that, a wholesale strategic review of the purpose and function of the green belt must be in the interests of the country and is long overdue.

At the local level, questions remain over whether the neighbourhood planning system is fit for purpose. Removing local control is likely to be politically unpopular, but too many communities spend valuable time and scarce resources bringing forward plans with limits on development that become quickly out of date when compared to housing needs. The government’s reforms proposed through the White Paper need to be accelerated, including a more straightforward approach to the relationship between assessments of housing need and its supply through local and neighbourhood plans.

Indeed, a planning system based on out of date development plans fails everyone. We can expect increased intervention from government, to push poorly performing authorities into making difficult decisions and allocating sites for housing. The government should consider carefully whether it will continue to call in applications where authorities have decided to grant planning permission contrary to neighbourhood plans.

The community infrastructure levy, and its relationship with section 106 agreements, also require overhaul. Delays are caused on larger sites whilst developers grapple with an overly complex system. Clarity is required as to the government’s preferred way forward, and transitional provisions should be introduced urgently whilst detailed regulation is worked up.

Planning permission is only the first step along the way – developers will only build what they can sell. Given continuing concerns around affordability, the government is expected to remain committed to Help to Buy in the short term at least. The house building industry will also be keen to understand the government’s longer term proposals for the popular scheme.

Developers and landowners require certainty as quickly as possible as to the government’s proposals for change. Whatever the announcements may be on Wednesday, it is imperative that the government makes available sufficient resources to push forward its reforms.

Chris Davies, Managing Director, DRS Bond Management:

To maintain growth in the UK economy DRS would hope to see local authorities given permission to borrow to expand affordable housing stock, perhaps in consort with Housing Associations, whose debts have just been transferred off the government’s balance sheet.

With interest rates set to remain below 2% indefinitely, Sajid Javid’s idea of borrowing £50Bn would trigger a surge in house building of 100,000 additional units a year. This could result in the requirement for a substantial number of Road and Sewer bonds, as well as Performance bonds, which DRS typically arrange without the need for tangible security.

We would also like to see the government press ahead with the pipeline of infrastructure projects. The civil engineering supply chain has resourced itself in anticipation of billions of pounds of capital expenditure for infrastructure being forthcoming.

As Construction contributes £1 in every £10 spent by UK plc directly and up to £1 in every £6 indirectly, it is a key sector of the economy and essential if economic growth is to be maintained. The requirement for surety bonds would be substantial.

Our expectation given the current volatility within government is that both opportunities will be largely missed, which would be unfortunate at best.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!