The Autumn Budget – hopes and fears
John Goodall (pictured) is chief executive of specialist buy-to-let lender Landbay
As Budget day closes in, the rumour mill is in full swing.
Is ‘Spreadsheet Phil’ sharpening his fiscal axe? Or planning a giveaway through tax?
We won’t know the answer until lunchtime on Wednesday, but that won’t stop us speculating on the Chancellor’s next move.
If he does move, that is.
With a weakened government, and Brexit negotiations stalling, there’s every chance that Philip Hammond will play it safe this week, but by the same token, vote winning policies could go a long way to plaster over a challenging few weeks for the Conservatives.
Whatever else the Chancellor’s red box might contain as he enters the Commons, one thing is for certain, any changes to mortgage policy will hit lenders and brokers still acclimatising to a breathless couple of years of tax and regulatory change in the market.
From the stamp duty hike of 2016, to the PRA’s affordability changes in January and October this year, and the gradual removal of mortgage tax relief over the coming half decade, brokers have had plenty to deal with.
Nevertheless, rumours suggest we could be about to see more reform on the way.
First up, the potential cutting, or even scrapping, of stamp duty for first time buyers.
Figures out last week from the CEBR suggest that stamp duty is currently preventing 45,000 house purchases a year, with first-time buyers, homemovers and downsizers all affected by the punitive transaction tax.
No doubt the £8.9bn revenue stream is a big ticket item on the Treasury’s balance sheet, but the damage it does to the mortgage market can’t be understated.
Not only does it unfairly target certain parts of the country, such as London, where property prices frequently surpass the £925,000 and £1.5m mark, with homeowners here taxed at 10% and the highest rate of 12% respectively, it also discourages the free movement of people around the country into houses that fit their family.
A reduction in the level of stamp duty is never going to solve the governments housing conundrum, but it will surely lead, almost overnight, to an increase of activity in the house-purchase market, removing a sizable barrier to entry for tens of thousands of first-time buyers.
With more people able to afford a house, mortgage demand would rise, so brokers hoping for a seasonal slowdown over the holiday period should be prepared for a possible spike in business over the coming weeks.
On the topic of stamp duty, many in the buy-to-let industry would welcome the removal of the 3% surcharges imposed on those purchasing second homes but Hammond is unlikely to volte face on such a recent tax hike in this Budget.
In fact, with first-time buyers benefiting, there’s an outside chance the Chancellor will turn up the heat once again for buy-to-let landlords.
Such a move would, I believe be a mistake, pushing up rents for tenants and cancelling out any relief from stamp duty removal.
There is also talk of incentives for longer-term tenancies. There’s little doubt that longer, more secure, tenancies in the private rented sector would benefit tenants subjected to rogue landlords.
While some tenants may prefer the flexibility of short-term tenancies and access to these should be ensured, almost a third of the country’s private sector tenants are families that are looking for stable housing to support them on the path to home ownership.
Landlords unable to remove tenants or increase rents during a fixed term tenancy would provide more security for tenants, increasing their chances of putting together a deposit to own a home one day.
For landlords, this would surely also reduce the risk of void periods, so this could be a rare win-win for the Chancellor, so long as the incentive is carefully thought through.
There have also been whispers of plans to release land owned by public bodies for further housing stock, in a bid to increase construction on brownfield sites.
This would make planning permission easier to obtain, ensure that fewer potential housing sites are land-banked, and hopefully encourage the rise of more new builds.
An increase in house building is essential because, put simply, there are not enough homes available to meet demand.
Without such a boost to supply, any changes that increase demand, such as the mooted stamp duty cut, would only serve to further inflate house prices.
Yes, tax reform and government schemes to give a leg up to first time buyers will improve access to housing in the short term, but without a radical housing plan, prices will continue to rise over the coming decades.
All in all, we’re not expecting fireworks for the sector on Budget day, but there’s enough in the rumours to suggest brokers should be keeping an ear to the ground.