Budget blues

Tony Ward

November 20, 2017

Tony Ward is chief executive of Clayton Euro Risk

We await the results of this week’s Budget from Chancellor Philip Hammond with some trepidation.

My bet’s on a bit of a damp squib. There simply isn’t enough money available for a bumper giveaway plus, with Brexit looming and the Chancellor’s position looking precarious, I can’t see that we are in for a barnstorming performance.

Budget 2017: The Budget in full

Ian Stewart, chief economist at Deloitte, said: “Anyone expecting fireworks from this Budget is likely to be disappointed. Politics and economics dictate that there’ll be no break with the commitment to eliminate the deficit and no big giveaways.”

PwC’s Iain McCluskey had clearly read the same memo: “The Chancellor will need to box clever to make an impact.” Erm, well yes.

So, what can we expect?

Well, Hammond’s main focus is expected to be on perceived inequalities, so we can suppose tax breaks for millennials funded by tax rises for the wealthy and a levelling of tax disparities between the employed and the self-employed.

So far, so predictable.

Looking at it through the housing lens, much trailed is the big announcement expected to help millennials to get on the property ladder.

A stamp duty holiday or a raising the threshold at which the tax kicks in – from £125,000 to £250,000 for first-time buyers – are both possible. Another move could be an extension of the Help to Buy scheme.

Interestingly, the Chancellor has also said the Budget will set out how the government hopes to build 300,000 new homes a year.

Yet the solution is certainly not just building new homes; it’s a combination of enabling people to move, freeing up housing stock and sorting stamp duty, which continues to vex me.

A new report from the Centre for Economics and Business Research (CEBR) suggests that stamp duty is preventing 45,000 house purchases a year. The study found that the number of home purchases blocked by the tax has doubled over five years, with first-time buyers, home movers and downsizers all affected.

If stamp duty had been removed in 2012, the report calculates that an additional 146,000 property transactions would have taken place.

And since 2016, people buying second homes or rental flats have been taxed an extra 3%.

But despite this, some 6,500 purchases of homes by owner occupiers worth less than £500,000, many of whom will be first-time buyers, are being blocked by stamp duty every year. Of these, around half are for purchases worth less than £250,000.

Paula Higgins, chief executive of Home Owners Alliance, said: “It doesn’t surprise me that stamp duty is impacting so many people trying to move up and down property chains.

“A break for first time buyers would be a clean move and would help thousands of renters onto the ladder. People desperately want to get on the ladder because the country is set up for homeowners, not renters.

“However, the government will need to think about preventing abuses and will probably have to install a cap at around the same level as the Help to Buy scheme. It should also go for a staggered approach to avoid distorting the market.”

Yes, agree to all of the above.

Previously, research from Lloyds Bank suggested that the proportion of new buyers paying the property tax has surged from 47% to a whopping 78% in 2017, so this needs looking at urgently.

But we need more.

While a stamp duty holiday for first-time buyers is a good start, it only solves part of the conundrum.  Regular readers will now how loathsome I find the whole concept of this property tax, and it’s not just the burden on first time buyers that concerns me; that’s only part of the story.

The imposition of the higher rate at the top end of the market is also problematic and has created a log jam which is impacting on everything below. It is a hindrance for older buyers, preventing them from downsizing and freeing up much-needed three and four-bedroom homes for families.

Surely, we need to free up the whole housing market so we can increase stock levels.

Miguel Sard, managing director of mortgages at Santander, which commissioned the CEBR report, said: “First time buyers struggle to get on the ladder, young families want to move up it and the elderly want to downsize, but all are stifled by stamp duty.”

Quite right.

And while I can’t see anything more than help for first-time buyers in the Budget proposals, wholesale changes to property taxes are needed to increase the supply of a variety of homes coming onto the market.

 

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