The Push For Home Ownership
|"Single buyers will be able to save up 3 years faster with the new lifetime ISA"|
A push for home ownership but at what price?
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Housing was by no means the headline of the Chancellors sixth Budget, but there were a few things, namely clarification on the stamp duty surcharge; change to capital gains tax; an improved savings scheme which will help first time buyers and some changes to the planning system which should help to unblock new supply. But there is also the context of a riskier economic outlook for the UK to contend with as expectation of economic growth have been revised down and the Chancellor’s cocktail of risks is still on the menu.
The three per cent surcharge was never going to be revoked, but the Chancellors speech made things worse for large landlords while only making small concessions to those who temporarily found themselves with two houses. The Chancellor removed the exemption from the surcharge for bulk purchasers and corporates, so everyone has to pay stamp duty at the higher rate if they are buying a property in addition to their main residence.
That might seem like a detail but it is an important shi in direction for the policy. The exemption was presumed to be a nod from government to support larger landlords, notably the development of an institutionally backed professional rented sector.
By removing the exemption George Osborne revealed that the stamp duty charge is indeed fully part of the government’s push for home ownership, rather than a tool to try to encourage change in rental providers. But the Chancellor was willing to double the length of time that people moving have to reclaim the surcharge if they have been unable to sell their existing property and temporarily own two. Rather then just 18 months buyers now have three years. That gives greater flexibility for large refurbishments and those who have difficulty in selling in depressed markets.
Capital Gains Tax
The Chancellor announced a cut in Capital Gains Tax (CGT) on all investments EXCEPT residential property and carried interest (money received by private equity and hedge fund managers). CGT is not charged on the sale of a main residence, only on second homes or investment property, but it is charged on second homes and investment property. From April 2016, the higher rate of CGT will be cut from 28% to 20% and the basic rate from 18% to 10%, but it will remain at the old rates for gains made on property.
The idea is to encourage more investment in business over property and it further reduces the incentive to invest in rented property, particularly with lower tax reliefs and wear and tear allowances coming up. This is another policy which leaves no doubt about the governments desire to shift investment away from property.
Planning has long been blamed for the slow reaction of new homes supply to demand. The Government is seeking to change this by trying to give greater certainty to developers in advance of making a formal planning application. In particular it is looking at a zonal and ‘red line’ approach where Local Authorities use their local plans to give a clearer indication of where development is acceptable in principle well in advance of a formal application. This comes on top of continued pressure on Local Authorities to reduce planning delays and to ensure they have a local plan in place by 2017.
The Government is still behind new garden towns and cities and will legislate to make it easier for local authorities to work together to achieve this, as well as looking at faster, clearer and fairer processes for compulsory purchase.
The new lifetime ISA (LISA) is significantly more generous than the existing Help to Buy ISA (H2B ISA) and should help new buyers save a deposit more quickly. There is a higher limit for yearly savings - £4000 v £2400 for the H2B ISA. And also no mention of a limit on the 25% government bonus for LISA whereas the H2B ISA is limited at £3000.
According to our research on the time it takes to save a deposit, this boost will mean single buyers will be able to save up three years faster in England & Wales and 19 years faster in London – a significant boost to affordability, especially if combined with a Help to Buy loan.
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