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Mortgage and property experts react to Chancellor’s Budget

by | Mar 6, 2024

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Following the Chancellors Spring budget announcement, mortgage and property professionals have shared their thoughts on how it may impact the industry.

Iain McKenzie, CEO of The Guild of Property Professionals, comments: “One of the biggest obstacles to owning a property over the past few years is a shortage of good quality housing.

“A reduction in rates for capital gains tax could encourage more landlords that have been considering selling up to put their property on the market.

 
 

“So long as landlords are willing to market their property at fair prices, we could see more people looking to get their foot on the ladder.”

Christopher Springett, Tax Partner at professional services and wealth management firm Evelyn Partners, comments:“In an announcement that came as something of a surprise, the Chancellor made a reduction in the rate of capital gains tax applying to residential property. Currently, CGT is applied at 28% on residential property at the higher rate, but for disposals from 6 April 2024, that rate of tax will fall to 24%. The basic rate for CGT on residential properties remains unaffected at 18%.

“In terms of the direction of travel with property taxation over recent Budgets, we are more familiar with increases than reductions.  The cut also goes against talk over the past few years that has centred around aligning CGT with income tax rates.

 

“The Treasury says that, ‘This will encourage landlords and second home-owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time’ – but it remains to be seen whether a 4 per cent change will achieve this desired effect.

“For those who are looking at property as an investment beyond their main residence, the CGT rate on residential property remains 4 per cent higher than the rate applied to most other asset classes, meaning that property investments do need to return more in terms of capital growth to ensure post-tax returns are competitive with, say, a portfolio of equities.”

Adrian Anderson, Director of property finance specialists said: “Today’s announcement of a further 2p cut to National Insurance by Chancellor Jeremy Hunt in his Spring Budget will be welcome news for millions, putting hundreds of pounds back in the pockets of employees and those self-employed. 

 
 

“Mortgage seekers will be especially pleased as interest rates, which remain high at 5.25%, same as at the Autumn Statement 2023, and the ongoing cost-of-living crisis, have made the banks’ affordability checks more challenging and any increase in an individual’s net pay will help their mortgage capacity. 

“The raising of the child benefit charge threshold to £60,000 will also help the net income position for many families and help increase some borrowers’ mortgage capacity.

“Whilst the National Insurance cut is positive news for workers, many of our clients looking to get onto the property ladder, and / or move home, will be disappointed that the Chancellor did not address calls for a stamp duty cut or change the property price thresholds for lifetime ISAs. 

 
 

“The Chancellor’s lack of action to tackle fiscal drag, which impacts everything from how much disposable income people have to mortgage affordability, will also be a real, continuing frustration for many of our clients.”

Damian Thompson, Director for The Mortgage Works said: “The Chancellor’s announcement of tax changes highlights the ongoing need for a comprehensive plan that covers all types of renting. The current piecemeal approach means we lack a clear pathway to tackle the range of complexities faced by both tenants and renters. By establishing a cohesive strategy for all tenures, the government would be better placed to implement policies that lead to more homes becoming available, help landlords offer long-term tenancies as well as support other economic activities. The private rental sector is crucial for the economy by providing homes to those who can’t or would not prefer to own a home.”

Sarah Hollowell, Tax and Trustee Services Director Killik & Co said: “The current FHL tax regime means that holiday lets are treated as a business for tax purposes.  So the profits are viewed as ‘relevant earnings’ (so you can make pension contributions), mortgage interest may be deducted in full from rents received, profits may be split with a spouse, capital allowances may be claimed on items bought for the FHL (such as furniture), CGT reliefs might be available on disposal.

 

“The reasoning behind the abolition of the regime is understandable. Some of the most popular holiday destinations in the UK have a large number of FHLs which has a significant impact on the local economy, with the population dwindling significantly in the winter months as the tourist trade declines, there are fewer properties available for locals to buy or rent, and given the attractive returns under the current tax regime, locals are often being priced out. 

“These developments mean that many FHL landlords could either just stop letting their properties and just keep them as 2nd homes, or sell up and move the proceeds into another form of investment.

“The loss of FHL benefits alongside the reduction of the CGT on residential property from 28% to 24% and the abolition of stamp duty relief for people buying more than one dwelling, could prompt an uptick of activity in the market as people exit their second properties or their FHL.”

 
 

Matt Spencer, tax partner at Kingsley Napley LLP, says: “It’s clearly true Multiple Dwellings Relief has been abused, but abolishing it feels like a sledgehammer to crack a nut. While this will end the abuse of spurious “granny flat” claims, it will also prevent some legitimate investors from investing. It will now be much harder to find an investor willing to buy those four flats above a parade of shops. The negative impact of this change, however, is greatly mitigated by the ability to claim commercial SDLT rates on purchases of 6 or more dwellings, and so bearing that in mind, the measures, on balance, seem a good thing.”

Shaun Moore, tax and financial planning expert at Quilter: “In a move that might be deeply unpopular amongst some core Tory voters Chancellor Jeremy Hunt has abolished the preferential tax regime for Furnished Holiday Lets (FHL). By aligning the tax treatment of holiday lets with that of other rental properties, the government might be able to raise a reported additional £300 million a year. This move could be seen as an effort to level the playing field between holiday let owners and private rental landlords, who have not been eligible for the same tax reliefs. But it will have some significant ramifications which may be both good and bad.

“Our calculations show that this could lose an average of £2,835 a year in a tax. The calculations are based on a property purchase price of £350,000, with an annual mortgage rate of 4.5pc and £20,000 rental income. For owners of holiday lets this could lead to a significant reduction in their net income. Should they lose the ability to deduct mortgage interest in full (in favour of a 20% deduction), alongside the potential increase in capital gains tax, this could make the holiday let business less financially attractive. This might result in a reduction in the number of properties available for holiday lets, which could impact local tourism.

 
 

“However, on the other hand for locals living in areas with a high concentration of holiday lets this could help them afford properties in their home towns which have gradually been pushed further and further out of reach by skyrocketing house prices out of kilter with the general house prices in the region or salaries for the area. By potentially reducing the number of holiday lets and addressing the imbalance between holiday homes and permanent residences, there could be positive effects on local housing availability and community cohesion.

Nicky Stevenson, Managing Director at national estate agent group Fine & Country: “Reducing the higher rate of Capital Gains Tax should inject some extra energy into the housing market by increasing the number of properties for sale.

“Teetering landlords unsure about whether to take the plunge and sell their property will be encouraged by this announcement. 

 

“This should offer hope for first-time buyers who are the foundation of the property market, but have been hit particularly hard by high interest rates.”

Henry Jordan, Nationwide’s Director of Home, said: “As an organisation whose purpose it is to support people into a home of their own, we are disappointed that the Chancellor hasn’t announced any substantial measures to support first-time buyers in today’s Spring Budget. Nationwide continues to call for a government-commissioned, independently-chaired review of the first-time buyer market – this is needed to help government produce a sustainable long-term strategy to support people hoping to purchase a property.”

Adam Oldfield, chief revenue officer at Phoebus Software, said: “That was a most underwhelming Budget announcement for the housing market, particularly considering it is election year. 

 
 

“At least this time round stamp duty got a mention, albeit a fairly token effort when you consider the echoing calls for bona fide stamp duty reform. Had the Chancellor decided to cut stamp duty for all buyers, from first-timers to next-timers to down-sizers, that could have been a real boost across the residential housing market.  

“Perhaps, though, it will be enough that the OBR expects inflation to come down to below two per cent in the coming months. We should then be out of recession, and hopefully that might trigger the Bank of England to drop interest rates, swap rates will settle, and the housing market will pick up again.”

Thomas Proctor, CEO at NCG, said: “Another budget, another example of the Government overlooking the commercial real estate sector. As an industry that supports as many as 1 in 12 UK jobs, it’s surprising that time and again it has been left out in the cold when it comes to support through public policy. While it’s understandable that the residential market attracts a lot of attention as the Chancellor looks to woo voters, it should not be a case of one or the other – this was a missed opportunity to offer support to commercial real estate.

“Axing April’s poorly timed business rate hike would have been a step in the right direction. Incentivising investment in improving the energy efficiency of commercial properties would have been another welcome step. Between market volatility and eye-watering interest rates, the sector has enough on its plate to be dealing with. It’s time the Government recognised the value of the industry – and, critically, actually took action to protect it.”

Toby Tallon, Tax Partner at professional services and wealth management group Evelyn Partners, comments: “Currently, many second home-owners and landlords who use the furnished holiday letting (FHL) regime can deduct the full cost of their mortgage interest payments from their rental income and, potentially at least, pay lower capital gains tax when they sell.” 

“We’re not sure yet when this will kick in, but it does seem to level the playing field with the tax treatment of long-term rentals so that for buy-to-let landlords there will be less of an incentive to opt for short-term lettings over renting to long-term residents. It’s obviously hoped this will help redress the balance in areas where there is a rental housing bottleneck for local residents and workers. 

“For second home-owners who like to make extra money out of their holiday home by putting it on AirBnB while they are not using it, it will simply make this a less lucrative ‘side hustle’. If that is a make-or-break issue for them and they don’t want to be long-term private landlords, then we could see some of these properties being sold.

“Recent changes to other areas of tax have benefitted FHL owners, which may have influenced the Government in its decision to withdraw the benefits. FHLs qualified for capital allowances, so the full expensing change last year increased tax deductions available to owners. During the pandemic, FHLs that paid business rates became eligible for grants targeted at small businesses. The rules to qualify for business rates rather than council tax were tightened in 2023.[2] For those registered for VAT, they were also eligible for the temporary reduced rate of VAT for hospitality businesses.” 

Stevie Heafford, Tax Partner at HW Fisher says: “Furnished Holiday Lettings (FHL) discourages landlords from putting their properties up for long-term rent. The removal of FHL should thus increase the amount of properties available for longer term rent which then makes more affordable housing available.” 

Paresh Raja, CEO of Market Financial Solutions, said: “In his attempts to woo voters before the upcoming election, the Chancellor missed a trick by not bringing forward more meaningful, positive policies for the property market. But we knew that was likely to be the case. 

“Cutting property CGT rates will be welcomed in some quarters. But elsewhere, after years of tightening regulation in the buy-to-let market, the Government has indeed now moved to put the squeeze on holiday lets. Ensuring there are ample properties available for local homebuyers in tourist hotspots makes sense, but it is regrettable that the solution is always to target investors and penalise landlords rather than boosting supply through greater investment into housebuilding.

“We also have to be alert to the fact that scrapping non-dom tax rules risks damaging the appeal of the prime London property market among international investors. Time will tell how plans for a shorter-term non-dom-style tax status might take shape, but given Labour was already pushing to scap non-dom status, we should not expect much relaxation in this reform. 

“That there was so little by way of stamp duty reforms, housebuilding commitments or ways of incentivising landlords to invest in their properties – particularly for energy efficiency purposes – was disappointing. It was telling that Hunt praised the Government for having overseen the building of 1 million new homes in this parliament, even though this figure falls well short of what is needed in a five-year period. Meanwhile, suggestions of new 99% mortgages did not come to fruition. 

“Ultimately, after two years of rising interest rates, today’s Budget would have been an opportune moment to bring about a string of policies and reforms to boost the property market. It feels like a missed opportunity.”

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