The UK Budget and residential property.
Overall, we believe the Budget proposals offer a promising mix of measures to stimulate much needed new housing supply, and a package of infrastructure improvements, without creating obstacles to increased institutional investment in the sector.
Despite a confident dispatch box performance, the Chancellor may be regretting his decision to reschedule the Budget to fall in the autumn rather than the spring, starting from this year. It was meant to give him the opportunity to chart a course for a smooth Brexit transition, against a background of a broadly agreed deal. The latest OBR forecasts, on which the Budget proposals are based, assume a Brexit deal is achieved. There is a risk, with the format of Brexit still unresolved, that some of the plans set now may have to be torn up in the months ahead if negotiations founder. Furthermore, the turbulent political climate means the necessary post-Budget legislation could face a choppy passage through parliament.
All this increases the likelihood that next year’s Spring Statement may prove a more meaningful guide to post-Brexit policy than the current Budget itself. This has been tacitly acknowledged with the promise of a full strategic spending review in 2019.
That said, record high levels of employment have supported higher than forecast tax receipts, giving Mr Hammond some welcome ammunition to boost public spending. However, he faces conflicting priorities: squaring the government’s manifesto pledge to eliminate the deficit by the mid-2020s, with the Prime Minister’s recent promise of an end to austerity. Lacklustre GDP growth, forecast to average an annual 1.5% over the next five years, will not make either task easy.
For the time being though, the government has sought to signal a change of direction from the sustained squeeze on public finances, with a larger than expected package of spending commitments. Politics has trumped prudence. In the process, the Chancellor may have exuded enough optimism in his speech to fend off a revolt from the critics in his own party.
The Budget confirmed a widely trailed increase in funding for social care, a less anticipated additional £1 billion for defence, an additional £400 million for schools and an additional £1 billion to ease hardship during the transition to the new Universal Credit benefits system. There was a re-announcement of the £20.5 billion commitment to increase NHS funding over the next five years, already agreed in June, and promises of additional funding were made to the Welsh and Scottish governments, and to the Northern Ireland Assembly.
Infrastructure investment is to be stimulated through an additional £7 billion pledged for the National Productivity Investment Fund to boost strategic road improvements, £675 million was set aside for high street improvements, and development funding commitments were made for the Northern Powerhouse and East West (Oxford – Milton Keynes – Cambridge) rail projects. Another eye-catching measure was a business rate cut of one third over two years, targeted at small retailers. The government has also moved to end the Private Finance Initiative – a Blair-era Labour initiative to promote public-private partnerships for major public projects, aligning the government with a current Labour Party policy.
A planned new source of revenue is a 2% Digital Services Tax on large technology companies, but only after a period of consultation.
Personal finances will receive a modest boost through the implementation of the increased Personal Allowance and higher rate tax thresholds a year earlier than previously planned.
While the main Budget measures will be widely covered in the press, those with most direct relevance to the residential property market include the following:
- Stamp Duty Land Tax will be abolished in England and Northern Ireland for all first-time buyers of shared ownership properties valued up to £500,000. The change is backdated to 22 November 2017, at a (small) cost of £5 million.
- The government will consult on a 1% SDLT surcharge for overseas buyers of residential property, also in England and Northern Ireland.
- £500 million will go to the Housing Infrastructure Fund, to support the development of an estimated 650,000 new homes.
- Local authorities will be able to borrow more to build council housing after abolition of the cap on their housing revenue accounts.
- It is planned to remove lettings tax relief from absentee landlords, so that it only applies where property owners share a home with their tenants.
- £291 million from the Housing Infrastructure Fund is targeted at unlocking 18,000 new homes in east London through improvements to the Docklands Light Railway.
- £653m is allocated for strategic partnerships with nine housing associations to deliver 13,000 new homes to 2022.
- An additional £2 billion funding has been allocated for the Affordable Homes Programme, also targeted at housing associations.
- Reforms are to be made to the framework for developer contributions to local services and infrastructure and affordable housing, to capture a greater share in the uplift in land values.
- Funding will be offered for “ambitious” strategic housing deals in areas of high demand.
- The “Help to Buy” scheme for first time buyers in England is to be extended from 2021to 2023, with regional price caps ranging from £186,000 in the North East to £600,000 in London. This time it is stated that no further extensions are planned.
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