Amidst concerns that Chancellor of the Exchequer, Rishi Sunak, was set to increase tax rates, there have been a number of pleasant surprises in today’s budget. We saw a subtle “fiscal drag” policy with regard to tax allowances and reliefs but no direct increase in income tax rates. Turning to the property market, there were numerous hopes and concerns regarding potential changes. So what do we know?
Stamp duty exemption extended
The Chancellor announced the much expected extension of the current stamp duty exemption period. The £500,000 “nil-rate band” will now be extended to the end of June with a further tapering of relief until September. As a consequence, no stamp duty will be charged on residential properties up to £250,000 in value until the start of October. This is obviously a welcome relief for the property market but will it have the desired impact?
Demand was starting to wane
There is no doubt that demand for UK residential property was starting to weaken ahead of the original, end of March exemption period. Many potential homebuyers had taken a step back awaiting what they hoped would be further assistance from the Chancellor. This assistance has been forthcoming and it is safe to say that many believe demand for UK residential property will immediately start to strengthen.
While some are accusing the Chancellor of “kicking the can down the road”, in reality, by the time the taper relief comes to an end the UK economy should be much stronger.
Guaranteed mortgage scheme
In a sign that the UK government has confidence in the short to medium-term recovery of the economy, we saw the introduction of a guaranteed 95% mortgage scheme. While much of the press focus seems to be on first-time buyers, the scheme is actually open to existing homeowners as well. All that would be required is a 5% deposit, and passing the mortgage affordability test, with the scheme covering property purchases up to a value of £600,000.
When you also take into account the tapered stamp duty exemption band, up to £250,000 until the end of September, buyers will be taking note. It is easy to forget that the previous nil-band rate was on residential properties valued at up to £125,000.
How does the guaranteed mortgage scheme work?
In effect the UK government will be guaranteeing the 95% mortgages offered by a growing number of recognised UK banks. This will encourage buying of UK residential property, pushing up demand and hopefully prices. As prices move higher, the threat of negative equity and mortgage losses will recede – in turn the government’s scheme heralded a success. That’s the idea anyways!
As well as access to mortgage finance with just a 5% deposit, those partaking in the scheme will also be allowed to fix their mortgage rate for a minimum of five years. This will give them a degree of certainty regarding future mortgage payments, allowing them to take advantage of historically low interest rates. It is also worth noting that while the UK government is effectively acting as “guarantor” for those banks offering the 95% mortgages, the government and banks are able to borrow at minimal interest rates.
So far so good…………
As we have seen in years gone by, the devil is always in the detail when it comes to budget day. We await full publication of the budget and will continue to monitor any changes which could impact the UK property market. However, it is safe to say that things could have been much worse for property owners and property investors.
Can you remember the last budget which did not involve an increased tax/cost for property investors? No, neither can we…………….
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