Key industry figures say the upcoming announcement is a chance to bolster activity in the housing market, which has slowed in recent months largely as a consequence of the previous Chancellor’s tax changes.
Mortgage interest relief, greater support for SME developers, capital gains tax, are among just some of the top issues that property groups, firms and individuals have outlined among their main requirements, but ahead of next week’s announcement, it is stamp duty reform that is top of the UK property industry’s wish list for when Hammond delivers the Autumn Statement.
Reverse stamp duty changes
Stamp duty reforms announced by George Osborne have slowed the housing market and raised half as much money as the Treasury predicted, it has emerged, and so it is unsurprising that there are calls for the new Chancellor to review the tax.
The Exchequer received £370m less in stamp duty than the £700m it expected following major changes made by Osborne, fresh analysis reveals.
Saul Empson (right), director at Haringtons UK, said: “In the first year of the new taxes, they have cost the Treasury £370m, and the second year will be bigger still. But that is the tip of the iceberg, as there is no easy way of calculating the impact on the businesses that surround property, and the loss of revenue for the exchequer from them.”
The government’s recent stamp duty reform has led to a sharp fall in property sales which experts say has cost the economy close to £1bn due to the reduction in the number of people selling homes which has had a knock-on reduction in demand for services such as removals or renovations.
“Disproportionately high stamp duty levies introduced in the last two years have done considerably more damage to the market, its associated industries and the supply of new homes than anything else, including an impending Brexit,” said Edo Mapelli Mozzi, CEO of Banda Property, who would like to see the government “kick-start the market” with a temporary stamp duty holiday, by cutting the tax by 50% across the board.
The fact that there is no stamp duty charged under £125,000, then 2% up to £250,000, and 5% up to £925,000, may have helped activity levels at the lower to mid-segment of the housing market, but the 10% levy to £1.5m and 12% above that has had a negative impact at the top-end of the market, best illustrated by the slump in home sales and prices in London’s prime areas.
“No one in the industry needed a crystal ball to see that George Osbourne’s raft of taxes would help 98% of the country to buy homes while destroying the turnover of all other types of residential property transactions, namely seven figure purchases and second homes and investments,” said James Robinson, general manager at Lurot Brand.
The case for cuts
Fresh analysis by Oxford Economics has found that the changes to the stamp duty system had led to 1,950 fewer sales of properties worth more than £1m and, indirectly, to the loss of 14,000 jobs.
“A cut in stamp duty above £1.5m is a must,” said Alex Newall, managing director at Hanover Private Office. “There is a bottle neck in the market stopping people moving house. It is not good for tax receipt, nor the movement of the labour force around the UK.”
Robin Paterson, joint chairman & CEO of United Kingdom Sotheby’s International Realty, says that he would like to see stamp duty halved from the 5% threshold upwards, as this would enable the Treasury to benefit from an increase in transactions and the market would receive a much needed boost.
Paterson said: “It is no secret that the country market has been stifled by these changes, with little movement in the last two years. Increasingly, the London market is also suffering as the cost of property is so expensive regardless of stamp duty; hence the Londoner is simply prohibited from buying.”
“There’s a nervousness that the market [in prime London] has fallen by 10-20% and a lot of buyers simply will not pay 10% stamp duty in a falling market,” he added.
Back in 1991, former Chancellor Norman Lamont suspended stamp duty to kick-start sales, and that is something that the existing Chancellor may wish to consider doing now, according to Jason Rishover (left), CEO, Heronslea Group.
“Something needs to be done to get the market moving again across all prices brackets and all regions, especially with Brexit looming next year,” said Rishover.
Stamp duty surcharge
One way to help get the market moving again would be to amend or abolish the 3% stamp duty surcharge on buy-to-let properties and second homes.
Following a stampede of buy-to-let activity earlier this year ahead of the introduction of the higher tax on additional homes in April, fewer investors are now adding to their property portfolios.
“Six months on since the stamp duty changes on second properties and buy-to-let continues to operate at lower levels than a year ago,” said Paul Smee (below) of the Council of Mortgage Lenders.
The latest seasonally adjusted monthly figures compiled by the CML show that the amount buy-to-let landlords borrowed fell on an annual basis, dropping 22% year-on-year to £2.8bn in September with the number of loans falling 6% from the previous month to 18,200 and representing a decline of 26% on September 2015.
“The increase in second home stamp duty has noticeably deterred investment,” said Jonathan Stephens at Surrenden Invest.
“Although the private sector is now the biggest provider of rental homes, sales have slowed throughout the summer season.”
A plethora of property professionals would like to see the 3% stamp duty surcharge on second homes scrapped.
Spencer Botchin, director at Sandfords, commented: “Since the new legislation was introduced in April 2016, it has proven to be unreasonable, particularly for people wishing to save money. Banks are not offering great interest rates so people have been looking to invest their money elsewhere, but the surcharge is making this much more difficult.”
Carol Peett (left) of West Wales Property Finders hit out at the current stamp duty system for being “completely ill thought out”, a view shared by many, including Richard Bernstone, director at Aston Chase, who would like to see Hammond “consider scrapping SDLT altogether” and replacing it with a ‘measured’ land transfer tax payable by the vendor”.
Eddie Goldsmith, chairman of The Conveyancing Association, is among those that accept that the slowdown in the UK economy will hit tax receipts and leave the Chancellor with little wriggle room for giveaways.
But he does believe that next week’s Autumn Statement represents “a pivotal moment for the UK housing market” because the “anti-landlord and investor policies” introduced by Osborne, coupled with the Brexit vote, has led to something of a “perfect storm”, which if allowed to continue could “reduce transaction levels to rubble for many months to come”.
He added: “It may be too much to hope that the 3% extra charge on additional property stamp duty will be abolished, but such a move – as well as a u-turn on next year’s mortgage interest tax relief changes – would be most welcome.”
Tax relief changes
Some 440,000 basic-rate tax payers will be forced into a higher tax bracket from April 2017 once planned changes to landlord taxation comes in to force, according to the National Landlord Association (NLA).
As many of you will know, the existing rules that permit landlords to offset all of their mortgage interest against tax will, from April 2017, be phased out, restricting the amount of mortgage interest landlords can offset against tax on their property investments.
By April 2020, once they have been withdrawn altogether, the disastrous consequences of Section 24 will mean that it is likely that higher-rate tax payers will only receive 50% of the relief that they currently get, with various experts having already warned that landlords will be left with little alternative but to pass higher costs on to tenants.
The NLA has been lobbying the government over the taxation changes, and earlier this month launched an e-postcard campaign (below) to encourage landlords to do the same, urging them to outline the damage of what the trade body refers to as the ‘Tenant Tax’ by sending the e-postcards directly to the Chancellor and the Treasury, ahead of the Autumn Statement.
Richard Lambert, chief executive officer at the NLA, said: “Despite more than a year’s worth of campaigning, the Treasury still won’t accept the disastrous impact that Section 24 will have on landlords and their tenants. It seems that all our words and figures haven’t got through to them, so we’ve decided to make it as clear as possible – by drawing them a picture.
“With the Autumn Statement just around the corner, this provides the perfect opportunity for landlords to make their voices heard, and to relay the message that the proposed tax changes will only make housing problems in the UK worse.”
Amid reports that many buy-to-let landlords plan to increase rents to offset tax hikes from April next year, James Davis, CEO and founder of Upad, fears that tenant defaults could soar because many renters will struggle to meet inflated rent prices.
Davis (below) said: “Rent arrears are becoming the fastest-growing problem for landlords, as well as tenants across the UK, and this will no doubt be their biggest issue in 2017.”
“Over stretched landlords will try to recoup these additional taxes by increasing rents, but if wages struggle to increase more than inflation, landlords will struggle to secure rises, putting the entire lettings financial model at risk,” he added.
Boosting housing supply
A chronic shortage of housing in the UK is continuing to place upward pressure on residential property prices across many parts of the country, according to RICS.
In October, surveyors saw price increases outnumber those seeing falls by a majority of 23%, up from 18% in September.
“The dire shortage of available housing across the UK is continuing to push prices upwards, regardless of the uncertainty linked to the ongoing discussions surrounding Brexit,” said RICS chief economist, Simon Rubinsohn (right).
With the supply-demand imbalance continuing to widen, Richard Sexton, director of e.surv, believes that the government cannot afford to overlook the ongoing housing shortage in the UK, which continues to eat away at the hopes of many would-be homeowners.
“As the Autumn Statement approaches, many will hope that the Chancellor can address these deep-rooted issues in our housing market. Above all else, we need to close the gap between supply and demand and bring home ownership back into reach for the hard-working working Britons,” he said.
The government has already launched a new fund to help build 225,000 extra houses, and is expected to announce further measures in a White Paper this month, possibly to coincide with the Autumn Statement.
Susan Emmett (left), director residential research at Savills, said: “Housing is firmly at the top of the government agenda and there is a clear will to use investment and public sector land to help address the housing shortfall which has built up over decades of undersupply.
“Measures to supply housebuilding include the £3bn Home Builders Fund which will provide £1bn of short-term loan funding targeted at SMEs and custom builders. It aims to deliver 25,000 homes by 2020. The scheme will also provide £2bn funding for infrastructure with the emphasis on brownfield land and aims to unlock a pipeline of up to 200,000 homes over the longer term.”
Support for SME developers
To properly address the housing crisis in this country, the government needs to adopt a more pragmatic approach to supporting small and medium sized housebuilders to help boost the supply of much needed new homes, including affordable properties, which inevitably includes greater financial support, among a host of other measures.
“If the government really is keen to increase housing supply then it should encourage smaller players,” said Tony Dowse, chairman of Environ Communities.
SME housebuilders had previously made a big contribution to the overall housing supply figures, but Dowse highlights the fact that the numbers are now “radically depleted” due to a “shortage of equity” and continuing difficulty in raising money “at a reasonable rate and with sensible gearing”.
He continued: “This scenario is made worse by the continuing delays in planning. The high cost of producing the various reports now required means that a planning refusal can be a major financial disaster for a small housebuilder.”
Rajiv Nathwani, director and founder of Quivira Capital, pointed out that small housebuilders saw an initial boost in funds last year when the government gave £100m to support SMEs developers. But given the complexities, red tape of planning laws, lending and local council bureaucracy, he noted that small developers are still “hardest hit” when it comes to “securing bricks and mortar projects”.
He added: “This Autumn Statement I want the government to be transparent in how the funds will be unlocked for small developers, so they can start building the necessary homes across the country.”
Housing Minister Gavin Barwell has launched a new £18m ‘capacity fund’ for councils to tackle planning issues which delay housebuilding, but will this be sufficient?
John McAuliffe, managing director at McAuliffe Group, would like to see the Chancellor review the resourcing of supporting agencies within the planning system.
He commented: “Consultation and license submissions with Natural England cause significant and unnecessary delays, costing developers and construction firms huge amounts of time and money.
“This review should include re-assessing the 30-day statutory response period following an initial application. Investment in resourcing should also be seriously considered, ensuring that all subsequent correspondence is dealt with in seven days.”
Capital gains tax
Following recent statements from the Housing Minister regarding the chronic shortage of land, Simon Gerrard (below), managing director of Martyn Gerrard, believes that a capital gains tax moratorium should be at the centre of the Autumn Statement if the government is to effectively address the UK housing shortage.
He feels those in power have for too long looked for quick wins and short-term solutions, instead of working to unlock the swathes of unused land across the UK, and doing away with capital gains tax for a “designated period” would help kick-start housing supply by incentivising land owners to sell for development.
Gerrard commented: “Never has the old adage ‘buy land, they’re not making it anymore’ been more true. At present there is little incentive for landowners to sell, resulting in a premium on sites available, a premium on property prices, viability studies reducing social housing, and a chronic shortage of supply.”
He added: “I believe that the government should launch a moratorium on capital gains tax for land sold for a designated period; this would provide the major shot in the arm needed to encourage landowners to cash in and open up swathes of land for developers to get building.
“Yes the Treasury will take a hit in the short-term, but the benefit to UK housing supply would be enormous, and the loss in treasury income would be more than made up for in the additional tax income from property buyers.”
Allowing housing association tenants to buy their own homes at a discount was a pledge in the 2015 Conservative Party manifesto, with the first sales under the Right to Buy policy for housing association tenants completed in September, following a pilot project involving five housing associations.
The Home Group would like to see the pilot approach taken around voluntary Right to Buy continue in the creation of other home ownership products for existing renters in this country.
The company’s CEO, Mark Henderson, said: “It is clear that this group [of tenants] in particular needs a new housing solution to the problems they face, which the market at the moment is currently unable to provide. I believe the Chancellor now has the opportunity to really begin to develop policy that works for them.
“I would like to see Chancellor Philip Hammond announce a pilot which would last 12 months and test a select few models. It’s a sign of how vibrant and diverse our sector is that we have lots of similar if slightly different products out there. However, it is crucial that we do not confuse the marketplace with a myriad of offers.”
While supporting first-time buyers is commendable, it is not a complete solution, with more housing types and tenures required to accommodate an increasing number of people, including older residents.
McCarthy and Stone are among those that would like to see a greater focus on the housing needs of the older generation.
There are a number of issues that the retirement housebuilder wants the government to focus on, including a one-time exemption of stamp duty for the older people and increasing the provision of age-appropriate housing in planning policy.
Clive Fenton at McCarthy and Stone said: “There is unprecedented demand for suitable housing in later life, be it specialist housing, bungalows or just properties designed for downsizers.
“There have only ever been 141,000 retirement properties built in the UK for homeownership, and very few people are building bungalows. Yet there are more than 11 million people aged 65 or over in the UK, most of whom are homeowners. They will grow by 50% in the next 20 years.”
“Of course not everyone will want to move and downsize in later life, but many millions do,” he added.
Fenton would like to see National Planning Policy Framework revised to refer more to older people.
“They are mentioned just once in the current draft”, he noted. “We believe strong national planning would encourage new developers to enter into this sector, and ensure there are more proactive local planning policies.”
Will Christmas come early?
We all looking forward to learning about Philip Hammond’s plans for the UK housing market, let’s just all hope that he dishes out a few early Christmas presents when he announces his Autumn Statement.
Hanover Private Office
United Kingdom Sotheby’s International Realty
The Conveyancing Association
National Landlords Association
Council of Mortgage Lenders
McCarthy and Stone
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno