Darren Murphy's post Budget market update

Posted on Wednesday, March 3, 2021

The residential property market was waiting with bated breath for Chancellor Rishi Sunak’s Budget on March 3rd and, in terms of announcements, there were several key elements that will have a significant impact on things going forward.

The Prime Minister, Boris Johnson, had, on the 22nd February, laid out the proposed “route map” for the lifting of lockdown restrictions and the Budget was expected to reinforce and support much of that plan.

In terms of the residential property market, which had been allowed to continue operating throughout the recent lockdowns, one of the key elements of the Budget was whether there would be any announced change to the end date of the stamp duty (SDLT) “holiday” which had been set as the 31st March 2021.

This initiative had undoubtedly boosted transaction numbers in the preceding months and, at the time of the Budget, there were potentially tens of thousands of transactions underway that would not be able to meet the completion deadline.

The Chancellor announced that the zero rate SDLT holiday up to £500,000 would continue until the 30th June and then reduce to £250,000 until 30th September when it would revert to the former level of £125,000.

This should allow the vast majority existing transactions to benefit from the “holiday”. It may, of course, also encourage more people to come to the market to try and benefit from either the full £500,000 threshold or the subsequent £250,000 level before it reverts to the “pre-holiday” level in October.

A new mortgage guarantee scheme initiative to help buyers with lower deposit levels was also announced.

The aim is to stimulate the housing market, get more younger people onto the housing ladder, and increase property transaction numbers.

Mortgages with 5% deposits had been stopped by most banks during the Covid pandemic but the Chancellor plans will incentivise lenders to provide mortgages to first time buyers, and existing homeowners, with just 5% deposits to purchase properties worth up to £600,000.

The Chancellor said: “Owning a home is a dream for millions and we want to help as many people as possible.”

Boris Johnson had previously said he wants “generation rent” to become “generation buy” and that young people shouldn’t feel excluded from the chance of owning their own home.”

This latter statement clearly demonstrates the current Government’s ideology of home ownership and there have, in recent years, been a number of actions that have reduced the tax advantages to landlords and sought to alter the playing field between a landlord seeking a property purchase and a first time buyer. The additional 3% stamp duty surcharge on second properties being a case in point.

There were no changes that specifically impact on the lettings market but the aforementioned stamp duty holiday discount extensions will, of course, benefit any landlords increasing their portfolios. There was no announced change to Capital Gains Tax. It had been widely predicted that rates would be increased but this particular can was kicked down the road until 2026 and will, undoubtedly, be part of a consultation in the interim. 2026 was also announced as the date for possible change to inheritance tax and pension taxation.

Of course, the property market, like the UK as a whole, needs a strong economy in which to operate successfully and economy where employment levels are strong and with good economic growth.

Despite the Government’s actions over the last year, the pandemic has had a devastating effect on the economy and one of the big fears is that, as we come out of lockdown, many jobs that had been retained by use of the Job Retention (Furlough) Scheme would disappear and unemployment would rise dramatically.

The Chancellor therefore announced a number of measures to try and mitigate this and give the economy the best chance of a speedy recovery.

The current furlough scheme is to be extended until the end of September 2021. It is hoped that this will enable businesses to reopen and slowly re-employ people as the economy recovers. The current self-employed grants will also continue until September.

In addition a wide range of measures were announced to support business and help grow economic recovery including massive tax breaks on investment, grants for taking on apprentices and grants for businesses in the hospitality and retail sector. Hospitality will also benefit from continuing reduced VAT rates. Business rates will see the current 100% “holiday continue until the end of June and they will then continue to be heavily discounted for the following year.

There was also major announcements on encouraging new green businesses and on distributing economic activity across the UK.

Of course, all of the measures require the UK to move forward economically and, at some stage, will require Government to increase their tax take in order to service and, slowly, repay, the staggering levels of borrowing being undertaken during this unprecedented period.

The Chancellor didn’t ignore this point but set out only a few clear plans on things such as income tax, VAT, corporation tax and capital gains tax.

Personal allowances will be frozen and further raises over the lifetime of the Parliament will be limited. This will have the effect of taking more money out of the pockets of anyone paying income tax.

The biggest change is to Corporation Tax which will rise in 2023 to 25% for the largest companies (making more than £250,000 profit). The present level of 19% will remains for companies making less than £50,000 profit with a taper between the levels of £50-250,000.

The Chancellor will clearly be hoping that economic recovery is swift and that he can mitigate the impact of raising taxes as a result.

From the prospective of the property market there is undoubtedly a huge pent-up demand from people looking to move home and get on with their lives. The stamp duty announcement will continue to support those currently moving and possibly encourage even more to do so.

The success of the vaccination roll-out programme and rapidly reducing covid statistics gives great cause for optimism that the proposed road map to lift restrictions can be achieved on schedule.

I, and many others, liken the economy to water flowing through a hosepipe that has had, during the pandemic, someone standing on the pipe. I genuinely believe that, as soon as that foot is released, the water will flow and our economy will recover strongly and quickly.

To conclude, I believe that there is a clear way forward and that the property market, as an integral component and driver of the overall economy, will continue to be strong and play its part.

As always, myself and the team are here to discuss, in confidence, your specific plans and help you to achieve them successfully.


Darren Murphy

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