This was no normal Budget. The backdrop of a seemingly unavoidable health pandemic, combined with Brexit and a need to end 12 years of austerity was a complicated setting in which to stage a financial statement.
We have seen a healthy resurgence in buyer interest, especially in Prime Central London where Chestertons saw an increase in transactions of 63% in the first two months of 2020 compared to the same period in 2019. This is set to ripple out nationally over time. But it is vital that the turnaround is not halted. So we are pleased to see that the Chancellor has decided not to add significantly to the already hefty tax burden on residential property. But we are disappointed that he has not taken the opportunity to encourage more sale transactions by reducing stamp duty.
Given the government’s promise to increase spending on key public services such as health and infrastructure, the Chancellor was always likely to look for new sources of revenue in the form of increased taxation. The anticipated economic impact of the corona virus, plus contingency planning for Brexit, will place additional strain on the public purse strings.
Thankfully, the Chancellor has decided not to add significantly to the already hefty tax burden on residential property. However, we are disappointed that he has not taken the opportunity to encourage more sale transactions by reducing stamp duty. We are also concerned that private landlords are being driven out the market while tenant demand is growing. We believe that the government should give equal consideration to supporting the private rental sector as well as home ownership.
As a footnote to the Budget, we fully support proposals to regulate the estate agency sector via the compulsory licensing of all estate agents and would like to have seen the government bring forward their RoPA initiative. This would go a long way towards weeding out the rogue elements within the industry and give consumers more confidence that they are being serviced by committed professionals acting in their best interest.
The higher rates of stamp duty are still making many buyers think twice about moving. This is hurting the market by reducing transaction numbers and the Treasury is also now suffering: receipts between April 2019 and January 2020 were 4.1% lower than in the same period in 2018-19, equating to a loss of £282m. We would like to see a reduction in the top rate of stamp duty and a raising of the tax exempt threshold as put forward by Boris Johnson during his campaign for the Prime Ministership to encourage more activity in the market.
Now is not the time to deter investment in the UK. As we battle coronavirus, prepare to leave the EU and embark on trade talks across the world, London needs to retain its influential global position.
As expected, the Chancellor confirmed the introduction of a 2% stamp duty surcharge on the acquisition of residential property by non-resident buyers. This will become effective from April 2021. We are disappointed that this will send the wrong kind of message to foreign investors at a critical time for the UK now that we are leaving the EU and will need to work even harder to encourage foreign investment.
However, the fact that the increase will not take effect immediately is good news for the 2020/21 financial year and the recovery of the market. Following expectations that the rise may take effect immediately, we have seen several purchases by non-domestic buyers pushed through by midnight last night. A property in Albert Gate, Knightsbridge was sold for £5.5m at 10pm on 10 March in order to avoid the possible increased tax. In another sale, the buyer paid double the legal fees to expedite a quick transaction. Six properties in central London, all priced over £2m, exchanged hands in a rush to beat the stamp duty rise.
Private rented sector
The Budget fails to deliver for Boris’ wide-ranging supporters and protect them from further austerity when it comes to the lettings market. Many people are in danger of losing their homes as private landlords are forced out of the market in the face of both excessive stamp duty charges and a loss of tax relief. We believe that the government should give as much consideration to supporting the private rental sector as to home ownership. Our lettings agents are finding that supply increasingly fails to meet demand. In London particularly there is a huge demand for homes to rent and the government has done little to address this.
We are frustrated that the opportunity to provide more proactive support for the private rented sector (PRS) was not taken. The private rental sector has expanded from 12% of UK households in 2006 to 20% in 2017 (and from 19% to 29% in London). However, the shortage of available stock is becoming as much of an issue as it is in the sales market in many locations. We would like to have seen public land made available to investors at below market rates, who would then fund the development of new rented housing. Moreover, we would like to see the creation of a separate use-class for PRS with tax concessions to encourage institutional investors to enter the sector en masse and achieve the necessary critical mass to make a real difference to supply.
The phasing out of tax relief for BTL landlords is having a major impact on both supply and pricing in the private rental market. In response to the effective increase in tax, landlords are either selling properties or stopping buying new properties – thereby reducing supply and raising rents which is adding to affordability issues for tenants. The Chancellor should re-instate the tax allowance on finance related costs – if not at 100%, then at least at 50% – to encourage landlords to remain within the market.
Section 21 Notices
We have serious reservations concerning the proposed repealing of Assured Shorthold Tenancies (ASTs) which, if implemented would mean that “no-fault” eviction notices under Section 21 of the Housing Act 1988 would no longer be permitted. The changes would make the length of all tenancies uncertain and many landlords would dispose of their properties or leave them to sit empty, rather than have to commit to potentially indefinite tenancies. This could lead to a huge decline in the number of available rental properties, which would have a catastrophic effect on those most in need of housing. Instead, we have asked the government to consider introducing mandatory longer term tenancies, which would achieve the desired aim to provide security for tenants, enabling them to ‘put down roots’, but also allow landlords to maintain a satisfactory level of control over their rental properties.
We would like to see the responsibility for Right-to-Rents checks – the cost of which is also passed on to tenants in the form of higher rent – removed from landlords and their managing agents and handed over to the Home Office.
Support for home ownership
We applaud the government’s commitment the First Homes scheme whereby entitled low-income local buyers will be eligible to buy a new home at up to a 30% discount. The confirmation that first time buyers will get assistance onto the property ladder via a new type of ‘lifetime’ fixed-rate, 95% loan-to-value mortgage is also praiseworthy although we have some reservations about how lenders will view this.”
At long last we are seeing buyers having the confidence to commit to purchasing properties in London in greater numbers. Chestertons’ has seen viewings on properties rise by 40% so far this year while offers are 35% higher, but this demand cannot be met without additional supply.
The extension of the Affordable Homes Programme to the tune of an additional £12.2bn is a welcome announcement as the government has spoken and written at length about fixing the UK’s “broken” housing market. Nonetheless, the supply of new homes, both for sale and to rent, is still way below target rates. According to the National Housebuilding Council (NHBC), new home completions in London fell by 7% to just 17,500 in 2019, compared to the London Plan’s annual completions target of 66,000 per annum. We hope that the new plans to reform the planning system to make land more easily available for development will prove more successful than previous efforts.
Meantime, we think it is time for the public sector to become more widely involved as stakeholders in the development of new homes. One possible avenue could be to supply land (but retain ownership) in return for a profit share from the developer which would have the following benefits:
- Developers will get improved access to land
- As owners of the land, the public sector should be able to fast track developments through planning
- The public sector should benefit from a healthy return over time and it will still own the land which will also have appreciated in value over time
Support for homeless people
We applaud the Chancellor’s decision to allocate £643m to help rough sleepers into accommodation. This is especially pleasing for Chestertons given our long term financial commitment to the St. Mungo’s homelessness charity.