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01 Saturday Dec 2012

The effects of the Budget on the property market Posted by:

First-time buyers were largely ignored while the wealthy found that they would have to pay more stamp duty and tax loopholes were closed. The 2012 Budget, much of it leaked beforehand, contained few surprises for the housing market but did raise hackles among agents and advisers working in the prime central London property market.

Instead of a long overdue wholesale reform of the archaic Stamp Duty Land Tax system, the Chancellor hit high-value homes hard with a new stamp duty rate of 7 per cent on properties costing more than £2m, from 21 March 2012. London and the South East will feel the greatest impact of this increase, with the vast majority of houses in this bracket located in these areas. It is likely that vendors will now have to reduce their homes to just under £2m to make a sale or make significant improvements to justify charging say, £2.5m, with homes priced at £2m- £2.3m likely to struggle to find buyers.

The Chancellor said that he found tax avoidance to be ‘morally repugnant’ and with this in mind introduced a 15 per cent stamp duty on properties over £2m purchased by ‘non-natural persons’ such as companies. This is a significant increase from the 0.5 per cent currently paid by companies and will severely curtail future offshore company ownership of residential properties.

The Government also announced that it would consult on the introduction of an annual charge on residential properties valued at over £2m owned by companies, with the aim of introducing some legislation in April 2013. Also that month, the Government will extend the capital gains tax regime to include gains on the disposal of UK residential property by non-resident companies. As there is a time lag before these measures are introduced, property owners will have time to seek advice as to whether they need to structure ownership differently.

While the Government focused on the top-end of the market there was little for first-time buyers in the Budget. The stamp duty holiday for first-time buyers purchasing property up to £250,000 ends on 24 March and will not be extended. But the NewBuy Guarantee scheme, which was introduced just before the Budget, enabling first-time buyers and those who have owned before to purchase a new-build property up to £500,000 with just a 5 per cent deposit, will help up to 100,000 onto the housing ladder.

The Chancellor said ‘we will not risk a sharp rise in interest rates’. While this will have struck fear into the hearts of savers, it is great news for borrowers. However, while interest rates have been held at 0.5 per cent for more than three years, mortgage rates have started to edge upwards, on the back of higher funding costs in the money markets. It just goes to show that borrowers should not be complacent but keep an eye on the rate they are paying, particularly if they are on their lender’s standard variable rate.