What the 2020 budget announcement means for the UK housing market

Hello readers. Something that is always a big focus for investors and landlords that I speak with is how the annual budget will affect them. In previous years, we have seen some fairly anti-landlord policies that have caused a dramatic change to the property market.

It may come as a comfort to hear, however, that the 2020 budget said relatively little on housing. It could be said that no news is good news! There were, however, a couple of changes that were announced. These include:

Stamp duty hike for overseas buyers

There will be an additional tax on overseas buyers of UK property coming into place in April 2021.

Up to now, overseas buyers of UK property have been subject to the same stamp duty rules as buyers living in the UK, however this change will be to impose a surcharge of 3% on buyers from overseas.

This surcharge is expected to affect 70,000 of the UK’s total 1.2 million annual property transactions and has been broadly welcomed with Tom Bill, head of London residential research at Knight Frank commenting: “The introduction of a surcharge for overseas buyers will bring the UK into line with many other global property markets.”

With this change coming in, it will be interesting to see if there is a surge in overseas buyers trying to beat the deadline!

Removal of unsafe cladding

There will be an extra £1 billion allocated for the removal of unsafe cladding from residential buildings that exceed 18 meters.

This follows an initial pledge of £400 million in 2018 that was for the removal of Aluminium Composite Material (ACM) (the type used at Grenfell Tower) from housing tower blocks and an additional £200 million that was allocated for the private sector in 2019.

It was promised that this £1 billion fund will “make sure that all unsafe combustible cladding will be removed from every private and social residential building above 18 metres”. However, this did not apply to buildings of less than 18 meters, which will continue to remain unsafe.

New homes

The budget statement also announced a new £12 billion multi-year extension of the Affordable Homes Programme (AHP). This is a £3 billion boost to the current programme which was put in place in 2016 and is due to end next year.

Funding of £1.1 billion has also been confirmed through the Housing Infrastructure Fund to open up 70,000 homes in areas of high demand across country. The Housing Infrastructure Fund is a government capital grant programme which pays for projects that will help to deliver new homes.

First-time buyers

The only bad news overall is for first time buyers as there was no mention of the Government’s First Homes Scheme, which promised a 30% discount for first-time buyers, ex-service personnel and key workers buying in their local area.

With interest rates now cut to 0.25%, the increase that first time buyers can get on their savings is relatively low and therefore times will remain tough for those trying to get onto the housing ladder.

This scheme would apply to a portion of new homes and consultation is due to end on April 3rd.

Cut in entrepreneurs’ relief

One negative change that was announced was the immediate cut in entrepreneurs’ relief from £10m to £1m. This Whilst this will raise additional funds for the economy, it does have a significant impact on those building strong businesses.

Jamie Morrison, head of private client at accountancy firm HW Fisher said: ‘This change to entrepreneurs’ relief is as good as abolishing it completely and this is a huge mistake. While a sensible change following proper consultation would be welcomed, this is a step too far.

‘By cutting the relief entrepreneurs will only be able to benefit up to £100,000 during their lifetime. This is not enough to drive support of creativity and entrepreneurship.’

In addition to these changes the government has announced that small businesses which already pay little or no business rates will be eligible for a one-off coronavirus grant worth up to £3,000. For a commercial property with a rateable value of £12,000, this is one quarter of its rateable value, or comparable to three months of rent.

This and the change to the Employment Allowance, which, for eligible businesses, could reduce the amount of National Insurance that an employer needs to pay have also come as very welcome announcements. The Employment Allowance for the 2020/21 tax year is increasing to £4,000 (was £3,000 in the 2019/20 tax year).

Whilst the reduction in the bank of England base rate should spell good news for those seeking to obtain finance to invest in property, it demonstrates the value of achieving capital growth by leveraging your finances and investing in property. I would be interested to hear your thoughts on these announcements.

I regularly help investors maximise their returns and run strategy workshops along with portfolio review sessions. If you would like to discuss this further, then we will be more than happy to help. If you want more information about that, please email hasan@home-share.co.uk.

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