On 12 March 2008, the Chancellor, Alistair Darling, delivered his first Budget speech to the House of Commons. But while the increased duty on alcohol and high-polluting cars may be grabbing the headlines, what are the implications of the announcements on the mortgage and housing markets?
Stamp duty
Many first time buyers had been hoping for some relief from the current stamp duty hierarchy after years of rising property prices. However, as of today, only those buying a property under shared-ownership will be spared stamp duty, until 80% equity ownership in the property is achieved. Stamp duty is currently paid at 1% on properties worth between £125,000 and £250,000, rising to 3% on houses of between £250,000 and £500,000, and 4% for prices in excess of £500,000.
Help for key workers
The Chancellor also announced that key workers, such as teachers and nurses, will be able to borrow money from shared equity schemes to buy a property, if they can afford up to 50% of the property, down from the 75% previously required.
'Non-dom' tax
Mr Darling confirmed that his proposal to charge non-doms an annual levy in order to avoid paying tax on foreign earnings will go ahead as planned from April 2008. The levy (£30,000), described by the Chancellor as a 'reasonable fee', will only be incurred after a period of seven years, should be creditable against foreign taxes and will not include children.
Patrick Stevens, Tax partner at Ernst & Young, said: "Today's 'non announcement,' maintaining the government's position on the much maligned proposals for taxing non-doms, is a grave disappointment whose impact will be felt for many years to come."
The concern was echoed by prime estate agents. According to Savills, overseas buyers accounted for over 50% of prime Central London property purchases last year, leading to record price rises in the region. Since the initial announcement in the pre-Budget report, activity in this area has subsided while potential buyers waited for the official announcement on the proposals.
Reflecting on the reduction in the growth of prime London property prices, Jonathan Hewlett, Savills Head of Residential Sales in London, comments, "This is partly due to the inactivity of non-doms either already resident in the UK or those planning to base themselves here to take advantage of our benign tax environment. To date we have only been contending with reduced overseas demand, which has increasingly become restricted to those who have no intention of becoming a UK resident. The big question has been whether a cementing of the tax changes will bring property to the market in large numbers."
If this does occur, the impact on the prime London property market and the potential knock-on effect for the rest of the UK property market could be significant.
Capital Gains Tax
For property investors, the Chancellor confirmed that he will press ahead with the proposed changes to Capital Gains Tax from next month. Mr Darling claimed that up to 80,000 investors would benefit from the single band of 18%, compared to the current tiered approach to the tax.
Long-term fixed rate mortgages
The Chancellor announced the publication of a report on the benefits of longer-term fixed rate mortgages, seeking collaboration with the industry to see how these can be implemented and marketed. Mr Darling believes that more 10, 20 and 25 year fixed rate mortgages are required to offer first time buyers stability in the market, allowing them to avoid the uncertainty of interest rate rises once a short-term fixed rate deal ends.
With mortgage companies reticent to lend due to tightened lending criteria, the Chancellor aims to bring together investors and lenders to try to find what he describes as 'market-led solutions' to provide lenders access to stable, low-cost funding. The Chancellor will report back on the issue at October's pre-Budget meeting.
Investment in reducing household emissions and fuel bills
The Government announced that it will invest £26 million into the Green Homes Service in order to help households improve the energy efficiency of their homes and reduce the cost of energy bills.
Commenting on the impact of today's announcements, Michael Coogan, Director General of the Council of Mortgage Lenders, states, "There was little of immediate concrete substance for the housing or mortgage markets in this Budget. While there may prove to be benefits in the long term, the Chancellor ducked the pressing nature of some of the issues that are facing the markets right here and now".
related information
- what do the new tax changes mean for you?
