It was almost inevitable that the March 2021 budget was going to be focussed on dealing with the financial impact of COVID19. The chancellor also has to have an eye to Brexit, even if that wasn’t at the forefront of his speech. There was plenty to interest those involved in the property market. Here is a quick round-up of the key points.
The Stamp Duty holiday is extended
From the perspective of the property market, the headline news is, of course, that the Stamp Duty holiday has been extended. The Stamp Duty threshold will remain at £500K until the end of June. Then it will drop to £250K until the end of September. It will remain open to all buyers, including investment ones, although investment buyers will still have to pay the surcharge.
On the one hand, the news of an extension may not exactly come as a surprise. Firstly, there was widespread lobbying by the property industry (and buyers). Secondly, there was growing media speculation that the chancellor would offer some kind of extension. Thirdly, there have been significant delays to property purchases due to the effects of COVID19.
On the other hand, it is arguably surprising that the chancellor chose to extend the Stamp Duty holiday in the way he did. There’s a difference between allowing people time to complete transactions they have started and extending the tax break to everyone.
You could argue that there is limited opportunity for people to take advantage of the full tax break unless they already have a sale in process. Given the timelines of property transactions, this may be true. That may not, however, stop them from trying, especially if they know they have a good chance of qualifying for some kind of tax break.
New 95% mortgages
The government announced a new scheme in which it would underwrite 95% mortgages. Full details of the scheme have yet to be released. In essence, however, it looks very much like a reworking of the old Mortgage Guarantee Scheme which ran from 2013 to 2016.
Based on current information, the scheme will be open to all residential buyers (as opposed to just first-time buyers). It will also be available to people buying existing properties as well as new-build ones. The government has indicated that the scheme will have an upper limit of £600K.
IHT and CGT thresholds frozen
The thresholds for Inheritance Tax and Capital Gains Tax are to be frozen at their current levels until 2025/2026. It will be interesting to see what effect, if any, this has on the housing market. Freezing the tax-free thresholds means that any inflation could push people into higher tax brackets. In short, it increases tax take without increasing headline taxes.
The IHT freeze could encourage older people to downsize and release the equity in their family homes long before their deaths. Similarly, it could encourage investors to take a decision on whether or not they are likely to want to hold onto a property until 2025 and beyond. If they don’t, it could be in their best interests to sell it sooner rather than later.
General economic stimulus
The chancellor reserved his largesse for areas that had been (particularly) hard-hit by COVID19. In particular, he extended both the furlough scheme and the self-employed grant scheme to September. The Universal Credit increase also stays until then and the minimum wage goes up to £8.91 an hour from April.
There are grants for businesses reopening after lockdown as well as rate breaks for all businesses and VAT breaks for the hospitality sector. There are special measures for the arts and sports and financial incentives to take on apprentices.
Hopefully, these measures will help to get the economy moving again. This should then feed through into the property market in general and the mortgage market in particular.
Comments