Chancellor makes big changes to Stamp Duty: see how it affects you

Rishi Sunak has announced a stamp duty holiday in his summer statement. How will this affect you?

The chancellor, Rishi Sunak, has announced there will be no stamp duty to pay on property purchases up to £500,000.

What is stamp duty?

Stamp duty land tax, its proper name, is a tax paid by someone who purchases a property or piece of land in England or Northern Ireland – Scotland and Wales have their own systems. The tax is paid when the sale is completed and is based on the sum paid.

Prior to the financial statement, there were two different points at which stamp duty was payable, depending on whether you were a first-time buyer or a mover. For movers, stamp duty had to be paid on any property costing more than £125,000.

For first-time buyers there was no stamp duty to pay unless a property cost more than £300,000. If your first home cost more than £500,000 you paid the same as a mover but if it cost less than that, you only paid tax on the part of the price that fell between £300,000 and £500,000.

What will change?

The starting threshold will be increased to £500,000 on all sales taking place before 31 March 2021. The starting rate above £500,000 will be 5% and will apply to the part of the sale up to £925,000.

The change will apply to second homes and additional properties. They attract a 3% surcharge, and this will still be in place but buying property will now be cheaper for landlords.

Who will this help?

The cut will make a difference for anyone buying a property over the old thresholds. For first-time buyers, it will generally be those in the south-east and London who stand to benefit, as elsewhere they would typically not be spending more than £300,000.

The saving could allow people to move more quickly than planned - instead of needing the money for tax they can now channel it towards their deposit.

About half a million households will not pay the tax, according to analysis by the property firm Hamptons. It says 12% of sales are above £500,000 and these will also involve a saving but the biggest reductions in percentage terms will be at the lower end. A buyer moving to an £800,000 home will see their bill cut in half, while someone paying £5m will get a reduction of less than 3%.

The tax is paid after a sale is completed, so anyone who is part-way through buying a property will benefit.

How much will I save?

At £250,000, a first-time buyer was already off the hook for stamp duty but a mover would pay £2,500. They will now pay nothing.

If you are a first-time buyer spending £495,000 on a home, you will not pay any tax now and stand to save £9,750; a mover spending the same sum would save £14,750. At £600,000, you will pay 5% on the portion above £500,000. Your bill will be £5,000 - £15,000 less than under the old rules.

An investor spending £250,000 on a property will save £2,500, while one spending £495,000 will save £14,750.

Why do this?

The housing market was frozen during lockdown, with buyers and sellers told to stall purchases. Since estate agents reopened there are signs that people are looking again - property websites and mortgage lenders have all reported jumps in interest from prospective buyers but the Treasury is obviously worried that the rebound will be fleeting.

The housing market has a knock-on effect on other parts of the economy - as well as everyone employed in the sector, people moving house also support DIY shops and furniture shops. Estimates suggest moving house drives spending equal to about 5% of the property's value.

Will it work?

While some people are not moving because of immediate financial problems that will be solved by the cut, there will be many others who are staying put because they have lost their jobs, or are concerned about the outlook for the industry they work in. The cut may bring forward purchases but it may not stimulate many extra ones.

Previous holidays have focused on first-time buyers and do not seem to have led to a surge in sales.

What will happen to house prices?

The chancellor mentioned that prices had fallen since the crisis and talked about taking away uncertainty for people, so the move seems designed to support values. Some of the money saved by buyers could go towards their offer for a property and lead to increases in parts of the country where the market is busy. The fact that landlords and investors will also get a tax cut will make this more likely than if it had only applied to homebuyers.

Typically, the largest increases come in the run-up to a stamp duty holiday ending, when people are keen to take advantage of the tax break while it lasts, so we could see a bubble next spring.

How much would I normally pay?

Under the old rules a mover would pay 0% on the first £125,000, 2% on the next £125,000, 5% on the next £675,000, 10% on the next £575,000 and 12% on anything above £1.5m.

On all purchases there is a surcharge if it is a second home.

Reference: Hilary Osbourne, 'Stamp duty: what is it and what has the chancellor changed?', https://www.theguardian.com/money/2020/jul/08/stamp-duty-chancellor-rishi-sunak-summer-statement

What are the Conservatives' plans for stamp duty?

With a brand-new majority government, the Conservative Party now has the mandate to carry out some sweeping reforms and this could well include an overhaul of stamp duty.

Last summer, Boris Johnson repeatedly spoke about the possibility of reducing the Stamp Duty tax. However, these plans were not a part of the Tory manifesto this autumn, but fiscal experts believe the long-awaited reforms are more likely under this government than at any time. Investors are keen primarily because lowering the costs of transactions will trigger the property market in a highly positive way – something the Tories will be in favour of doing, especially to alleviate the effects of Brexit uncertainty.

The impact of any stamp duty reform would be mainly felt in expensive locations such as London, areas where more property owners were impacted by the amendments introduced nearly six years ago when the tax was last changed.

Who will be affected by the proposed changes to stamp duty?

The most likely change to stamp duty is likely to apply to overseas buyers who will pay a stamp duty surcharge of 3 percent. This is believed to apply to companies and individuals buying properties in England alike. Boris Johnson is reportedly interested in refuting claims that he is the leader of the party of the wealthy and to keep new voters on-side. The money raised from the changes – estimated to be circa £120m will be used to combat the capital’s homelessness crisis.

The Conservative Party claims that the measure – predicted to affect 70,000 transactions annually in England alone – would deter foreign investors buying properties and leaving them empty or as rental properties commanding over inflated prices. Recent research revealed that 13 per cent of new-build London properties were purchased by non-UK residents from 2014 to 2016.

The Treasury chief secretary, Rishi Sunak, said he would like Britain to remain open to people arriving to live, work, and settle down “in this great country”. However, the minister added a note of caution, saying that evidence strongly shows that enabling increased demand to housing already in limited supply will inevitably inflate house prices. Introducing a higher rate of stamp duty for foreign buyers will, therefore, help to resolve this issue and could hopefully raise much-needed funds for rough sleepers.

This policy was initially announced by Theresa May in 2018, but following a consultation, is now on the road to being formally adopted.

The surcharge would be imposed in addition to an existing higher rate of stamp duty on buy-to-let and second-home. This was brought in gradations in April 2016: 3 percent for homes worth less than £125,000, 5 percent for homes valued between £125,001 and £250,000, 8 percent for properties deemed to be worth between £250,001 and £925,000, 13 percent for homes up to £1.5 million – and 15 per cent for the tiny percent of properties worth more than that.

These changes mean an international non-UK resident purchasing a property valued more than £1.5m will need to pay a new stamp-duty rate of 18 per cent.


Reference: 'What are the Conservative's plans for stamp duty?', http://www.hip-consultant.co.uk/blog/what-are-the-conservatives-plans-for-stamp-duty-123/#more-5802 

UK home loans fall 90% since start of Covid-19 crisis

Figures drop to lowest rate since at least the early 1990s, says the Bank of England.

The number of new home loans approved in Britain has fallen by 90% since the start of the Covid-19 pandemic to the lowest since at least the early 1990s, the Bank of England has said.

Threadneedle Street's monthly update on the state of the property market found that despite the reopening of estate agents from the middle of May, the number of mortgage approvals fell to 9,300 from 15,900 in April. 

The number of new home loans granted in May was well below the 25,000 anticipated by the financial markets. It was the weakest since the Bank of England series began in 1993. At the start of the year, more than 70,000 new loans were being approved each month.

Analysts said the depressed state of the mortgage market was not wholly expected, given the restrictions on viewing homes until May and delays in home loan approvals.

"The latest fall isn't a sign that the market is struggling to recover," said Hansen Lu, a property analyst at Capital Economics. "Rather, it probably reflects the gap in the sales pipeline, from when the market was closed between March and May.

"With households confined to their homes, there would have been far fewer sales than usual moving to the mortgage approval stage in May. Also, many buyers with half-completed sales have been renegotiating on price, which also points to a delay in the sales pipeline."

Lu said lending was likely to pick up in June after reports of a surge in demand for property and agreed sales.

Mark Harris, the chief executive of the mortgage broker SPF Private Clients, said: "Covid-19 has had a devastating impact on the mortgage and property markets, so it is no surprise that lending was weak in May, with approvals for house purchase falling.

"With lockdown meaning that lenders were unable to send valuers out to physically view properties, the number of mortgages approved fell considerably."

The Bank of England data also showed consumers continued to pay off their debts in May, in a fresh sign the pandemic has made households more cautious.

People repaid £4.6bn of consumer credit in May following repayments of £7.4bn in April and £3.8bn in March, the Bank said. There were repayments on credit card lending (£1.8bn) and other forms of consumer credit such as overdrafts (£2.8bn). The three successive hefty net repayments of consumer credit compared with additional borrowing of about £1bn per month in the 18 months to February 2020.

The Bank said the "extremely weak" net flows of consumer credit meant the annual growth rate stood at -3.0%, the weakest since the series began in 1994. A breakdown of the overall figure showed the annual growth rate of credit card lending was negative for the third month running, falling to -10.7%, compared with 3.5% in February.

The reluctance of consumers to borrow money since the UK went into lockdown has come despite a cut in borrowing costs. According to the Bank, effective rates on new personal loans to individuals fell 34 basis points to 5.10% in May. This was the lowest since the series began in 2016 and compares with a rate of about 7% at the start of 2020.

Reference: Larry Elliot, 'UK home loans fall 90% since start of Covid-19 crisis' - https://www.theguardian.com/money/2020/jun/29/uk-home-loans-fall-90-since-start-of-covid-19-crisis 

Rent increases hit lowest ever levels – ARLA

The number of agents reporting rent increases dropped to 14 percent in May, the lowest level recorded by the ARLA Propertymark Private Rented Sector (PRS) report.

ARLA said this was because many landlords had chosen not to increase rent due to financial difficulties faced by tenants during the coronavirus pandemic. 

This is down from the 41 per cent of agents who said they were noticing rent increases in February, the last time ARLA conducted its PRS report and before the lockdown began. 

The year-on-year difference is also stark, as in May 2019 45 per cent of agents reported rises in rent. 

Furthermore, tenants have been more successful in asking for rental reductions with the number of tenants negotiating reductions increasing to 2.5 per cent in May – the highest since March 2019 when the success rate was 2.9 per cent. 

 https://unsplash.com/photos/rgJ1J8SDEAY

Tenant demand 

As landlords were unable to conduct viewings during the lockdown, the average time properties were empty between tenancies increased to five weeks in May.  

This is the longest time properties have remained void between tenancies since records began.  

The number of new prospective tenants fell to 70 per branch in May, compared to 82 in February.

However, the level of pent-up demand during lockdown meant that despite the fall, this is still the highest level on record for the month of May since records began, compared with 60 new tenants registered in May 2018, and 69 in May 2019. 

Rental stock supply

 

Following the reopening of the housing market, the number of properties managed per branch rose to 208 in May. This is an increase from pre-lockdown when the average number of properties managed per member branch stood at 201. This figure is the same year-on-year.  

David Cox, ARLA Propertymark chief executive, said: “Our latest figures show that landlords and agents have been taking the brunt of the pandemic. They are aware of the financial difficulties facing tenants and have shown empathy, with many landlords not increasing rents where they otherwise might have needed to.  

“As we continue to move forward, it’s important that everyone aims to keep the rent flowing in order to sustain the market and help boost the economy following several months of uncertainty.”  

Reference: 'Rent increases hit lowest ever levels', Shekina Tuahene, https://www.mortgagesolutions.co.uk/news/2020/06/29/rent-increases-hit-all-time-low-arla/

Nationwide triples minimum deposit for UK first-time buyers

Mortgage lender sets 15% level to help protect customers from negative equity

Source: https://i.guim.co.uk/img/media/16b2a7addd19922c30621bdf4
418f9fc454eab46/39_435_4550_2730/master/4550.jpg?width=620&quality
=85&auto=format&fit=max&s=da52552ec3e9ef352bac8783ec7d4107

One of Britain’s biggest mortgage lenders, Nationwide, is to triple the minimum deposit that first-time buyers must put down as it braces itself for falling house prices and the possible return of negative equity.

Nationwide said from Thursday it will withdraw all its new loan deals where the first-time buyer only puts up a 5% deposit and set a new minimum deposit of 15%.

The rise represents a dramatic increase in the amount that buyers will have to save to buy the average home. According to Nationwide’s house price index, the average UK house price is £218,902 – which means a buyer will have to stump up a minimum deposit of at least £32,835 compared with £10,945 before.

Nationwide said it was making the move to protect new customers from being trapped in negative equity. That happens when a borrower takes out a mortgage with a small deposit, only to find that as house prices fall, the mortgage becomes more than the value of the property.

Henry Jordan, the director of mortgages at Nationwide, said: “As a responsible lender, Nationwide needs to ensure borrowers can afford mortgage payments and are, as much as possible, protected against the potential for negative equity, should house prices decrease … Our priority at this time must be to help members keep their homes.”

Nationwide’s decision to cap its maximum loan-to-value (LTV) at 85% comes only weeks after its data revealed a plunge in house prices across the UK in the wake of the coronavirus pandemic.

It said that in the month to May house prices fell by 1.7%, the biggest monthly fall since February 2009, when Britain was in the grip of the financial crisis.

First-time buyers hoping that other lenders will give them a low-deposit mortgage are likely to be disappointed. Nationwide’s move follows a string of market withdrawals by smaller lenders last week.

The tiny Saffron building society remains one of the few lenders that will still offer a 95% LTV – but the broker Chris Sykes of Private Finance said: “In honesty, I wouldn’t be surprised if these are gone by the end of the week as they will be absolutely inundated with applications.”

The Nationwide announcement will be a major blow to England’s property market just as it has begun to pull out of the Covid-19 lockdown.

A month ago the housing market in England was given the green light to reopen after seven weeks of lockdown. However, property professionals warn that if first-time buyers cannot get mortgages big enough to buy homes, then the property market will stall and prices will fall.

Economists are sharply divided about how far house prices will be affected by the coronavirus. The Centre for Economics and Business Research predicted in May that 2020 prices would be down by 13% “as a lack of transactions, high uncertainty, and falling incomes take their toll”. However, the estate agent Savills said the hit to the market could be more like 7.5% and a third of valuation surveyors are predicting that price falls could be limited to 4% or less.

Nationwide said the 15% minimum deposit would apply to all new house purchase, remortgage and first-time buyer applicants.

Buyers who can put up a 40% deposit will benefit from a small drop in its fixed rates, which will fall by 0.1% to 1.09% on a two-year deal or 1.4% on a five-year fix.

https://www.theguardian.com/business/2020/jun/17/nationwide-triples-minimum-deposit-for-uk-first-time-buyers CMP=share_btn_fb&fbclid=IwAR1Gh85VmF4LKYL4DeeVLiA3OPGH4NY3RNZWXaMhlgAREhV_w3BqmCBdls8

House prices:lockdown leads to sharpest monthly fall in value since financial crisis

BY JONATHAN PRYNN

House prices fell at their fastest rate last month since the depths of the financial crisis more than a decade ago, a survey reveals today.

Source: https://lifestylefrisco.com/wp-content/uploads/2017/
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The average cost of a home in the UK dipped by 1.7 per cent in May, knocking just over £4,000 from its value, according to lender Nationwide.

It was the biggest monthly fall since February 2009 when the market was reeling from the collapse of Wall Street bank Lehman Brothers.

The annual rate of increase has dropped from 3.7 per cent to 1.8 per cent, bringing the revival in the property market since the election in December to a juddering a halt.

The dip covered a month that started in full lockdown, with only a tiny handful of sales being carried out. However agents have reported a surge in activity since the Government allowed the property market to reopen on May 13.

David Westgate, chief executive at agency Andrews Property Group, said: “May was the ultimate month of two halves. No activity at all in the first half and a frantic hive of activity in the second as transactions resumed.

“It will be 2021 before the property market finally gets into its stride again but for now the level of transactions post-lockdown has been staggering.”

Tomer Aboody, director of property lender MT Finance, said: “Banks are eager to lend, with liquidity extremely high. Interest rates are at an all-time low and agents are reporting a positive uptick in applicants registering.”

Guy Gittins, managing director of agency Chestertons, said: “A 1.7 per cent drop in prices in a month is dramatic but not as steep as many had expected and prices still remain nearly two per cent higher than this time last year.”

https://www.homesandproperty.co.uk/property-news/house-prices-fall-monthly-lockdown-a138606.html

Government urged to extend Stamp Duty relief to last-time buyers

Source: https://media.istockphoto.com/photos/businessman-and-wooden-blocks-with-the-word-stamp-duty-and-house-picture-id1160385576?k=6&m=1160385576&s=612x612&w=0&h=LCvNH-UcqDcV9cxuUkQuTdtFjsg3R1Nnm-otkoaaAsw=

BY MARC SHOFFMAN

A new report suggests the Stamp Duty exemption should be extended to last-time buyers.

Research by the Cass Business School and the Centre for the Study of Financial Innovation, said elderly people should be encouraged to downsize, but warned the lack of age-friendly housing in the UK limits the options for millions who are open to moving but decide to stay.

The report, titled Too Little, Too Late? Housing for an ageing population, found that under-occupation is concentrated among the elderly population – those aged over 65 – where people tend to live in couples or alone.

It claims there are more than 15m surplus bedrooms in the UK, which could rise to 20m by 2040 if no action is taken.

The report recommends a Stamp Duty exemption for ‘last-time’ buyers – similar to the relief offered to first-tine buyers – worth up to £300,000 to encourage older home owners to downsize and free up housing stock.

The Government should promote the benefits of downsizing and incentivise people to do so before social care is needed, according to the report.

It also calls for local authorities and developers to plan for retirement housing.

Professor Les Mayhew, author of the report, said: “If more family homes were freed up by downsizing, the benefits would cascade down the housing ladder because it would enable families to ‘upsize’, allowing more first-time buyers on to the bottom rung.

“More efficient use of the existing stock would reduce pressure to ‘just build more’ as a solution to the UK’s housing shortage.

“The demand is out there as baby boomers seek to redeploy housing equity into smaller, more convenient homes with independent living and easy access to services. This would also reduce pressure on local authority spending through transfer to care homes and allow more efficient delivery of social care to individuals.”

Commenting on the report, Nigel Wilson, chief executive of Legal & General, which is helping fund more retirement housing, said: “Our housing stock needs to work for everybody.

“People of all ages need more supply of housing and better choices.

“We know there is strong demand for the right sort of housing for later life living, with great design, supportive communities and good access to friends, family and facilities.

“Housing policy now needs to catch up with the demands and opportunities of our ageing demographic: getting this right has benefits for everyone.”

Amy Wray, owner and managing director of Yorkshire-based agent Applegate Properties, said: “Whilst many last-time buyers may not actually require a reduction in Stamp Duty to make their move possible – as many have equity in their property – the passing of this exemption alone would raise huge awareness in the UK surrounding the amount of current empty bedrooms. Additionally, it would encourage many home owners to re-think their position once their families have flown the nest.

“Creating an awareness around ‘downsizing to support growing families’, would greatly motivate thousands of potential sellers to make the move sooner, rather than feeling an emotional responsibility to ‘cope’ with their now oversized family home.

“So many home owners have never even considered that they are contributing to the shocking statistic of there being 15m empty bedrooms.

“Therefore, such awareness could make for a huge shift in the mindset of all purchasers, making downsizing earlier the ‘new normal.’

“Good quality, over-55s retirement housing – with 24-hour wardens, maintained gardens, lifts and optional social areas – are hugely popular, so much so that we have a waiting list if any of these homes become available.”

https://propertyindustryeye.com/government-urged-to-extend-stamp-duty-relief-to-last-time-buyers/