Chancellor of the Exchequer, Rishi Sunak, made a budget statement, on the 3rd of March 2021. It has helped to allay fears in the housing market. The predictions of the budget of 2021 created trepidation among the wealthy. Chatter circulated, that the chancellor would need to introduce a wealth tax, as well as, a hike in Capital gains tax. Both of these policies, would have negatively impacted investment into the prime central London market.
However, what transpired was a smoother budget. The hikes in taxation which were felt to be on the horizon, never came to pass. The budget is in fact supportive of the housing market.
The two main policies, which will help prop up the market, are the extension of the stamp duty holiday and a new mortgage guarantee.
1. Stamp duty holiday
In July 2020, the stamp duty threshold, which is the amount after which stamp duty will need to be paid, was increased from £125,000 to £500,000. This has been extended to the end of June 2021. A £250,000 threshold will continue until the end of September. After which it will revert to £125,000.
The extension of the stamp duty holiday will be a valuable boost to the housing market. It will mean a greater amount of transactions, as people look to capitalise on this window of opportunity.
2. New mortgage guarantee
A new mortgage guarantee for 95% of mortgages is being introduced. This will replace the help to buy scheme for first-time buyers.
On a less positive note, for the prime central London housing market, the chancellor will be introducing an additional surcharge of 2% on property purchases, in England and Northern Ireland, for non-Uk residents. This comes into effect in April 2021. It is aimed at controlling the flow of foreign capital, so that housing prices remain stable and properties are used by domestic buyers.
Therefore, foreign investors who are looking to purchase property in England, should make sure that they have completed their transactions, before the end of March 2021, to take advantage of the lower stamp duty rates.
Mark Hayward, chief executive of NAEA Propertymark, said: “Overseas buyers tend to purchase properties in prime central London, which are completely unaffordable to most homebuyers anyway. Therefore, this move will not help those that need it most. Ultimately, by energising surcharges, it is likely that purchasers will factor this additional cost into any offers they make on a property, so prices may be pushed down in areas where overseas buyers are purchasing.”
There are other policies that also affect the market indirectly. No capital gains tax hike, however annual exemptions are frozen until 2026. Corporation tax will rise after 2023, to 25%. This will not affect the smallest companies- the existing rate of 19% will apply to companies, where profits are less than £50,000 a year.
At The Collaborative London, our view is that the overall impact of the budget on the prime central London housing market will be positive. Fortunately, the government budget has been accommodating to investors, and this will encourage the further inflow of capital into the central London housing market.