What You Need to Know About the November 2017 Budget
4 minute read
While Chancellor of the Exchequer Philip Hammond’s first Autumn Budget didn’t contain any changes that are likely to completely revolutionise the UK property market, it did contain a couple of key points that should be of interest to those looking to buy a first home or move house in the coming months and years. The first point of interest is the Chancellor’s commitment to £44bn of capital funding to meet a target of building 300,000 new homes each year by the mid-2020s – increasing housebuilding rates to levels not seen since the 1970s.
We Need More Housing to Meet Demand
This commitment comes against a backdrop in which many regions of the UK have seen demand for housing considerably outstripping the available supply of properties, particularly with regard to affordable housing. For years now, the resulting high house prices have contributed to a UK housing market in which many people – and particularly young people – find it difficult or even impossible to get on the property ladder.
Significantly, the government’s commitment to build new homes doesn’t come in the form of direct investment in public-sector housing – such as that which significantly contributed to the overall growth in housing stock in the 1950s through 1970s. Rather, the Budget’s commitments are geared towards facilitating and encouraging private-sector housebuilding through measures such as grants for land assembly and housing-related infrastructure, reducing credit constraints for property developers, and reforming the planning system to encourage better use of land in cities and towns.
Will The Chancellor’s Changes Make it Easier for First Time Buyers?
Is this likely to make a real difference to the millions of younger people desperate for the opportunity for home ownership? That remains to be seen. It’s important to note that a commitment to supporting and facilitating housebuilding by the private sector does not directly equal a commitment to build new houses; it is impossible to predict how many of those “300,000 new homes” might actually be built. That said, any measure that helps to increase the housing supply in the many areas where high demand is driving prices higher and higher can only be good news for would-be homeowners.
The second significant property-related policy announced in the Budget was the abolition of stamp duty for first-time buyers on homes up to £300,000, and an overall reduction of the amount paid on purchases between £300,000 to £500,000. This is a change from the existing system in which stamp duty is charged on a stepped basis on residential properties purchased for over £125,000, and could mean around 60% of first-time buyers will pay less stamp duty. However, with average house prices varying across the UK by region, the potential savings can differ quite significantly: according to the Halifax, the typical first-time buyer in the North of England would save just £24, while the average buyer in London would save £5,000.
Examples of stamp duty changes:
|Purchase Price||First-time buyer stamp duty – previous rules||First-time buyer stamp duty – new rules||Savings|
On the face of it, this sounds like great news for those looking to get their first foot on the property ladder, but realistically how is this likely to affect the broader property market? First, a stamp duty cut exclusive to first-time buyers could make potential homeowners more likely to pay a given price for a property; this will almost inevitably drive up house prices, especially in regions where first-time buyers make up a large proportion of homebuyers.
Analysis by the Office for Budget Responsibility (OBR) suggests that house prices would rise by more than stamp duty would fall for first-time buyers; furthermore, it says that this would increase the average house price across all market segments by 0.3%. According to the OBR, the stamp duty change is likely to result in an additional 3,500 first-time buyers per year.
Working Towards a Future of Homeownership – But is it Enough?
Overall, the Budget gives the impression of a government talking sincerely about tackling one of the big problems facing young people today – the dwindling prospects of home ownership. However, the reality is that the two measures announced to address this are unlikely to cause a profound or notable transformation in the property market.
The change in stamp duty for first time buyers in particular will definitely benefit some, but at the same time is likely to raise house prices, in turn locking some other would-be homebuyers out of the market. On balance, the government may need to consider more bold measures in future Budgets if it really wants to make a difference in this area.