17 Jul What The Budget Means For The Housing Market
Last week George Osborne stepped up to present his Summer Budget to the nation. While items like the living wage and welfare cuts were the talk of the media, much of what was laid out directly affects the property market as a whole. Belgravia estate agent, Best Gapp tells us more…
The changes to inheritance tax, which were originally promised back in 2010, are being put in place now that there is no longer a coalition to negotiate with. Previously, estates worth over £325,000 were subject to a 40% tax rate, something that many living in London and the southeast considered vastly unfair. With so many properties, and even those that could be considered as mediocre falling into this tax band; the tax has, for some time, been seen as solely a tax on the south.
However, from April 2017 everyone will be granted a family home allowance, which will take some out of the tax altogether and reduce other bills by tens of thousands. The new rate has been set at £850,000 rising to £1 million in 2020. The news has been welcomed by many older homeowners, who, rather than downsize, are more likely to stay in the family home, safe in the knowledge that their children will not incur a massive tax bill. The new family home allowance will be added to the current limit of £325,000.
The Buy to let Market
The news last Wednesday was not so good for landlords. In a move that George Osborne referred to as “an attempt to level the playing field between homeowners and landlords”, the mortgage interest relief that landlords receive is set to be slashed by 50% over 4 years. Under the previous legislation, landlords enjoyed tax benefits of between 40%- 45%; but, starting as early as April 2017, the rate is set to gradually reduce until by 2020 it will stand at 20%. Many experts believe that this could spell disaster for the rental market, if as predicted landlords pass on the extra costs to tenants by raising the rent by as much as 10%. What’s more: others have suggested that it may even reduce rental stock, as middle class landlords with perhaps only one or two properties will opt to sell up upon seeing their profits slashed.
In combination with the reduction of mortgage interest relief, landlords are being made to suffer further by a loss of the ability to right off wear and tear. From April 2016 the yearly 10% allowance of rental income on furnished properties that landlords could use to upgrade or repair their properties will no longer be viable. Instead landlords will have to prove such damage through documentation. The main theory behind the change is to give landlords an incentive to actually improve the living standards of their tenants, while maintaining the overall look of the property.
In Other News…
Homeowners who choose to take in a lodger will find themselves better off in the coming tax year. In a bid to reduce the number of spare rooms the chancellor has doubled the amount of rent that a homeowner can receive before taxation to £7,500 where the previous limit was £4,250. For many it will be chance to make a little extra money towards paying the mortgage and as more rooms become available, it is expected that they will be snapped up by business travellers or holiday makers through websites like Airbnb.
The Conservative vision is clear. The budget is one that favours homeowners or would-be homeowners over renters and the rental market. Great news if you’re already on the ladder or expect to be in the next five years. But it’s clear that Britain’s two million landlords were dealt a heavy blow last Wednesday, as presently no one is sure how will this affect the market as whole. For now we can only speculate, but keep your eyes open for fresh news in the coming months.