The chancellor Rishi Sunak today made some announcements regarding the budget and what will happen over the next few years.
Obviously at some point there must be some payment back of the money that is paid out for the furlough and other grants that has been given to businesses.
We want to outline some key areas that may affect landlords buying properties. These are as follows.
Stamp Duty Holiday
There will be a stamp duty holiday on all properties up to half a million will be extended from the 31st March to the 30th June. However, it does not stop there. From the 1st July the holiday will apply only up to £250,000 until the end of September. From October the 1st it will go back to pre-Covid stamp duty thresholds and levels resume.
However, for purchases from the start of July till the end of September the maximum SDL saving will be just £2500 sizably less than the £15,000 saving under the possible current holiday which continues to the end of June. So far, no details have been released on whether these dates will end up being the cliff edge or will be tapered to avoid a last-minute rush for some buyers.
Landlords who have incorporated as well as letting agency businesses will be disappointed under co-operation tax. However, this does not come into place until April 2023 and there are some limits. The changes have limits on. There will be an exemption from the higher rate for smaller companies who are paying 90% rate until annual profits are up to £50,000. It will then go to higher rate when profits are applied between £250,000 and then higher again above this. You should consider whether incorporation is still for you but in this moment of time it still looks quite attractive.
Capital Gains Tax
There was no announcement on capital gains tax prompting that this may be the subject of extensive consultation on radical changes. The consultation starts in March 2023 with a release of a so-called Tax Day proposal.
Personal allowance and income tax thresholds for basic and higher rates taxpayers will rise in April will then freeze until 2026 increasing their tax as earnings rise. Income rates and thresholds are set separately in Scotland and Wales. Inheritance tax nil band rate, capital gains and pension lifetime allowance will remain unchanged until April 2026. Anyone with a total pension value of above £1,730,100 may now chase additional charges. ISA limits remain unchanged.
However, with the budget when it comes to alcohol the duty on spirits, wine, beer, and cider now remains frozen for 2021-2022.
The chancellor can gain resisted calls to raise duty on petrol and diesel has now been frozen for more than a decade.
They have estimated 1.65 billion will be injected into the vacation programme. The devolved administrations are also receiving additional funding in their usual way.
The corona virus job retention scheme will be extended past its 30th April cut off until the end of September. The government will pay 80% of the wages for furloughed staff until the summer. The businesses will then be asked to pay a further 10% of wages in July and a further 20% in August and September. Basically, this means that you in effect will have to pay additional money while the government reduces theirs. Support for self-employed workers will continue till September. This expands the cover for those who started work for themselves in 2019-2020.
Extra Business Support
The 5% VAT rate for the hospitality section will remain until the end of September. This will be furlough by a further 12.5% until the end of next April. They will re-start grants offering to businesses such as non-essential retails in England while the 0% rate on business rates will extend to the end of June. For the rest of 2021 – 2022 rates for business will be discounted by 2/3 as stated within the budget announcement.
For the next two years, businesses will be allowed to off set 130% of their investment spending against their tax bills. With investment levels having stumped during the pandemic the chancellor hopes that this policy will help drive improvements in growth and productivity across the UK. You should speak to your accountant on whether this includes improvements or repairs when it comes to properties. The devil is normally in the details.
Universal Credit to be extended for a further 6 months in relation to the weekly £20.00 up lift.
Apprenticeship grants to rise to £3,000.
Another 400 million to help art venues in England to re-open and 300 million for professional sport and 25 for grass roots football to re-open.
An additional 90 million for domestic violence programmes and 40 million for the thalidomide victims.
When it comes to budgets what you often find is there is a lot more detail from the government later. So, there may be more detail to come through.
Is there something that landlords should consider now that the stamp duty holiday has come up?
Yes, there are various things that we think you should consider regarding new budget.
Choose the right location.
The slowest local authorities are now taking over 100 days to return property searches and, in some cases, even longer. Take this into account when you are looking to purchase a property.
Choose the right property.
Certain transactions can take 11% longer than others for instance such as flats rather than houses. It is important that you understand how long these transactions take.
Choosing the right lender. It is so important that you choose the right lender when dealing with properties. The best advice is to contact the lender before you even start to see how long they are taking not only for their processes but the valuations as well.
The government has now entered a guarantee for 95% mortgage loans available for buyers for the next month. This is for purchases up to £600,000. We understand that this type on the market has been quiet for some time mainly because people either want outside areas therefore people who have properties are unable to sell them or alternatively 95% mortgages are currently not available. Unfortunately, at this moment in time there are only a few lenders that the government has been able to agree with to crease this scheme. In real terms the government are guaranteeing the mortgages for the banks if they do not get repaid. So far, they have been able to agree this with lenders such as Barclays, HSBC, Lloyds Bank, NatWest and Santander.
The government is looking to bring back the 95% mortgages in a big way, but two significant challenges remain.
Rates on low deposit deals are very high now with the cheapest number of mortgages around 1.3 more expensive than the pandemic.
With 95% deals price well over 3% 95% mortgages could be even more expensive.
Secondly, the scheme wont necessarily make the property more affordable for first time buyers, rather than enabling them to borrow more to afford the property. If house prices remain high, some first-time buyers may struggle to get on the ladder even with the help of a new scheme.
How will the budget effect the letting market?
The guarantee is interesting in respect of mortgages up to 95% for first time buyers. However, it fundamentally does not solve the problem with high prices and people still struggling to be able to borrow enough money from the banks to purchase properties. We understand for instance in Brighton and Hove that there are currently over 4,000 flats on the market and very little movement in this area. One of the main reasons is due to Covid because people now want an outside area, and a lot of these properties do not have them.
Do we anticipate that the 95% mortgage will affect the letting market and the answer is probably at this moment in time, no. The residential market for the lower of the properties is extremely active due to people not wishing to move during this difficult time. Pushing one-bedroom prices up quite dramatically. This has also affected almost the whole of the residential market in similar circumstances.
If you do have another property and wanted a free valuation or to check you are getting the right income, then please do not hesitate to contact us. Please also click here to read our article for First time buyers.