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Autumn Budget 2018: What Reforms Does the Property Sector Require?

by internationaldirector

By Paresh Raja, CEO, Market Financial Solutions 




The 2018 Autumn Budget, taking place this Monday (29 October), marks the Government’s last major fiscal statement before the UK’s departure from the European Union in March 2019. With the Brexit deadline looming, this budget has evoked much speculation about the reforms that could be announced to concerning the property market. 

While this is an opportune moment for the Government to both address the housing crisis and improve investment into the real estate sector, there is also a chance the Chancellor’s statement could overlook the reform needed to address the imbalance between housing supply and demand. Indeed, the likelihood of inaction from Philip Hammond seems to be rising amidst claims that the Conservative Party will refrain from any significant policy reforms with Brexit on the horizon.  

Looking back at 2018

The Government’s initial commitment to improving housing supply has largely been overshadowed by Brexit negotiations for the majority of 2018. Matters were made more complicated by a string of high-profile cabinet resignations and the appointment of a new housing minister.

As such, any proposals touted at the beginning of the year quickly took a back seat, and the struggles faced by those seeking to get on or move up the property ladder persist. According to the most recent survey from the Royal Institution of Chartered Surveyors, affordability constraints, a lack of stock and economic uncertainty pose significant challenges for those seeking to purse property investments. Effective solutions are clearly warranted.

Autumn Budget 2018 – what we know so far…

In an effort to tackle the housing crisis, Theresa May announced at the Conservative Party conference the Government’s plans to increase Stamp Duty for overseas buyers and companies that are tax resident in the UK. The move has been designed to curb foreign investment and thereby increase the property opportunities available to UK residents.

However, penalising foreign nationals for investing in the property market does not ultimately address the problems of supply and demand. The real estate bought by international investors is, in fact, often at the top of the market and therefore targeting these individuals will likely have a limited impact on first-time buyers or those looking to move up the rungs of the property ladder.

Elsewhere, there is also some speculation that landlords will be given a tax break when selling properties to their long-term tenants, with reports suggesting that the Autumn Budget could reduce capital gains tax (CGT) in such circumstances. Landlords currently face CGT of up to 28% on profits when they sell their property, and this measure is intended to reduce these penalties. This is a more welcome change, enabling people to buy the houses or flats that they already live in, while also incentivising landlords to sell properties within their portfolio to new owners.

Necessary policy reforms

While these measures reflect steps towards addressing the housing crisis, more needs to be done to improve housing supply and ensure first-time buyers are able to get on the property ladder. The country boasts some of the world’s leading real estate opportunities which is why we should be encouraging both domestic and foreign investment into the property market. Rather than restricting investment, we should be creating more opportunities that appeal to all types of homebuyers, ranging from those purchasing their first home to seasoned investors expanding their real estate portfolio. What’s more, the Government must make sure properties markets across the UK are developed – not just the major cities.

Building more homes is essential. The Government regular sets and misses targets around new homes and clearly this must be addressed. Planning laws, finance for developers and investment into infrastructure are all necessary if the UK is to build enough homes; hopefully the Chancellor focuses on this within his speech.

Incentives should also be introduced to improve the market’s knowledge of alternative finance options, so people are aware of all financial instruments available to them. According to recent research by Market Financial Solutions, nearly one in five (19%) UK property buyers have used a form of alternative finance to fund their property investment. Almost half (46%), however, stated they did not have enough knowledge or confidence in finance options other than mortgages to consider using them.

What reforms do the UK public want to see?

Earlier in the year, Market Financial Solutions surveyed a nationally representative sample of 2,000 UK adults to uncover which policy reforms they are most interested to see the Government introduce. Of all the options provided to them, 55% of the sample said they supported the introduction of new laws to prevent gazumping. This number rose to 64% amongst those who own one residential property.

The issue of taxation also featured high on the list of priorities for those who own multiple properties. Over three-fifths (62%) of people with more than one property support the abolition of inheritance tax on property assets – this ranked as their top policy desire. Rising house prices have led to an increase in property wealth amongst UK homeowners. However, with the current inheritance tax threshold at £325,000, a growing number of people are finding themselves liable to pay the tax when inheriting real estate.

Finally, the MFS research found that a significant number of homeowners support financial incentives for people seeking to renovate derelict properties and put them back on the market for sale or rent. This measure is the second top policy priority for those who own two or more residential properties, with 53% supporting this measure. Such a reform would help alleviate existing market demand for properties, offering a fast and effective way of getting more homes on the market. Moreover, such a reform would take advantage of the UK’s existing housing stock – more than 11,000 homes across the country have been empty for at least 10 years.

The demand for these reforms clearly reflects a need for changes that remove restrictions faced by those trying to buy or sell a home, as well as reforming the current property market to support those looking to take advantage of property opportunities.

As the final major fiscal statement before the UK’s anticipated withdrawal from the EU, this upcoming Autumn Budget provides an ample opportunity for the Government to introduce much-needed reforms in the housing sector. While the property market remains resilient despite the Brexit uncertainties, more can be done to strengthen the market and stimulate movement. Most importantly, addressing the housing shortage and affordability should be a top priority as the Government prepares to see current and prospective homeowners through Brexit.

It will be interesting to see whether the Government will take the opportunity this Monday to properly address the challenges preventing people from buying a home. Rather than penalising investors, I’d like to see measured reforms so that both foreign and domestic investment into the real estate market is encouraged.


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