Undoubtedly you will be more than aware of the headlines from this week’s budget. The main points that impact property investors are the extension to the stamp duty holiday and the introduction of incentives for mortgage lenders to offer 95% Loan To Value Government-backed mortgages.
There were a couple of welcome surprises in that there was absolutely no mention of the proposed changes to Capital Gains Tax and the rumoured increase to corporation tax only applying from 1st April 2023 and to businesses where profits are over £250k.
We do not doubt that the Capital Gains Tax (and/or other rumoured changes to property taxation) will be announced further down the line as the Government does love to give landlords a good kicking!
We believe that, partly due to the changes over the past few years, it will come as no surprise that the number of landlords has dropped by 8% or approximately 200,000 since 2019 and this is something we will be looking at in more detail in the coming weeks.
Rather than simply just giving a summary of the key points, we thought we would give a brief outline and share our thoughts on what the changes could mean for the local property market.
Stamp Duty Extension
The rumour of an extension was confirmed, but there was a bit of a twist in that to ease back to the previous system, the £500k threshold drops to £250k from the end of June and then returns to the previous system as of 1st October.
It appears that this applies to investors as well as homeowners as nothing was said to suspect different (but we know how the fine print can sometimes reveal unexpected details!).
In December, we estimated that Medway homeowners had saved £2.2m in stamp duty between July and September and this could potentially hit around £8m - £10m if you consider that the £2.2m covered just three months of transactions!
95% Loan To Value Government-Backed Mortgages
The past year has seen a significant drop in the number of first-time buyers entering the property market. This was largely due to increased prices and larger deposits being required by more cautious lenders.
In order to stimulate this, the Chancellor announced that the government will provide a guarantee scheme to mortgage lenders for them to offer 95% Loan To Value mortgages from April on properties up to the value of £600k.
We know that many big lenders including Santander, Lloyds, Barclays, and HSBC are backing the scheme, offering “government-guaranteed” mortgages from April. It is also our understanding that this will also be available to current homeowners looking to move.
What Does This Mean For Medway Property Investors?
Whilst these announcements certainly are positive news for the property market, we think that there is a genuine risk it could create a second ‘mini-boom’ as many properties within Medway will generally benefit from the full stamp duty savings until the end of September due to the value being £250k or less.
The past year has seen a dramatic overall increase in Medway house prices. For example, according to Rightmove prices in Nelson Road, Gillingham have increased by 5%, prices in Corporation Road, Gillingham increased by 4% and Dale Street Chatham by 12%!
It will be eye-watering to see this trend continue and whilst it will certainly be positive news for investors who took a risk and purchased during the past year along with homeowners, it will only but increase the barrier to entry for first time buyers and new investors.
We are certainly wondering whether the government-backed mortgages should just apply to first time buyers as I’m in no doubt that homeowners will seize the opportunity to benefit from it and further fuel demand!
We also wonder whether the simple point about stamp duty savings having a threshold of £250k from the beginning of July to the end of September could make the Medway Towns even more attractive to those who would otherwise invest in London, however, are considering new areas due to the change to things such as home working.
This extension and delay to any changes about Capital Gains Tax may also mean that we will see more landlords taking advantage of the opportunity to transfer their portfolio into a limited company as there is more time to carry out the transfer.
We would certainly advise seeking specialist advice here, however whilst there will be an initial upfront cost the savings will mean a reduced rate of tax could be paid and the costs offset against the savings over a longer-term. It may also mean that an increased number of landlords will choose to sell up completely.
