On Wednesday November 22nd, Chancellor Phillip Hammond delivered his much anticipated second Budget of 2017. While the first held very little for the UK’s housing market, this inaugural Autumn Budget offered considerably more, with Hammond outlining a £44bn strategy to tackle the UK’s housing crisis.
The strategy itself includes a number of planning reforms, a commitment to build 300,000 new homes and a pledge to provide new dedicated housing sector loans and guarantees. The biggest announcement, though, saved for last, was the immediate abolishment of Stamp Duty for first-time buyers (FTBs); a measure which had attracted much speculation in preceding months.
But what does this mean for property investors?
A push towards build-to-rent
Recognising the need for a new type of housing tenure, one that’s increasingly in demand for young people, the Chancellor announced plans to further support the reform already underway in the private rented sector.
Such support will include an examination of the barriers that prevent longer tenancies and extra security to tenants within the private rented sector. But the biggest announcement was Hammond’s pledge of £8bn in financial guarantees to boost the construction of purpose-built rental properties, Hammond said: “We will focus on the urban areas where people want to live and where most jobs are created. Making best use of our urban land, and continuing the strong protection of our green belt. In particular, building high-quality, high-density homes in city centres and around transport hubs.” The implementation of such measures is expected to be welcomed by investors, who’ll benefit from new investment opportunities with significant tenant appeal.
300,000 new homes?
Unless Britain can build more homes, demand WILL continue to outpace supply, further driving property prices. FTBs will continue to be priced out of the market and will instead look to the private rented sector.
This realisation is not new, rather it’s an issue the government have been looking to resolve for some time. On paper, Hammond’s announcement to build 300,000 new homes a year should go a long way to restoring balance to the market. But with a previous target to build 250,000 new homes a year yet to be met, it’s unlikely the UK’s chronic undersupply of housing will be resolved any time soon. And yes, while the Budget does promise an injection of cash to boost construction, in reality only £15.3bn of the £44bn housing package is actually ‘new money’ and it will be split over the next five years.
Another ongoing issue addressed by Hammond was the practice of land banking, as he cited the significant gap between the number of planning permissions granted and the number of homes being built. With 270,000 residential planning permissions unbuilt in London alone, the Chancellor announced an urgent review into the practice. An interim report on the matter is expected to be delivered in time for the Spring Statement, with Hammond promising interventions including compulsory purchase, if vitally needed land is found to be being held from the market for commercial gain. For investors, this review is expected to boost the completion of projects in which they have put their money, as well as increasing supply and choice of investment assets.
Stamp Duty scrapped
Perhaps the biggest announcement of the Budget, Hammond’s decision to abolish Stamp Duty for first-time buyers on properties up to £300,000 was met with a chorus of cheers in the House of Commons. However, a report from the Office for Budget (OBR) Responsibility, released shortly after the announcement, warned the move would cause an unintentional increase to house prices of 0.3%, meaning those who already own property will gain from the policy, not first-time buyers.
The cut is expected to save buyers an average of £1,660, but while some will take full advantage, many will still find affordability an issue, with the average deposit for a first home in excess of £20K and house prices almost eight times the average salary. As a result, the OBR forecasts a minimal increase in the number of FTBs, meaning demand for private rented accommodation will only further increase.
- Significant funding will be invested in the private rental sector, improving asset stock for investors.
- Experts expect the removal of Stamp Duty for FTBs to work in favour of investors by driving property prices higher.
- A clamp down on land banking will speed up delivery of investor projects.
- Additionally, funding to support the delivery of 300,000 new homes is unlikely to be sufficient, therefore property prices will remain high and demand for rented accommodation will continue.