Unlike my last article around social media for Real Estate, this piece concentrates on the impact of the economy.
The UK 2016 budget was announced on 16th March, and parts of the country seemed to erupt around a ‘sugar tax’ scandal.
I wanted to dive right past my fizzy drink concerns and understand exactly what George Osborne’s eighth budget meant to the UK housing market.
I followed all of the major news providers carefully; however the impact on property isn’t something that hasn’t really been covered in any great detail.
The BBC coverage of the property impact within their main report totalled 51 words:
So I wanted to put together a summary detailing all of the factors from the 2016 budget that estate agents need to be aware of, as well as what possible impact this could have on the residential property market.
What were the headline figures?
Just to remain inclusive, the main news on the commercial property front was that the government aimed to raise £500million per year through changes to commercial stamp duty as of the 17th March.
This looks like:
- 0% stamp duty on commercial properties up to the value of £150,000
- 2% stamp duty on the difference up to an additional £100,000
- With a cap of 5% for costs over £250,000
This favours small businesses, but leaves the bulk of the burden (and then some) with larger ones.
This may well now provide further incentive for both companies and individuals to purchase commercial property.
Focusing back on the impact the budget has had on the residential property market, these are the facts you need to know:
- Lifetime Isa introduced
- Current Help to Buy Isa to end in November 2019
- Annual standard Isa limit to jump from £15,240 to £20,000
- UK growth forecasts have been revised down. This now looks like 2% for 2016, with 2.2% forecast for 2017 and 2.1% for 2018
- One million extra jobs to be created by 2020
- Inflation forecast to be 0.7% for 2016, with an expected increase to 1.6% in 2017
- Borrowing forecasts revised to show an increase from initial expectations
- Tax-free personal allowance increased from £11,000 to £11,500 in April 2017
- Income tax threshold for 40% payments will rise from £42,385 to £45,000 in April 2017
We can be thankful that the United Kingdom’s economy is still forecast to grow at a quicker rate than that of other large Western economies.
How will this impact the housing market?
The main change which will impact the housing market is the introduction of the Lifetime Isa, although the effect will undoubtedly be noted further down the line.
This new Isa allows individuals under the age of 40 (in April 2017) to save up to £4,000 a year tax free. However the government will also make a 25% savings contribution to this each year, until the age of 50.
This means an individual saving £1,000 in a Lifetime Isa will receive a £250 contribution from the government.
Please note that there are conditions for this Isa. The savings can be used to:
- Purchase a first home up to £450,000
- As a pension fund which can be withdrawn when over 60 years of age
- The savings may also be accessed in the event of a terminal illness
If the savings are used for anything other than these reasons, then penalties will be issued on the government contributions paid in.
In terms of the property market, this is another helping hand for first time buyers. Although they must have saved in the account for a minimum of 12 months before it can be used. So this will only really make an impact in the property market after April 2017.
It will essentially make home buying more affordable for first time buyers, it is just something we will have to wait to really see the effects of.
For any savers with a Help to Buy Isa, they have the option of leaving those savings in place until November 2019, when that scheme ends; or transferring the money into a Lifetime Isa.
For anyone asking for advice on this, it is important to note that a homebuyer will only be able to use the bonus out of one of the Isa’s. They could not buy a house with the contributions from both a Help to Buy and a Lifetime Isa. So it is worth only owning one type of these Isa’s.
Added to the fact that the regular Isa annual savings limit increased to £20,000, this all bodes well for the future.
With the income tax thresholds set to increase also, this in theory would provide more disposable income, and saving potential to home buyers.
This may well have an impact on all levels of the property market. As the lowest and highest paid earners will receive income text relief.
Although with the UK growth predictions lowered, and inflation set the rise; we will have to wait to see the real impact of these changes.
While the benefits of these introductions may not be immediately seen; there is at least some positive news for estate agents and homebuyers. The government certainly seems to continue focusing on helping homebuyers; and especially first time buyers.
While perhaps there is nothing ground-breaking to celebrate and jump for joy at just yet, at least the future is looking fairly positive. Although I know many were hoping to see changes to residential stamp duty which failed to materialise.
Let’s round this up
In terms of planning ahead, the key thing to note is that the new Lifetime Isa will no doubt increase demand on homes in the long term.
The 25% government contribution will likely make a huge difference to the possibility of many stepping onto the property ladder.
A perfect way to summarise this was a comment I heard from an estate agent, on reflection of the budget
“At least there were no more kicks in the teeth”.
This has certainly been one of my shortest articles to date. However I hope you have found having the key budget points that affect our industry, all in one place beneficial.
What are your thoughts on Mr Osborne’s 2016 budget? How do you feel it will impact your business?
I would love to hear your comments.
Thank you as ever for reading,