What the 2018 Budget means for housing: extension of Help to Buy, stamp duty cut for shared ownership and a boost to council house building

Brexit uncertainty and a shortage of homes has continued to contribute to a stilted property market across the country.

Presenting the Autumn budget, Chancellor Philip Hammond said a 'turning point in our nation's recovery' has been reached and vowed that the era of austerity was ending.

Budget measures aimed at tackling housing issues included an extension of the government's Help to Buy scheme and a boost to council house building.

Stamp duty has been abolished for many shared-ownership buyers, while a surcharge of one per cent for non-residents buying homes in England and Northern Ireland has been proposed.

The Chancellor also pledged an additional £500million for the Housing Infrastructure Fund for councils, to promote the building of 650,000 more homes.

So what does it all mean?

Help to Buy scheme extended to 2023

The Help to Buy equity loan scheme, which offers a 20 per cent government loan (40 per cent in London) to buyers of new-build properties, has been extended to 2023 and new regional price caps for a property to be eligible for the scheme will be introduced.

Help to Buy had already been extended until April 2021 but the Budget confirmed it will be funded for a further two years, for first-time buyers only, until March 2023.

In addition, the price caps for homes eligible for the scheme have changed. They will now be set at 1.5 times the average forecast first-time buyer price in an area, to reflect huge regional variations in house prices.

In London the maximum price of a Help to Buy house will be £600,000, in the South East it will be £437,600, while in the North East it will be £186,100.

Some commentators welcomed the boost for developers, who will have a guaranteed stream of government funding for a further two years.

“Not only do housebuilders now have more certainty for longer-term planning and building the thousands of new homes our country so desperately needs, but it also gives potential buyers who are saving for a deposit the peace of mind that they too can benefit from the scheme over the coming years,” said Kevin Roberts, director of Legal & General Mortgage Club.

But others questioned how helpful the scheme had been to struggling first-time buyers.

“Originally designed to help those in less fortunate financial positions, the scheme hasn’t quite worked as intended, with over a third of households using it found to be earning over £50,000 and data showing it has been used by movers to upsize," said Daniel Hegarty, CEO and founder of digital mortgage broker Habito.

“The new restrictions making it for first-time buyers only with regional price caps should provide a more targeted benefit to those who need it most.”

House building

Local authorities have been restricted from borrowing to build new council housing since the Thatcher era.

At this year’s Tory party conference, Theresa May announced plans to scrap the cap on council borrowing to build new housing, with 60 local authorities pledging an immediate drive to build thousands of homes under the new rules.

This new policy will come into effect today and “could well have a bigger impact on the housing crisis than any other measures mentioned in this Budget or those previously,” according to Philip Woolner, joint managing partner at Cheffins.

This extra borrowing has been calculated to add as much as £1bn to the deficit.

But the Local Government Association said that investing in social housing generates returned income through rents, while also creating savings in the huge annual housing benefit bill.

The Chancellor also pledged several measures to encourage house builders to build, including £653 million for partnerships with nine housing associations; money for neighbourhoods to allocate land for housing which can then be sold to local people at a discount; and £1 billion guarantees for smaller housebuilders from the British Business Bank.

He also added £500 million to the Housing Infrastructure Fund, which local councils can apply to for money to help with building.

The fund, which will increase to £5.5bn, pays for infrastructure like roads and power supplies for new housing.

Mr Hammond said the additional money would help build 650,000 homes.

Stamp duty: shared-ownership buyers

Higher stamp duty charges for the country’s most expensive homes have been blamed by some for the stagnation of the property market, particularly in London and the South East.

But Mr Hammond mostly left the current thresholds as they are, apart from correcting an anomaly in the way first-time buyers of shared-ownership homes were charged.

Now, buyers of shared-ownership homes priced up to £500,000 will be exempt from the tax, a saving which has also been implemented retrospectively for any shared-ownership buyers since November 2017.

“By their nature, first-time buyers purchasing shared-ownership homes are struggling to take that all important first step onto the housing ladder. Making shared-ownership home buyers – who are only buying a share of the property – eligible for the first time buyer stamp duty exemption is a welcome move and makes complete sense,” said Paula Higgins, chief executive, HomeOwners Alliance.

“The fact Mr Hammond has promised to apply this retrospectively and put right the wrong for all those shared-ownership scheme home buyers since the last Budget is again great to see.”

Other commentators looking towards the higher end of the market were not so impressed. Rory O’Neill, head of residential at estate agent Carter Jonas, says: “In failing to address stamp duty for a fourth consecutive year, the Chancellor has missed another opportunity to inject much needed momentum into the market.”

“As the primary hurdle facing residential property, stamp duty fees over the £937,500 threshold coupled with the three per cent levy on second or multiple home purchases are grinding the market to a halt.

"While the number of first-time buyers has reached an 11-year high, at present, the market is so congested in the middle that it has reached an impasse."

Stamp duty: hike for foreign buyers

Theresa May recently announced a stamp study surcharge of between one and three per cent for non-residents buying homes in England and Northern Ireland.

It has now been confirmed that a consultation will be published in January, based on a one per cent levy imposed on foreign buyers.

This will be in addition to the three per cent surcharge on second homes and buy-to-let properties, which came into effect from April 2016.

It is estimated that 13 per cent of new-build London homes have been bought by non-residents.

The revenue raised will be used to support a government strategy to tackle homelessness which aims to end rough sleeping by 2027.

However, some property market commentators are concerned the additional tax will undermine investment in new housing in London and across the UK.

Tax relief for landlords

Currently, if someone sells their home, they do not have to pay capital gains tax, provided they have been living there – a rule known as private residence relief.

At the moment, sellers can have lived away from their property for 18 months before the final sale date and still qualify for the tax exemption, to reflect the difficulty of selling homes in the current property market.

In the Budget the Chancellor announced this would be reduced to nine months from April 2020.

The Budget also set out changes to lettings relief, where up to £40,000 per owner is exempt from capital gains tax if the landlord has lived in the property.

Once the changes come into effect in April 2020, lettings relief will be limited to homes where the landlord lives in the property with the tenant.