What happened to housing and fixing our Broken Market - The 2017 Spring Budget
Since the last election, housing has featured as one of the top policy stories from both opposition parties and the Government. And when the new cabinet arrived, in the summer of 2016, they were clear that housing would be a number one priority, promising a new housing white paper.
The budgets in 2015 and 2016 from the old Conservative cabinet passed incentive after incentive for first time buyers - from Help to Buy and Lifetime ISAs to Starter Homes - and a new scheme called ‘taking the home out of inheritance tax’, as well as legislation intended to rein in landlords’ profits. That came in the form of a reduction in the level of mortgage finance tax relief for wealthier landlords, changes to the wear and tear allowance and Capital Gains tax allowance being cut for financial investments, but not residential property gains. So it was no surprise that the first new cabinet budget in November 2016 focused in on housing.
Policies from banning letting fees to help ‘JAMs’ (those ‘just about managing’) through to providing £2.3 billion for a new Housing Infrastructure Fund to help support the construction of 100,000 new homes and further funds for 40,000 affordable homes, showed this cabinet was going to do everything it could to adjust the supply of property in England.
These policy changes were then added to in the new housing white paper, ‘Fixing our Broken Housing Market’, which showed a shift in government perspective. For the first time, it recognised two key things: firstly, that not everyone can or wants to buy a home and, secondly, how important the Private Rented Sector is in helping to house people, in both the short and the long term.
So there were great expectations for the March budget. Would the Chancellor, a landlord in his own right, recognise that the loss of mortgage interest relief, hikes in stamp duty and an impending loss of tenant fees would simply result in rents being pushed up to compensate? Would the government finally recognise that landlords are part of the solution to the housing problem, rather than part of the cause?
Bizarrely, no. The reality is that despite declaring just a month ago that they were going to ‘fix’ our housing market with a new strategy, ‘housing’ was suddenly reduced to just a few lines, mentioning what had been said in previous budgets. It almost seems as though the Government’s pledge to make housing a key priority might have run its course!
Are there any changes that landlords do need to be aware of?
To some extent, the fact that the Spring Budget has come and gone without any ‘noise’ on housing should be a relief to Buy-to-Let landlords and the housing industry as a whole. Constantly evolving new policies, rules and regulations around delivering properties that are safe and legal to let have been incredibly difficult to keep up with.
However, just because housing hasn’t been mentioned this time around, it doesn’t mean there isn’t anything for landlords to take away – or that ‘that’s it’ from a housing perspective.
The first thing to know is that how you pay yourself and the level of your net earnings are both likely to change in the next tax year. This is partly due to past budgets now beginning to impact on landlords’ earnings - for example, the changes to the wear and tear allowance and mortgage interest relief – and partly due to other changes to your take-home pay. The personal tax-free allowance is increasing to £11,500 and, depending on whether you pay yourself as a company director or are classed as self-employed, changes have been announced to dividends and National Insurance contributions.
Over and above this, other measures are coming into place from other sectors. For example, mortgage affordability for landlords is being scrutinised further, with landlords often needing a higher rent-to-mortgage ratio than in the past. New ‘stress tests’ around rates are being introduced and your income and earnings outside of property are also likely to be assessed more stringently from now on.
And finally, with the infrastructure announcements, including HS2 and the emphasis on creating stronger regions, such as the ‘Northern Powerhouse’ or ‘Midlands Engine’, there are at least some opportunities to look for new areas to invest that are likely to receive substantial boosts to their local economies.
What should landlords do?
Given the multitude of changes, it’s essential you make sure you understand the ‘new regime’ of Buy-to-Let moving forward and reassess:
1. Your net earnings, based on the tax changes and how you pay yourself
2. What you can borrow moving forward and whether you are on the right mortgages for your circumstances
3. Whether your own home can be taken out of inheritance tax
4. What other tax breaks may be available to you
So, whether you’re an existing landlord or are considering moving into Buy-to-Let, it’s time to take stock of where you are now and what your property earnings could be in the future. Being successful in this business lies in ensuring three key things: that you’re aware of the financing options available to you, which can help to maximise your capital growth and income potential; with tighter regulations, that your properties are being let legally and safely to your tenants and, with a harsher tax environment, that you are mitigating tax where you can.
Please note: the British government has reversed the proposal to raise tax contributions on self-employed workers. In a letter to MPs, chancellor Philip Hammond said there would be no increase in national insurance contributions for the self-employed in the Class 4 band “in this parliament”.
For more help and advice, don't hesitate to get in touch with our expert mortgage advisers who are trained in Buy-to-Let investment and can help make sure you make the most of your property and portfolio.