He also announced that from midnight anyone buying a property worth £500,000 or more through a company scheme will be subject to 15% Stamp Duty, reducing the threshold for the tax from £2 million. But properties that are rented out will not be affected.
He confirmed that a new garden city will be built at Ebbsfleet in Kent and claimed that the extension of Help to Buy to 2020 will be accompanied by 120,000 new homes.
‘We’re extending the Help to Buy equity loan scheme for the rest of the decade, so we get 120,000 new homes built and we’re making further reforms to our planning system and offering half a billion pounds of finance to small house building firms,’ the Chancellor said.
He also said that he would be asking the Financial Policy Committee to be ‘particularly vigilant over house prices. Some experts have suggested that the extension of Help to Buy could fuel a property price bubble, especially in London and the South East.
But Osborne has been heavily criticised for failing to reform the Stamp Duty tax as a whole. It is widely regarded in the property industry as being unfair and in need of change. In particular organisations like the Royal Institution of Chartered Surveyors saying that the current slab system hinders rather than helps the property market recovery.
‘The much trailed extension of Help to Buy to 2020 is not a game changer. While it provides certainty and clarity to the market, creating another 120,000 new build properties is still a modest target. We need over 230,000 just to meet current demand. Much more needs to be done,’ said Simon Rubinsohn, RICS chief economist.
‘Yet again, the Chancellor has failed to overhaul the stamp duty system, with wages well below inflation and rents rising rapidly for years, many have been struggling to save for a deposit, let alone meet a huge tax bill. Helping more buyers to enter at the lower end of the market would have resulted in more movement and transactions, freeing up stagnant property chains and bringing badly-needed housing onto the market,’ he explained.
He also didn’t think much of the garden city plan, calling it ‘a garden village’ and saying that even with other new homes being built the announcements will contribute only a little housing in the South East. ‘These numbers are a drop in the ocean and do nothing to help others in the UK. More importantly, they don’t deliver the mix of homes we need across society, from the private rented sector to affordable and social housing,’ he pointed out.
‘RICS has long called for an investors’ prospectus for garden cities, which we welcome today. But we need a more ambitious approach than 15,000 homes at a time. To provide investors communities and developers with greater confidence, what we need is a proper political vision for garden cities and the wider economy,’ he added.
Jennet Siebrits, head of residential research at CBRE UK, also believes that more could have been done for the property industry and said that the Chancellor perhaps has overlooked the fact that although house sales have reached the highest level since 2007, they still only totalled 1.1 million, well below the long term average of 1.5 million.
‘This reflects continued constraints for many buyers, and a continued lack of housing supply both in new build and second hand stock which is putting pressure on prices,’ she explained, adding that although the measures announced, including Ebbsfleet, will help boost the housing supply, the country is still building well under half the levels of homes needed.
‘This particular region of the South East currently benefits from the high speed train links and wider regeneration of the area which is long overdue and CBRE would like to see more of these initiatives going forward in the future,’ she said.
And she too expressed disappointment that the Government has not chosen to reform Stamp Duty. ‘Ideally, I would have liked to have seen the introduction of a graduated tax system. This would stop the unfairness and bunching caused by the current slab system. But at the very least, we would have liked the Chancellor to review the bands as they haven't been upgraded for over a decade and this is causing massive fiscal drag. The £250,000 band has been in place for 15 years. At this time average property prices were under £60,000, now prices are nearer £180,000. If the banding had been increased in line with property prices it would now by over £750,000. Cleary the Government is taxing by stealth,’ she pointed out.
She does not believe that the change to properties being bought under company schemes will have much impact on the wider market, but others are concerned about it. Niccolò Barattieri di San Pietro, chief executive officer of Northacre Plc, described the move as ‘the closest measure to a Mansion Tax that we have seen to date’ and warned it could put off wealthy investors buying in London.
‘The reality is that any increase, particularly on foreign investors who utilise companies to purchase residential property to reduce other tax obligations, could be detrimental to the foreign investment that our great city so heavily relies upon,’ he said.
‘Instead, further overseas investment should be encouraged, to advance our ever changing city and to continue to uphold our value of an open market. Construction projects and property transactions have the potential to help underpin economic growth and stability in the UK and as such it should be nurtured, rather than discouraged,’ he added.
Susan Emmett, director at Savills residential research, has analysed the expected impact of the extension of the equity loan part of the Help to Buy scheme to 2020 and set it against the context of estimated housing needs. She pointed out that it will not negate the need for significant investment in other tenures, notably the private rented sector.
‘To meet the need for homes, we should be building 240,000 new homes a year. Statistics from the DCLG show that last year only 110,000 were completed in England. The Government says the further £6 billion investment will help 120,000 more households purchase a new build home. It is unclear how much of this comes on top of the £3.5billion that was expected to support 74,000 sales over the scheme’s three year lifespan. Given the scheme’s popularity and sales rate, the money would have run out six months early, by the middle of 2015,’ she explained.
According to the Treasury, Help to Buy is supporting 30% of new build sales. Of the 14,823 completed sales to date only 977 have been in London. Ten boroughs in the capital, including Kensington and Chelsea, Westminster and Richmond, have seen no deals at all.
‘Rather than inflating a property bubble, Help to Buy is having the biggest impact in lower value markets. Savills analysis shows that in Cannock Chase in Staffordshire, the scheme supported 45% of new build sales. It is followed by Derby and Gravesham, next door to Ebbsfleet in Kent, where 42% and 40% of new build deals respectively were down to Help to Buy ,’ she added.
The only London borough to see such high levels of new build sales as a result of the scheme is Barking and Dagenham at 39% where prices are still 8% below their 2008 peak levels.
