What might the Chancellor George Osborne do to impact
on property in the budget?
I don't know why, but for some reason the Chancellor didn't bother waiting until Wednesday to make some of his announcements - perhaps he was too excited to leave it until then!
Help to Buy a New Build Extended (H2B!) in the budget.
The first thing the Chancellor has already agreed he will do is to extend the first Help to Buy Scheme.
This means that up until 2020, you can buy a new build property from a participating lender with help towards your deposit of up to 20%. So if a new build property costs £100,000, you will be able to buy it with a 5% deposit and the government will put in up to 20% of the money for the rest of the deposit for the next five years.
After five years you will have to start paying back the loan to the government.
Read my checklist on the new Build Help to Buy scheme.
Impact of extending H2B1
This means to some extent that if you want to buy a new build, there is no rush. You can do so and get an initial help with the deposit. It also means that if you buy now and live in the property for the next six years, there is unlikely to be the 'drop' in the prices that was previously predicted by economists/pundits who don't work in the property market (who I think were wrong in the first place!). Over this period of time, most areas are expected to see a 15-30% increase in property prices, and you will have paid off some of the loan under your mortgage repayment loans. This will mean the equity built up in the property could (although its not guaranteed) be enough to:-
1. Sell the property and pay the government loan off or,
2. Re-mortgage the property to pay off the loan (depending on whether that was more cost effective than the monthly loan repayments).
The other impact of extending H2B1 is also potentially good news for your mortgage payments in the initial stages. This is because Help to Buy a New Build means you borrow less money initially from the lender, the rates (at the moment) being around 3% - whereas under Help to Buy an existing home scheme you borrow 95% and the rates are higher at 5%.
Be aware of the impact of interest rate rises on Help to Buy a New Build scheme
Although the scheme is a cracker in terms of government help to get you on the housing ladder, be careful about how much you borrow.
Interest rates, which can impact on mortgage rates, are expected to rise by 2015, i.e. next year. Although it's expected they will rise slowly, long term mortgage rates have been at 5%, i.e. nearly double the 3% you may get now.
To be sure you can always afford your property, make sure you can afford mortgage payments at 5% mortgage rates. You can do this using a mortgage calculator or ask your lender to advise you on what the costs would be.
For more help how to access Help to Buy, read my checklist on Help to Buy an Existing Home and a New Build.
Stamp Duty
Many are hoping the government will do something about stamp duty. The complaint is about the move from 1% to 3% and the impact that this has on property prices between £250k and £300k. With the ONS stats recording the current average house price at £250,000 in the UK (it's £165k according to the Land Registry) there is apparently the possibility of raising the band to £300,000. The £250k rate is especially hard in London, where it is tough for first time buyers to buy anything for less than £250,000 on the open market.
If you are thinking of buying and want to understand how much Stamp Duty you will pay, read my Quick Guides to Buying your First Home, Trading up and Trading Down.
My view is that the government won't do anything, but I think all first time buyers should be exempt from stamp duty (remembering most don't pay it outside of London/South East) as they should be rewarded for saving to buy their own home.
Property Tax
I am not sure whether they will make the change in this budget, but I am sure that the tax benefits landlords currently enjoy when investing in buy to let are going to be reduced. The government is supportive of the private rental sector, so it may delay changes for another year, but last year it started to reduce benefits. For example,CGT relief for homeowners renting their property dropped from 36 months to 18 months.
Watch out for an increase in capital gains tax from the current 18% for 20% taxpayers to 28% for higher rate taxpayers. Also, the government could potentially restrict what landlords can claim for such as mortgage interest relief.
My view is if they do anything, it will be to hit the capital gains tax rates - remember, they used to be 40% and taper down to 10% after 10 years.
For help with Property Tax, please read our Buy to Let Tax checklist
Raising of the personal tax rate or reducing income tax?
This is quite likely to go from the £10,000 it will be in 2014-15 (depending on your age, visit HMRC) to a potential £10,500 in 2015-16. Good news if you earn less than £100,000. For those on more than £100,000, this is already quite heavily taxed. Alternatively, others are saying that George Osborne may reduce income tax by a penny.
Personally, I think that raising the personal tax rate is a great way to encourage people back to work, and that it should be increased to reduce the costs of implementing tax breaks for those on low incomes.
So some things might happen - others might not! We'll know by Wednesday, and I will send out a summary for you on Thursday.
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