The Inside Edge
It’s Budget time and many of us will be frantically scouring the budget news for proposals, price hikes and changes that will affect the property business.
House prices could be set for a boost by a multi-million pound stream of buy-to-let investment by institutions, including the biggest insurer in Britain, prompted by an often-overlooked clause in the Budget.
Whilst a lot of attention has been paid to the £250m of new loans made available to help 10,000 first time buyers, less attention has been focused on the reforms to stamp duty for people looking to ‘bulk buy’ residential properties. Not getting excited yet? Wait until you see some of the figures.
If the Budget proposals pass into law, the tax bills for institutional investors and other buy to let landlords could be slashed by 80%. Anybody purchasing a property portfolio of let’s say 100 homes worth an average of £200,000 each following the 6th April would attract a Stamp Duty charge of 5% of the 20m deal value or £1m.
However, Chancellor George Osborne is proposing a change to the way these taxes are calculated. The proposal means the rate applied will be based on the average value of the properties concerned and not their total value. If we use the example given above, because the average price paid for the properties was £200,000, the rate of Duty falls to 1% resulting in a tax bill of £200,000. That’s some drop!
James Moss, a director at Curzon Investment Property, said “This will be a huge boost in the private rented sector as it will allow pension funds to buy homes in bulk without any unfair spikes in Stamp Duty.”
That’s an understatement! When you consider the sums of money that insurance companies and other institutional investors have under their management, any increase in this allocation to residential properties could have a dramatic effect on UK house prices.
Aviva, the biggest insurer in Britain today, has confirmed they are considering setting up a £1bn residential property fund so they can take full advantage of the proposed tax break and other big names are very likely to follow suit. Some market analysis has suggested that many properties still remain overpriced, but figures show that the rental market has held up despite the recession.
No matter how you look at it, bricks and mortar are still attractive for many institutional and individual investors. The next few months look set to be interesting and the result on the housing market could be dramatic although don’t expect these changes to occur over night.