Philip Hammond had an unenviable job with his 2018 Budget. The uncertainty over how the UK leaves the EU makes forecasting and planning even more difficult than usual.But he had the timely boost of better-than-expected tax receipts which gave him some room for manoeuvre. And, in a stark departure from recent years, he chose to shun deficit reduction in favour of spending -- the beginning of the end of austerity.
Overall, the economic conditions, assuming that Brexit goes smoothly, means that the government should have more tax receipts, but even so the attitude to killing the deficit has softened. While cuts in basic tax rates are a long way off, increasing personal allowances does put more money in people’s pockets.
It’s not going to change much though -- just £44 per year on average, although higher rate tax payers will benefit by about £175 per year. In practical terms, this will do nothing for affordability in the housing market.
More council homes
So, what did the Budget mean for the housing market? Specific policies were aimed largely at the delivery of new housing, but not all for homeowners.
The biggest change was lifting the restrictions on council house building. The Office for Budget Responsibility estimates this will result in an additional 9,000 new homes more than what would have been the case by 2023, as private sector house-building falls back a little.
Changes to Help to Buy
For owner occupiers, the chancellor is acutely aware that Help to Buy is a popular and effective policy. It has widened access to ownership and boosted private sector building, but the end of the boon is nigh. The scheme will be extended for two years until 2023, but from now on will only be open to first time buyers rather than anyone buying a newly built home.
And there will be a cap on the value of home you can buy which varies by region. In London, the cap remains at £600,000, but in the South East, a limit of £437,000 has been imposed -- almost twice the £224,400 cap in the North West.
The scheme has however been extended to home buyers choosing shared ownership as their first rung on the housing ladder. This levels the playing field somewhat, perhaps an acknowledgement that this tenure is becoming more attractive and important as affordability looks unlikely to ease significantly for this generation of young home buyers.
There is also some help to small and medium sized house builders in the form of £1 billion of bank guarantees. Smaller builders were hugely important in housing provision but have found it very difficult to return to the market since the financial crash. This incentive may help and promote low volume building in needy areas, where large developments are impossible or inappropriate. A by-product of attempts to revive and reinterpret high streets in England, concessions for the change of use of underused retail and commercial premises into residential homes could also help to provide much needed homes in established areas.
There is more to do...
But there were many things absent from the budget as government consultations and research had fallen behind, including the surcharge on stamp duty for non-residential property buyers announced by the Prime Minister in September 2018. This is still to be consulted on.
Overall the budget wasn’t a game changer for the housing market, but the commitment to spending to support the economy as it goes towards Brexit should help to boost confidence at a time when wages and employment are strong, and confidence is essential for healthy housing markets.