News Review: Budget 2011 An incremental Budget
When the Chancellor delivered his annual Budget on 23 March 2011, the industry was hoping for a boost to the mortgage market. There was no silver bullet but some changes will affect the industry as Sarah Davidson explains
There were few surprises in the Budget this year. But then there was never much George Osborne, Chancellor of the Exchequer, would be able to do after the swingeing cuts to public spending he announced last year. Rising inflation (it hit 4.4% in February), the massive structural deficit in the public purse and weaker than expected economic growth of -0.5% in Q4 2010 gave Osborne little to no wriggle room. Once again there was no longed-for
respite for the mortgage market. But Osborne did announce several measures that have some meaning for the mortgage and property markets.
Stamp tRumpS ShaRed equity
While many have focused on the positivity of a shared equity scheme for first-time buyers, changes Osborne made to the Stamp Duty Land Tax regime are rather more interesting for our industry. Osborne has made amends that should encourage investment in residential property by larger professional landlords by drastically cutting the amount of stamp payable on portfolio purchases. Instead of paying the tax at the higher rate of 4% on the total value of the portfolio of five properties valued at say £1million, the new regime will see each property taxed individually at 1% of the mean value of £200,000. That’s a £30,000 saving. This is great for encouraging
professional investors into the market and may also help clear the backlog
26 mortgAge introducer APRIL 2011
of cheaper investment properties still hanging around city centres in places like Leeds and Nottingham - the frothy reminder of opportunistic developers catering to over-enthusiastic armchair investors. But there is another side to this.
By effectively incentivising this type of investor the Treasury has neatly and quietly avoided supporting the smaller, amateur buy-to-let investors. This is fiscal policy that the Treasury hopes will drive the market towards being one the Financial Services Authority does not have to regulate in order to protect the amateur consumer landlord it so worries about. Private individuals with one or two
properties will still be there, but the incentives in the market are there for the professionals.
This move also delivers some much needed adrenalin in the private rented sector’s arm. In last Autumn’s Comprehensive Spending Review Osborne announced he would cut Communities and Local Government capital spending by 74% over the next four years.
The industry reacted with uproar saying the massive reduction in support for social housing would leave yet more people needing either to buy or rent privately in order to have a roof over their heads. Homeownership couldn’t pick up the slack it said because funding, confidence and mortgage supply simply wasn’t up to it.
That left the private rented sector as the only part of the market potentially
able to pick up the pieces, but lending to landlords had dropped even more dramatically than residential lending since the crunch hit.
The Stamp Duty move in this Budget may or may not have a material impact on the level of lending done to investors because much of that depends not on investor demand but on lenders’ appetites to lend to professional landlords with sizeable portfolios. Currently, there is very little appetite for this sort of lending. Paragon offers loans on portfolios up to £5m but recently launched an amateur product suggesting there may be less demand at the professional end of the scale than hoped. Aldermore Bank is next in line with a strong appetite to lend to professional landlords with portfolios up to several million.
But the two largest buy-to-let lenders in the market are pretty much absent from professional lending. The Mortgage Works has a limited offering that brokers say doesn’t satisfy demand from the professionals while BM Solutions lends nothing to portfolio professionals after saying Lloyds Banking Group borrowers cannot have more than three mortgaged properties with the group. Precise Mortgages and Kensington deal with amateur investors and Platform is not lending to landlords with more than 10 properties in a portfolio. Building societies too seem reluctant to lend to professional landlords.
The glimmer of hope on the horizon is Whiteaway Laidlaw Bank which is to be launching a professional landlord
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