Budget 2013: Government support for the housing market

21 Mar 2013

Representing a significant extension of what the Chancellor calls ‘Help to Buy’, a scheme previously only available to first-time buyers with family incomes of under £60,000, George Osborne said in yesterday’s budget "The deposits demanded for the mortgage these days put home ownership beyond the great majority".

As a result, and in an unexpected yet welcomed move by conveyancing solicitors and estate agents to kick-start many property chains, the Budget has introduced two new Schemes to help hundreds of thousands of homebuyers in a plan to stimulate the housing market and ignite a boom in new home construction:

  • Interest free loans

Starting on 1 April this year, and running for three years, the Treasury has earmarked £3.6bn to lend up to 20% of the cost of any homebuyer (with no means testing) looking to purchase a new-build house worth up to £600,000. Providing the homebuyer puts down 5% of the purchase price, it will be interest-free for 5 years (after that it will attract a 1.75 per cent payment, which will rise annually by inflation plus 1 per cent) and will be repayable on the sale of the property.

  • Mortgage guarantee

Starting in January 2014, and again running for three years, the Treasury will offer £12bn worth of guarantees whereby homebuyers will benefit from a Government backed mortgage guarantee, for 20% of the mortgage’s value. The scheme will be available for mortgages of between 80 per cent and 95 per cent of the home value. Consequently, if a homebuyer can raise a 5% deposit, the Government would contribute 15% to enable the homebuyer to access an 80% mortgage loan.

The idea is that the Government will underwrite the portion of a mortgage between 80% and 95% of the loan-to-value ratio (LTV) of a property, making it less risky for banks and building societies to offer homebuyers a mortgage loan. If a borrower’s property is repossessed, the Government will bear a proportion of the loss, with the lender taking the rest.

Reported by the FT "Barratt Developments moved to the top of the FTSE 250, up 6.6 per cent to 255.6p, with Taylor Wimpey taking second spot, up 6.1 per cent at 90.8p. Persimmon gained 4 per cent to £10.11, while Redrow rose 4 per cent to 192.2p."

Reported in the Guardian, Linden Homes, said it "warmly welcomed" the package of measures, "which now open up the options for even more people to get on the ladder, or make that all-important next step up."

However, in tackling the drain on tax revenue from the housing market, the Chancellor has also confirmed:

  • Retrospective SDLT anti-avoidance legislation

Affecting only households who enter into such schemes and building on the Chancellor’s 2012 Budget threat to counter, retrospectively (to 21 March 2012), any new SDLT avoidance schemes, legislation will be introduced in the Finance Bill 2013 to put counter an SDLT avoidance scheme involving an onward sale (a ‘subsale’ or ‘transfer or rights’) which is not to be completed for a number of years.

Currently, Section 45 of the Finance Act (FA) 2003 applies where a person contracts to purchase land but, before completion, they enter into another contract to sell the land to a third party (a ‘transfer of rights’) and this transfer of rights not being a land transaction is not chargeable to SDLT or is in any event valued at lower than the SDLT threshold. Where the original contract then completes or is substantially performed at the same time as the completion or substantial performance of the transfer of rights contract, the first contract is disregarded. As a result, the purchaser under the original contract pays no SDLT and does not need to notify HM Revenue & Customs (HMRC).

The changes will effectively reverse the ‘disregard’; and a purchaser under the original contract is now required to notify HMRC of any SDLT due by 30 September 2013 by either submitting a land transaction return (where no return has previously been submitted) or making an amendment to their return.

More information on the anti-avoidance legislation can be obtained here: http://www.hmrc.gov.uk/budget2013/sdlt-retrospective-changes.pdf