News of a minimal increase to the Capital Gains Tax came as a relief to the UK real estate industry, yet some claim it will still deter landlord investment. Although UK housing prices are projected to fall in the period immediately ahead, a positive GDP performance could mean a continuation of favorable lending rates and a boost to property prices. See the following article from Property Wire for more on this.
The Emergency Budget, although generally regarded as the best possible in difficult circumstances will do nothing to prevent residential property prices in the UK falling, experts predict. Although the real estate industry has welcomed the lower than expected rise in Capital Gains Tax, analysts point out that it is set to hit the buy to let sector and discourage private rental landlords.
Yolande Barnes, head of Savills residential research, said that the Budget reinforces Savills’ prognosis that the mainstream UK housing market will see a second slip in values over the next 12 to 24 months. ‘We anticipated as long ago as the summer of 2009 that the housing market would see further falls in 2010. The Chancellor today outlined some of the forces and factors behind this prognosis and gave us no reason to revise our views,’ she said.
‘The pain will fall on just about every household in Britain and this will undoubtedly curb consumer confidence. The effect will be to suppress spending and that will include spending on homes. Some markets have already stalled in the run-up to the Budget and it is probable that post Budget sentiment will continue to suppress transaction levels,’ explained Barnes.
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Property in the north of the country could suffer the most as cuts fall disproportionately hard on some regions, she argued. ‘More worryingly, austerity measures will work against mortgaged owner occupiers and will pose a real threat to those seeking to remortgage,’ she added.
She also welcomed the news that the government is to look at the effect of the recent stamp duty holiday. ‘We continue to urge the Government to consider transferring the burden of this tax from buyers to sellers. This would have the effect of removing the barrier to first time buyers at no cost to revenue. We would also welcome the removal of the slab rates to create marginal stamp duty rates which will take away the steps that have been distorting pricing points in the market for some years now,’ said Barnes.
Ian Potter, operations manager of the Association of Residential Lettings Agents said that although the rise in CGT to 28% for higher rate tax payers was less than expected it will still hit landlords. ‘The Chancellor risks driving those landlords paying the higher rate of tax from an already very fragile housing market at a time when they should be actively encouraged to stay and, ideally, further invest,’ he said.
‘In particular, neglecting to include rollover relief is a big gamble, as many landlords will now be penalized by CGT and hit by Stamp Duty when they sell one rental property and purchase another. This may further disincentivize some landlords from remaining in the private rented sector and negatively impact the overall supply of rental property,’ he explained.
But CGT is a non issue according to Liam Bailey, head of residential research at international consultants Knight Frank. He pointed out as the rise came into play within in hours of the Chancellor George Osborne’s speech there was no sudden sell-off of second homes or investment properties.
‘The new rate takes us back to a similar rate to where we were under the pre-2008 rules, when taper relief was able to reduce a 40% headline rate of CGT to 24%. With higher rate CGT at 28% the argument for property investment still looks strong and capital gains still compare very favorably with income tax at 40%,’ explained Bailey.
On the longer term outlook Bailey points out that with strong GDP growth forecasts for 2011 and 2012 the inference is that the Bank of England will be encouraged to maintain a very loose monetary policy for longer than recently expected, suggesting interest rates at current levels could be maintained for longer. ‘This would underpin house prices and also contribute to ongoing low supply in the market,’ he said.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.