U.K. Turns the Screws on Landlords, Extends Help to Buy Plan

(Bloomberg) -- The U.K. government gave its clearest signal yet that first-time buyers are its housing priority while landlords remain in the cross-hairs.

Contrary to fevered speculation that the generous Help to Buy policy might meet its demise -- originally sparked by a review into the program -- the government will actually extend its interest-free loans beyond the next election to 2023, with some tweaks that focus the policy more specifically on debut home buyers. The budget document published Monday makes clear however that there’s no intention of extending it any further.

U.K. Review of ‘Help-to-Buy’ Shows Program Helped Boost Housing

Rental investors, meanwhile, were hit with the removal of lettings relief, a break that reduces capital-gains tax for homes that have at some point been rented out. Only properties where the owner remains in occupancy and rents out a room will be exempt.

The Future of Help to Buy
  • Investors in Britain’s house builders may be relieved to hear Help to Buy will get another limited extension, even though the non-first-time buyers that have so far been eligible will be frozen out of the new scheme. They were a major part of the market, making up about a fifth of sales
  • The extension buys short-term certainty for developers investing in land for future projects
  • But anyone hoping for an indefinite stimulus for home-builder shares, arguably the main beneficiaries of the policy, should take note that time is being called on the program. The government said it doesn’t intend to extend the program after March 2023

The measures reflect the Conservative government’s determination to increase home ownership for younger voters, a goal that has been out of reach in part because of price inflation caused by wealthy pensioners investing in rental property. While extension of Help to Buy -- revealed in the budget documents after markets closed yesterday -- may be positive for the industry, and for the Conservative party’s re-election prospects in 2022, moves were muted compared with the sweeping changes it has introduced in recent years.

The U.K.’s biggest home builders rose. Persimmon, the most reliant on Help to Buy, Taylor Wimpey Plc and Barratt Developments Plc were all up by at least 1.7 percent.

Other key measures:

  • A package of policies designed to support town and city-center stores, including the potential relaxation of rules to make it easier to convert vacant units into homes
  • More funding for housing infrastructure and bank guarantees to support small builders
  • Scrapping stamp duty for shared ownership homes worth up to 500,000 pounds ($640,000)
  • Cutting property taxes for some businesses with lower-value stores
  • The government will publish a consultation in January on a stamp duty surcharge of 1 percent for non-residents buying homes in England and Northern Ireland

Alongside the main budget document, the government also published the independent review of Help to Buy, which concluded the program has supported the development of more homes. It also published a review into so-called land banking that found large house builders weren’t guilty of hoarding plots and slowing development in order to boost prices.

©2018 Bloomberg L.P.