With the Budget just eight weeks away, Coventry Building Society is warning that the proposed tax reforms could backfire on first-time buyers. While the changes may seem targeted at wealthier homeowners and landlords, the ripple effects could be felt across the housing chain, making it harder for aspiring buyers to get onto the property ladder.
Reports suggest the Chancellor is considering the following reforms relevant to home buying:
• Scrapping stamp duty for buyers and replacing it with a new property tax on sellers of homes worth more than £500,000.
• Plans to allow homebuyers to pay stamp duty in instalments, rather than paying it all upfront.
• Ending the Capital Gains Tax (CGT) exemption on main residences above certain thresholds – meaning owners of higher-value homes would face large new bills when they sell.
• Extending National Insurance to include rental income.
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said: “On the surface these changes don’t look like they touch first-time buyers – but the hidden consequences could be huge. When you shake the top of the ladder the impact is felt all the way down – which is why any reform has to be carefully thought through, to avoid creating problems for the people who need support the most.”
Stamp duty
“Switching stamp duty from buyers to sellers sounds like a huge win for first-time buyers because it takes a big upfront cost off the table – but it’s a hollow victory if there aren’t any homes to buy. If sellers at the top end of the market are hit with bigger tax bills, they may simply stay put.
“That could mean fewer family homes are freed up, and ultimately fewer starter homes coming onto the market. So while upfront costs may be lower, finding the right home could be harder.
“There’s also speculation that buyers could be allowed to pay stamp duty in instalments. While that might ease the initial burden, it could also saddle first-time buyers with another monthly expense making overall affordability tighter.”
Capital Gains Tax
“Taxing main homes through CGT could turn downsizing from a smart financial move into a costly dilemma. Faced with a hefty bill, many homeowners might simply stay put – putting another squeeze on the flow of family homes on the market.
“It also risks weakening the Bank of Mum and Dad. The money that older homeowners unlock when they downsize is often passed on to children and grandchildren to help with deposits. If the taxman bites a big chunk out of the proceeds of a sale, the next generation of buyers could find it harder to get the financial support they’ve been counting on.”
National Insurance on rental income
“Extending National Insurance to rental income could create a double whammy of rent increases for tenants. Some landlords will be faced with either passing the cost on to their tenants or selling up altogether. On the one hand, landlords selling up may present more opportunities for people looking to get a foot on the property ladder right now. But on the other hand, for anyone trying to save up a deposit, any further reduction in the supply of rental properties is likely to put upward pressure on rents.
“And with the Renters’ Rights Bill on the horizon, some landlords may even hike rents re-emotively before rules kick in. For first-time buyers saving for a deposit, that makes it even harder to put money aside each month.”
