Summer Budget 2015: comments continued

The Chancellor of the Exchequer gave his summer Budget to Parliament on Wednesday 8th July 2015. Listed is a further selection of comments on the key announcements.

Brian Murphy, Head of Lending at Mortgage Advice Bureau (MAB), commented:

“The restrictions on buy-to-let mortgage interest tax relief announced in today’s Budget will almost come as good news to those landlords who feared it would be completely abolished. Totally removing the tax relief could have led to significantly reduced profits for borrowers who pay above the basic rate of income tax, particularly as mortgage interest represents a significant proportion of landlords’ annual costs. The decision to halve the 40 percent tax relief may not be popular, but will be far easier for landlords to adjust to.”

“A complete removal of mortgage interest tax relief could also have led to higher rents for tenants in order to help cover landlords’ financial loss. However, the more limited restriction on tax relief is being gradually introduced over four years from April 2017, so landlords have plenty of time to forward plan how they will adjust to the changes without resorting to sudden hikes in rents.”

“Landlords are often unfairly used as scapegoats for the problems facing the residential housing market. Although housebuilding has picked up recently, planning, provision of materials and suppliers and industry capacity is still at a relatively low level compared with the number of properties needed. The Government must now focus on a comprehensive long-term house building plan to work alongside wider plans for the economy.”

Horticultural Trade Association (HTA) CEO Carol Paris comments on Sunday Trading:

“This could really benefit the horticultural sector as a whole and is one of the ‘asks’ of Government in the recently published industry wide ‘Ornamentals Action Plan’. The HTA has been lobbying on Sunday Trading for over two decades now and we are delighted that at last moves are being taken to remove this outdated piece of legislation.”

“This is all about choice – choice for the public to shop when they would like and choice for garden retailers to open when they like. With online trading allowing people to shop 24/7 it is ridiculous that someone can sit and eat in a garden centre restaurant (which are exempt from the law) on a Sunday and order garden product online but not actually purchase products instore. Gardening continues to be one of the nation’s favourite pastimes and weekends are typically when more time is spent on doing outdoor projects and so a relaxation of the law will no doubt provide a welcome boost to trade.”

Simon Checkley, Managing Director of Private Finance says:

“Logically, lenders will ultimately have to have criteria formulae for basic rate tax payers ie 125 percent at 5 percent and another i.e. 156 percent at 5 percent for 40 percent payers because their net rental income will be 80 percent of that of basic rate tax payers. The reduced relief is being phased in between 2017 and 2020. This move was largely to be expected. Long term buy to let investors might decide to build their portfolio within a ltd company structure although there are financing (fewer lenders) and tax issues to be considered. Inevitably there will be upward pressure on rents as a result of these changes but no less demand amongst buy to let investors as this type of investment continues to look attractive. The losers here will be tenants. Would be home buyers should act now to buy, as with buy to let investment continuing to look attractive, prices will continue to rise. A 95 percent capital and interest mortgage under help to buy should be comparable to current rents payable based on a yield of 5 percent.”

Professor Charles Egbu, Professor of Strategic Management in Construction and Project Management, and Dean of School of the Built Environment and Architecture, London South Bank University said:

“The Chancellor of the Exchequer, George Osborne MP, has had to tread very carefully in his Summer 2015 Budget, in order to keep different stakeholders ‘happy and quiet’ by tactfully managing expenditure and incentives. It is fair to say that the budget would be seen as one that primarily focused on issues and efforts to improve and raise ‘productivity’ in its widest sense, and address growth in the major regions of the country. It also attempts to move the pendulum from welfare to wage costs. As they say, the devil is in the detail, and we expect more on capital spending in the Spending Review.”

“A number of measures outlined in the Chancellor’s budget could be seen as positives from a Construction Industry and wider Built Environment perspective. First is the proposal to reform (and hopefully, this should come with some real funding) apprenticeships (including Higher and Degree Apprenticeships). A number of employers should be pleased with this. The construction industry should benefit from the 3 million apprenticeship target which the government has set for itself. It should also go some way towards addressing some of the issues of skills shortages and skill gaps in the construction sector. It is, however, important that the Construction Industry plays a significant role (in terms of standard setting, organisational support) in quality-driven apprenticeships. Employers, professional bodies, and providers need to work closely to make this work.”

“There was mention of ‘National Living Wage’. I’m sure the construction industry would have benefited more if the government went the extra mile to increase the minimum wage for apprentices. But this is not to be. There should be some benefit, though, to facility and asset management companies with large operations, if not the well-remunerated construction workers. More was expected on the issue of stimulating the housing market. Housing remains a crisis issue, and the budget seemingly has failed to tackle this head-on. The construction industry needs to keep a careful watch on the Chancellor’s proposed reforms to do with dividend tax credits, as this could make labour more expensive as some employments structures become less favoured and lucrative. The rise in employment allowance of £3000, however, should benefit small construction firms as they could employ four people without paying the national insurance. I would expect that the announcement by the Chancellor that small and medium size constructors will get a £100m boost through the Housing Growth Partnership would be seen as positive move, and one which the Federation of Master Builders should be quick to seize upon.”

Property expert Simon Morris comments on the property-related changes announced yesterday in the emergency summer budget, and advises how these affect investors and buy-to-let landlords:

“The confirmation of the launch date for the Help to Buy ISA should inject fresh first time buyer capital into the UK residential property market. Meanwhile, the raising of the inheritance tax threshold should boost the higher end of the UK’s residential property sector.”

“However, the emergency summer budget posed new challenges to buy-to-let landlords. Many people have taken advantage of pension reforms to release their pension savings to invest in buy-to-let property. Now, these people need to re-calculate their potential return volumes.”

“Will the capping of tax breaks or the restriction of tax deductions increase maintenance costs and buy-to-let mortgage fees? If so, landlords need to re-calculate risk vs. return, to determine whether they can generate a healthy return on their investment.”

Simon Hay, CEO of the Brick Development Association comments:

“The BDA supports an increase in apprentices to combat future skills shortages both in our industry and the wider on site construction industry. Over the next five years approximately 200,000 new construction jobs are to be created, however, we must not forget that almost twice this number will leave the sector, making schemes such as the levy crucial to attract future construction workers. It must be assured in the details that we are not however disadvantaged against continental competition, we will certainly be monitoring the outcome of the proposed levy with great interest.”

The London Central Portfolio Limited (LCP) said:

“Businesses in the UK are entitled to set debt interest against income. Debt can be essential to setting up a business, however small, and being able to run it. However, during yesterday’s first all blue Budget, a cut was announced on interest relief for Landlord’s with buy to let mortgages. From April 2017, full tax relief will be removed. By 2020, landlords will only be able to offset mortgage interest at the basic rate of tax (20 percent).”

“With most sectors feeling the pain of Osborne’s tax grab as he manages the deficit, this move was probably inevitable. Justified as addressing an apparent anomaly with owner occupiers who do not enjoy tax relief on their mortgages, at first glance, it would seem politically popular. The reality is, such a comparison, is comparing apples with pears. Homeowners are not running businesses nor do they pay CGT, for example, on disposal of their property.”

“For some, for course, residential property business seems grubby and exploitative. The Private Rented Sector (PRS) suffers from a moral conundrum. Because it deals with people’s homes, it struggles under a sea of emotion, rather than being seen for what it is. A commercial asset class which should be treated as such, rather than being continually singled out as a tax mule as politicians play to the gallery.”