Coventry Building Society has warned that proposed Budget tax reforms could have unintended consequences for first-time buyers despite being targeted at wealthier homeowners and landlords.
Reports suggest the Chancellor is considering scrapping stamp duty for buyers and replacing it with a property tax on sellers of homes worth more than £500,000; allowing buyers to pay stamp duty in instalments; ending capital gains tax exemptions on main residences above certain thresholds and extending National Insurance to rental income.
But Jonathan Stinton, Head of Intermediary Relationships at Coventry Building Society, warns that shifting stamp duty onto sellers may discourage movement at the higher end of the housing market.
And that would reduce the number of family homes coming up for sale and in turn limiting supply of starter homes.
UNINTENDED CONSEQUENCES
He says: “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.”
While allowing instalments could ease upfront costs it would also “saddle first-time buyers with another monthly expense making overall affordability tighter.”
Plans to introduce capital gains tax on main residences risk “turning downsizing from a smart financial move into a costly dilemma,” Stinton says, adding that it could weaken the “Bank of Mum and Dad” by reducing funds older homeowners can pass on to younger generations.
Meanwhile, extending National Insurance to rental income may create a “double whammy” of rising rents, either because landlords pass on the costs or exit the market. “For first-time buyers saving for a deposit, any further reduction in the supply of rental properties is likely to put upward pressure on rents,” Stinton warns.
