The residential property market will be breathing a sigh of relief that the Chancellor has not hiked stamp duty. Although house price inflation remains strong, recent history has shown that the upper end of the housing market is impervious to marginal increases in this tax . I suspect the Chancellor realised that an increase would be seen as politically incorrect by the middle classes . So the only impact of the budget on the residential mortgage and property market is the effective 1 per cent increase in marginal tax brought about by the uncapped increase of 1 per cent in National Insurance from 2003. The decoupling of the additional 1 per cent presents a neat way for the upper earnings limit on employee contributions to be progressively eroded . This could over time affect the affordability of larger loans being taken out today . Lenders should be actively considering their policy in this area .
Property investment is the area really hurt in this budget . At a time when both individual and institutions are increasing their asset allocation towards property investment the attack on the stamp duty avoidance schemes used extensively in the industry is a big negative. As an asset class property is now at a distinct disadvantage to equities in transaction costs. Furthermore the aggregation rules that treat stamp duty on portfolios on their total value particularly hurt the residential investment sector. A real opportunity to encourage private investment in affordable housing has been lost . Although the number of Enterprise Neighbourhoods has been increased to 2000 the dropping of stamp duty on commercial deals is unlikely to bring positive benefits .The tax gain does not outweigh the return downside from an investors standpoint. More benefit would have come from encouraging proprietorial businesses by extending the relief to mixed use property.
Mark Chilton is an independent mortgage consultant.