The Chancellor of the Exchequer's first PBR ticked a fair few boxes, addressing all the key areas he was predicted to, including inheritance tax (IHT), ten-year fixed rates and capital gains tax reform, however the industry reaction has been fairly split. One issue which all agree on though is that stamp duty concerns were very conspicuous in their absence.
Richard Farr, director of the Association of Mortgage Intermediaries (AMI) believes that whilst it is good to see the Chancellor taking the idea of longer-term mortgages on board, borrower demand is yet to pick up. "These mortgages have little impact on the number of people getting onto the property ladder and crucially don't help affordability.
"Ultimately, people want flexibility and the ability to choose from a range of mortgages that suit their particular needs, which for some could include the stability of a long-term fixed rate. A number of providers already offer 10 and 25-year fixed rate mortgages. To date they haven't proved very popular."
However Nici Audhlam Gardiner, Abbey head of mortgages, painted a different picture: "Our research shows that the appetite for long term fixes is increasing. Nearly 40 per cent of homeowners Abbey surveyed recently said they would opt for a fix of five-years or longer if they were remortgaging tomorrow. That's almost the same as the number of people who would opt for a two-year fix - previously the most popular type of product. Lenders are contributing to this demand, reducing rates to make their long term fixed rate deals even more attractive."
More controversially, the changes to the IHT threshold for couples provoked mixed reactions. Philippa Gee, investment director at Torquil Clark, failed to see any benefit from extending couples' allowances, whilst Francesca Lagerberg, head of Grant Thornton's National Tax Office expressed concern for the fallout this would have on small businesse, saying: "The Government is going to consult with businesses, on the operation of the measure, but it is not interested in debating the principle. What businesses need now is 100 per cent certainty as to what the future holds and clear guidance."
Small business aside, the IHT changes certainly made the impact the Chancellor was hoping for. Julie Hutchison, estate planning specialist at Standard Life Assurance Limited, said: “For once I find myself welcoming retrospective tax rules. Anyone whose spouse died before 9 October 2007 can benefit from the new transferable IHT rules which could result in a significant IHT saving for the family on second death.
"These new rules address the problem that the nil rate band of the first to die can often be wasted, if assets are simply left to the surviving spouse (since spouse exemption applies). Historically, this prompted the popularity of nil rate band will trusts, and deeds of variation to achieve these where the trust was not in the original will.
"There will now be a re-think on will drafting and whether house titles need to be amended to sever joint tenancies. I also welcome the news that the Chancellor will consider house prices when making future increases in the nil rate band.”
One key omission from the PBR was Stamp Duty - one which could well have suprised many in the mortgage industry who were expecting Darling to give a nod to the tax by raising the threshold to bring it back in line with earnings and house price growth.
Grant Thornton's head of property and construction, Clare Hartnell, was certainly surprised: “Stamp duty land tax is the best weapon the Government has at its disposal in helping people onto the property ladder and it is amazing that further help to first-time buyers has not been offered in the Chancellor’s latest pre-budget report.
"The lack of an announcement on stamp duty land tax is particularly surprising given the Conservative's proposal to exempt anyone who buys their first home for under £250,000 from SDLT. One would have thought that the Chancellor would rise to the challenge and offer a carrot to potential property investors, however, he may feel it too early to be fiddling with stamp duty when the housing market is cooling off.
“The Government has signalled it will be looking closely at the use of special purpose vehicles to reduce stamp duty land tax and how to extend the disclosure regime to high value residential property transactions. So rather than use the pre-budget report to offer some help to first time buyers, the Treasury is instead trying to recoup revenue it believes it is losing out on as a result of property transactions made through companies.”
