Budget 2011

The chancellor George Osborne announced the 2011 Budget on 23 March. The chancellor's statement, full Budget report and accompanying 'Plan for Growth' document can be found on the Treasury's website.

The key measures of interest to mortgage lenders are highlighted below. We issued a press release in response to the Budget statement, and a policy circular for members and associates.

Banking

The Budget report announced that both Lloyds Banking Group (LBG) and Royal Bank of Scotland (RBS) met their year two commitments for business and mortgage lending. During the 12 months to February 2011, LBG provided £23.5 billion in gross mortgage lending compared to its commitment of £23 billion, and RBS provided £9.4 billion compared to a net commitment of £8 billion.

The government and the Financial Services Authority (FSA) will shortly publish a review of the UK’s regulatory framework for covered bonds. The review will set out the key strengths of the UK framework and the FSA’s supervision of regulated covered bonds. It will also consult on proposals to raise transparency in the UK covered bond market and make the UK regime more comparable with European peers. It aims to increase the appeal of UK covered bonds to investors, making it easier for banks and building societies to raise funding in order to lend to households and businesses.

From April 2011 the government will set up an industry working group to explore any tax issues associated with the development of new bank capital instruments in light of the Basel III proposals and, if necessary, will legislate within the 2012 Finance Bill.

Housing

The temporary changes introduced under the Labour government to Support for mortgage interest (SMI) will be extended for another year. The 13-week waiting period and £200,000 limit on eligible mortgage capital will now remain in place for new working age SMI claimants until January 2013.

Over the next two years, the government will provide £210 million of funding in England and £40 million to the devolved administrations to support first-time buyers to purchase new-build property. Its new ‘firstbuy’ scheme is very similar to the previous homebuy direct scheme which came to an end in the autumn. Qualifying households with an income of less than £60,000 and a deposit of 5%, will be given a 20% equity loan co-funded by house builders and the government. The loan is free for the first five years and repaid on the sale of the property. Homes under the scheme will be marketed from September 2011.

The outcome of the government’s review of stamp duty relief for first-time buyers will be announced in autumn 2011.

To encourage investment in the private rented sector, the government is introducing changes within the Finance Bill 2011 to the stamp duty rules for bulk purchases of residential properties. If the buyer chooses, the rate of stamp duty on purchases of multiple residential properties will be determined by the mean value of the dwellings purchased (subject to a minimum rate of 1%) rather than their aggregated value as is currently the case.

Subject to an ‘informal’ consultation, the government is also intending to legislate in 2012 to support good business practices and remove barriers to entry, and investment in the Real Estate Investment Trust (REIT) regime, including removing the REITs 2% conversion charge.

The Budget report gives notice that the government intends to abolish, after consultation, a number of tax reliefs from 2012 onwards. These will include certain leases granted by registered social landlords; stamp duty on disadvantaged areas; and shared ownership transactions.

Planning reform

The government intends to make a number of reforms to the planning system. Its full proposes are discussed within its Plan for Growth document  (page 43) published alongside the Budget report. Some of the key measures announced include:

• introduce a new presumption in favour of sustainable development, so that the default answer in development is ‘yes’;
• localise choice about the use of previously developed land, removing nationally imposed targets while retaining existing controls on greenbelt land;
• consult on proposals to make it easier to convert commercial premises to residential; and
• pilot a new land auction model, starting with public sector land.

Deregulation

The government has already taken steps to try to reduce the burden of regulation including introducing a ‘one-in, one-out’ policy, introducing sunset clauses on new regulation, and scrapping home information packs.

Further action the government intends to take both on domestic and European regulation is set out in it’s Plan for Growth document (page 51). These include:

• scrapping proposals for specific regulations that would have cost business over £350 million a year to implement;
• launching an extensive public thematic review to reduce the existing stock of regulation;
• launching a major focus on revising burdensome EU regulations and directives; and
• publishing and enforcement white paper in May 2011 with plans to improve enforcement of regulations