In U.K., Budget Announcement Brings Mixed News for Property Investors

House prices in Britain are set to rise by more than a quarter over the next five years. The Office for Budget Responsibility, the U.K. government’s fiscal watchdog, predicts that the average cost of a home will be 26.4% higher by the first quarter of 2021. This is slightly higher than its last forecast in November. The OBR expects a flood of buyers of second homes and rental properties into the housing market before April 1, when an additional 3% stamp duty (or, sales tax) is introduced for these purchases. The increase in demand is expected to push up prices in the short term. More:A Guide to the London Market This forecast comes alongside the U.K. government’s annual budget announcements on Wednesday, when finance minister George Osborne set out his spending plans for the coming year. Of particular interest to real estate investors, the capital gains tax (CGT) will be reduced from 28% to 20% on most assets — except for residential property. Those selling second homes or investment property, therefore, will not benefit from the reduction. “It will act as a longer-term disincentive to invest in residential property compared to other asset classes,” said Lucian Cook, head of residential research at real estate consultancy Savills. “This may put further pressure on the supply of private rented homes against the backdrop of rising demand.” More:More Warnings that Brexit Will Cause Slowdown in U.K.’s Prime Housing Market Rents may then feel upward pressure. In a further blow to real estate investors in the U.K., the government announced that, after much consideration, it would not exempt owners of a large portfolio of rental properties from the 3% stamp duty surcharge.