It appears that we may be heading towards a ‘tipping point’ in the residential property market like we have seen before – a good or bad thing?
Around twenty years ago we had an artificial boom caused in the residential market by the withdrawal of MIRAS (mortgage interest relief at source). The government in their infinite wisdom set a date in the future for its end (6 months I seem to recall) which caused a rush for house buying by first timers. The result – rapid price rises and an artificial market.
In a similar way first-time buyers are currently being urged not to rush into hasty property transactions just to benefit from the stamp duty holiday which is due to end next month. Currently anyone buying a home worth less than £250,000 is exempt from paying the normal 1% stamp duty until 24 March. The tax band is being reintroduced because the Chancellor George Osborne believes the tax holiday has been ineffective in letting more people buy a home. Probably true, but could its reintroduction kill it stone dead this time?
House prices over the last 12 months have fallen by 1.2% according to the Land Registry, on the face of it this suggests the stamp duty holiday has failed in incentivising first-time buyers. They are seen as key to revitalising the housing market and creating construction jobs.
However, after the credit crunch many banks started demanding hefty deposits from mortgage borrowers of 20% or more and the challenge for many first-time buyers has been building up that level of deposit, particularly with rents being so high. A catch 22 situation.
The government is replacing the current scheme with the ‘NewBuy Guarantee scheme’ – this allows lenders to offer 95% mortgages on new homes without taking on all of the risk if the borrower defaults (the scheme guarantees a percentage of the loan). This insurance scheme will be paid for by contributions from both the developer and the government and means that lenders will be guaranteed to lose less money than before if the borrower eventually fails to repay all their loan. This should enable buyers to get on the property ladder more easily due to smaller deposits being required.
So perhaps next months initiative may be a partial answer, but in conjunction with the stamp duty reduction please, not instead of it!