If, as many commentators expect, Gordon Brown takes over from Tony Blair as Prime Minister in the very near future, what impact is this likely to have on the housing market?
In considering what Gordon Brown is likely to do, it is important to remember the background.
Gordon Brown has been the longest serving Chancellor of the Exchequer since Nicholas Vansittart, who served in the role from 1812 to 1823. Brown has prided himself on bringing economic stability to the UK as well as sustained economic growth. Consequently, in spite of the various economic difficulties which he now faces, he will be loathed to be Prime Minister during a period of great economic instability and uncertainty.
He has also been a member of the Cabinet for many years, so it will be difficult to distance himself from the policies of his predecessor. However, who remembers Nicholas Vansittart? History will remember him for his actions as Prime Minister.
Consequently while recognising the policies and statements of the past, Brown will be keen to make his own distinctive impression on government.
Once elected as the leader of the Labour Party, Brown’s principle priority will be to win the next election. As many Prime Ministers who have been elected by their party, rather than the electorate, have shown in the past, Brown may not feel that he has succeeded until he has won an election, at which point he wins a mandate and is in a position to assert his authority.
Gordon Brown is deeply committed to social justice, mobility and equality of opportunity. This could be the way he seeks to make his mark as Prime Minister. However, given the current state of the polls and the image that people have of him being something of an old-fashioned socialist, he will need to keep a weather eye on securing the support of the middle classes.
Housing market implications
What implications could Gordon Brown’s rise to power have towards the housing market?
At a macro-economic level, the Chancellor will be very nervous about the prospect of declining house prices, as this is a sure-fire vote loser. As a result, he will be very keen indeed to avoid a crash in house prices, if at all possible.
The government is committed to getting more people into home ownership. Brown has talked proudly of achieving a target of two million additional homeowners by the year 2010. Given the rise in house prices and the difficulties people are experiencing in getting onto the property ladder, we can therefore expect more in the way of social housing, shared equity and measures to assist first-time buyers. While efforts in the past have not been particularly successful, Brown is likely to promote other schemes which will help more people onto the property ladder.
Matching supply with growing demand, Brown is therefore likely to promote schemes to encourage the construction of more homes and a relaxation of the planning system, as seen in recent comments in Kate Barker’s report on the UK housing situation.These schemes are likely to be linked to another vote winner – caring for the environment through encouraging ‘zero carbon’ homes and reducing global warming.
Equity release impact
One of the long-term opportunities and challenges identified in the government paper entitled ‘Opportunities and Challenges for the UK: Analysis for the 2007 Comprehensive Spending Review’ published in November 2006 was demographic and socio-economic changes with the rapid growth in the old age dependency ratio and rising consumer expectations.
These long term socio-demographic trends, together with the amount of money tied up in the housing market, has significant implications for the government and homeowners alike and is likely to fuel the rapid growth of the equity release market.
Equity release has many attractions as far as the Chancellor is concerned.
It is a potential solution to the emerging pension crisis, as older people can take cash from their properties to fund their retirement. Equity release is also a solution to the growing cost of long-term care and reducing the burden on the State of looking after people in old age. It can be used to improve sub-standard homes and help the environmental agenda – at limited cost to the Exchequer.
Equity release could also be a way of addressing the increasing unpopular problem of the growing number of middle class families being drawn into paying inheritance tax. By taking out
equity from their property before they die, older homeowners can, for example, help their children get onto the property ladder, thereby assisting one of Brown’s other priorities – namely, increased homeownership.
Series of initiatives
For all these reasons, together with Financial Services Authority regulation of both the lifetime mortgage market and home reversion schemes which comes into effect in April 2007, Gordon Brown is likely to be supportive of the growth in use of equity release products and may even promote this actively through a series of initiatives.
Such initiatives could include:
c Simplifying the current benefits system to allow for a certain amount of equity release to be used for specific purposes, such as care in the home, property improvements or environmental improvements to the home, without affecting the home owners’ entitlement to state benefits.
c Tax incentives and subsidies to support releasing equity to pay for home improvements or long-term care in the home.
c Subsidies to ensure that home owners receive good independent financial advice when considering their financial options into
retirement.
Either way, the equity release market is likely to grow significantly in the months and years to come, arguably whether Gordon Brown comes to power of not, and mortgage intermediaries should consider getting involved in the market.
