Disappointment is a pretty common word and when used in the same sentence as political issues or with a politician’s name attached it is even more common.
In what looks set to be the Chancellor Gordon Brown’s 11th and final Budget, that word disappointment seems to find its way into vast majority of industry commentators’ sentiments regarding its impact upon the housing market. This is especially prevalent in the case of those looking to take their first step onto the property ladder.
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Hiding behind the headline grabbing income tax reduction, while dodging frenzied opposition condemnation of the changes being a ‘tax con, not a tax cut’ and the well used phrase of ‘smoke and mirrors approach’ being bandied around, the Chancellor has tightened the vice for first-time buyers (FTBs). Instead he has picked up his environmentally friendly shovel and appeared to plant a few seeds of hope in his ‘green’ allotment but surely it is the Stamp Duty fencing at the bottom of the garden that needs lowering or indeed ripping down in order for FTBs to reach the seemingly forbidden fruit.
A ‘green’ ethic
Examining the ‘green’ element of the Budget it has been announced that zero-carbon homes up to £500,000 will be exempt from Stamp Duty until 2012. The decision the Chancellor was said to have made after consulting with major banks and building societies to encourage them to create a new market.
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While the government’s green ethic is to be applauded there are reservations as to just how great an effect this will actually have.
Richard Sexton, business development director at e.surv, welcomes the initiative but says: “In reality it will capture very few homes today. It will create a demand from purchasers for properties of this nature but we cannot really expect this to make any impact on the cost of moving home in the next few years.”
He adds: “It is disappointing that the move does not appear to encourage owners of the existing aging and less energy efficient housing stock to move towards zero emissions.”
There are a handful of lenders already offering ‘green’ mortgages, most notably the Norwich and Peterborough Building Society, Ecology Building Society and the Co-operative Bank. However after the budget announcement, HBOS has added its sufficient weight to the green issue by announcing that it will launch a green mortgage product next year.
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While details of the actual launch are still vague, James Cotton, mortgage specialist at London & Country, declares that while the products are still in their infancy it is encouraging to see companies as influential as HBOS addressing this issue.
He says: “The best way to push this sector forward and to see more competitive products is to get big lenders entering the market. The HBOS announcement is a step in the right direction and if we get other lenders following suit it can’t help but benefit these environmental issues. There are still questions over what defines a zero-carbon home and while the exemption from Stamp Duty for such homes is a good one, the industry needs more education on how to tackle this issue.”
Lack of action
However the major source of ire from the industry is directed at the lack of action rather than any of the actual changes made. This is an especially reoccurring sentiment over the lack of reform to Stamp Duty thresholds, a point highlighted by David Finlay, intermediary business director at Woolwich.
While Finlay appreciates that the government is looking to a greener future to benefit both the environment and consumer, he sees the Stamp Duty exemption for zero-carbon homes as a token gesture with these types of homes representing less than 2 per cent of the current housing stock and highlights the more pressing matter of helping FTBs.
He says: “What haven’t been addressed are the 25 million properties that are on the market which are not carbon efficient. The bottom Stamp Duty threshold still stands at £125,000 and simply doesn’t reflect the significant house prices increases over the past few years. The average price of a home is around £175,000 so Stamp Duty is a key issue for many buyers and it’s disappointing that this hasn’t been factored into this year’s Budget.”
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Brokers appear to be of the same opinion. Research commissioned by GE Money Home Lending, released prior to the Budget announcement, found half of the brokers it surveyed believed Stamp Duty thresholds should rise immediately and be fixed at the average national house price.
Duncan Berry, director of mortgage sales at GE Money Home Lending, explains that the research highlights strong brokers feelings about the current levels of Stamp Duty and that one of the priorities for the housing market in the Budget should have been targeting these levels which would help FTBs and affordability problems.
He says: “With increasing interest rates and rising property prices, more and more people are finding it harder to get on the ladder. Clearly brokers feel that Stamp Duty is a key concern for their customers and yet another added cost for FTBs. As lenders, it is important that we continue to develop innovative ways of helping FTBs take that much desired step onto the housing ladder.”
GE Money Home Lending says that the rise, if it was implemented in line with the average national house price, would take the exclusion band from £125,000 to just over £200,000 – an increase of more than £75,000 – and would save a buyer over £2,000.
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The research, which asked mortgage brokers their views on the Budget and possible action to help the plight of FTBs, revealed that almost 30 per cent believe that the Chancellor should remove Stamp Duty altogether for those looking to get onto the property ladder.
Disappointment
FTB advice website FirstRungNow.com also expressed its disappointment on behalf of FTBs calling for them to be exempt from Stamp Duty as it is gravely inhibiting their ability to take their first step towards buying a new home.
Helen Adams, managing director of FirstRungNow.com, says: “We’ve recently placed a petition on our site and already almost 1,000 people have already signed petitioning against Stamp Duty. We are very disappointed as this Budget seems to offer very little to please or help FTBs.”
Joining in the call SmartNewHomes.com has also launched a campaign to get Stamp Duty for FTBs abolished.
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According to the firm, with the average house price paid by a FTB in 2006 now exceeding £150,000, the number of FTBs exempt from this housing tax is falling, acting as another barrier to young buyers stepping onto the ladder.
SmartNewHomes.com has posted a petition on its website, gathering further support for its campaign, to see Stamp Duty scrapped for FTBs. Signatories to the petition will be communicated to the government.
David Bexon, managing director at SmartNewHomes.com, comments “Stamp duty for FTBs is halting the progression of this vulnerable group into the housing market. The number of FTBs forced to pay this tax is on the increase, making it more and more difficult for them to purchase their first home.
“In a survey recently conducted on our website it emerged that many first-timers are forced to wait until they are in their 30s to own their own home, with the majority citing financial reasons almost entirely for pushing properties out of their reach.
“While we have seen the emergence of more Housing Association schemes, geared at helping FTBs onto the property ladder, these schemes do not make buyers exempt from having to pay the added tax of Stamp Duty.”
Easy option
Andy Frankish, managing director of Mortgage Talk, emphasised the easy option taken by the Chancellor by not raising the banding of the thresholds, saying: “This year’s Budget was somewhat of an uneventful one for the mortgage industry. The green issue is one that will develop and should be encouraged to do so, but by ignoring the potential for an immediate impact, I believe he has taken the easy option by keeping Stamp Duty levels the same in order to squeeze more money out of home buyers. Increasing the threshold for inheritance tax (IHT) to rise from £285,000 to £350,000 by 2010 isn’t enough as this doesn’t even cover the average increase in house prices since the last Budget.”
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Barry Naisbitt, chief economist at Abbey agrees: “The increase in the IHT threshold from £285,000 to £350,000 by 2010 is certainly a move that most will welcome. However very many people – particularly those who have owned their own home for five to 10 years or more – now have substantial assets as the value of their homes have risen significantly. To account for that rise completely, the Chancellor would have had to increase to around £460,000. So this is an issue many hope will be revisited next year.”
While being an entertaining one, The Sun newspaper’s post-Budget headline ‘Reasons 2p cheerful’ doesn’t seem to apply to the mortgage industry. Yes, the environmental issue is one that does need addressing and while it is very much a long-term strategy there is positive movement in the right direction. However the immediate problems facing FTBs, which results in further repercussions for those who have already secured a place on the ladder and are trying to climb higher on the ladder, show no signs of dwindling.
So rather than having ‘reasons 2p cheerful’, many commentators feel that Chancellor Brown has left first-timers feeling short-changed once again.
