The government needs to re-appraise the help it provides for home owners in difficulty, re-consider indexing housing related thresholds in line with house price inflation and re-examine the impact its plans for the introduction of Home Information Packs (HIPs) will have on the housing market. Those three measures are central to our pre-Budget submission lodged with the Treasury.
Placing great store
The government has placed great store in the sustainable home ownership initiative we launched with the Association of British Insurers in 1999. But the proportion of new loans sold with mortgage payment protection insurance (MPPI) is only 25 per cent – half the target set by the government in 1999.
A number of factors are now limiting the ability of the private sector to make further improvements to protection for home owners. The decision by the Office of Fair Trading (OFT) to refer all protection insurance to the Competition Commission inevitably contaminates MPPI, and is likely to restrict take-up of insurance by those who need it most. We have argued that MPPI should be excluded from the OFT decision to refer the payment protection market to the Competition Commission.
In our response to the OFT’s consultation, we pointed out that MPPI provides an important safety net for home owners. With more than a million claims paid since 1998, MPPI has undoubtedly saved many households from possession. Many of the OFT’s concerns about payment protection insurance (PPI) do not apply to MPPI, for example. The price range is narrower, varying by 40 per cent from the highest to the lowest, compared with 150 per cent for other PPI products. Also, the proportion of premium income paid out as claims is higher – at 33 per cent, compared to 19 per cent in the wider PPI market. Any problems with MPPI outweigh its benefits to consumers and are being addressed by the industry. Take-up by consumers could be knocked by referral to the Commission, which could lead to a further shrinkage in cover. Only 22.8 per cent of mortgages taken out in the first six months of this year were protected by MPPI, compared to 26.3 per cent a year earlier. We do not believe that it is in consumers’ interests for more home owners to be put at risk.
Against this backdrop, the government has failed to raise the index for income support for mortgage interest since 1995. Support for home owners has now dwindled to its lowest level for more than 20 years. We therefore believe that it is time for the government to review its commitment to the public-private partnership underpinning the sustainable home-ownership initiative.
Reiterating the call
The pre-Budget submission also reiterates our call for the government to re-consider indexing in line with house price inflation tax thresholds affecting home owners. Thresholds for Stamp Duty, Inheritance tax and Capital Gains tax have failed to keep pace with the growth of house prices, and fiscal policy means that homeowners are now £10 billion a year worse off than they were a decade ago. Home owners who want to move have to shoulder a growing financial burden in the form of ever-increasing payments of Stamp Duty. People buying with a mortgage move, on average, every seven years, compared to less than two years for those renting. Our pre-Budget submission points out that Stamp Duty creates unnecessary inefficiencies in the housing market and calls for reform to introduce a fairer and more efficient tax.
As well as indexing in line with house price inflation, Stamp Duty requires additional reform to remove the distortions created by the government’s policy of levying it at the highest marginal rate on the whole price paid for a property.
We continue to support improvements to the system of buying and selling property, and have welcomed the new voluntary approach to the introduction of Home Condition Reports (HCRs). But we have also suggested that the government should re-consider whether delivering Energy Performance Certificates (EPCs) when a property is marketed is the most effective time.
We have also urged the government – so far without success – not to introduce HIPs in June, at the height of market activity. While a HIP without a HCR has less potential for market disruption, risks remain if the dry-run highlights problems that need to be addressed or if there are not enough energy assessors to provide EPCs. Delays to the dry-run will make it more difficult to take on board any results of testing before the live date.
Our view is that the government should take a more holistic approach to home buying and selling, and promote the potential benefits to be achieved from e-conveyancing. Publication of turnaround times for local authority searches would give fresh impetus to this initiative.
