Paul Howard reviews Chancellor Gordon Brown’s pre-Budget report from 2 December 2004
While the pre-Budget paper did not contain any bad news for the mortgage industry, there wasn’t much to cheer about either. The statement was split into six key themes:
Maintaining economic stability.
Meeting the productivity challenge.
Increasing employment opportunity for all.
Building a fairer society.
Delivering high-quality public services.
Protecting the environment.
The implications of the report on the housing market, and the mortgage industry, were somewhat benign with no new major initiatives being announced. The Chancellor simply referred to the good progress being made by the Miles and Barker reviews.
This is a shame as there were some ideas, in both reports, that deserve greater consideration. In particular, Miles’ ideas on reforming the current dual system whereby different rates are offered to existing and new clients is worthy of merit and will inevitably lead to less ‘churn’ in the market. However, the CML has suggested that it had been the intention of HM Treasury to publish an accompanying housing report and although this was pulled at the last minute, it does indicate the importance now being given to housing issues within the Treasury. Perhaps this is where the good news will be.
Stamp duty disappointment
Perhaps the biggest disappointment was the Chancellor’s refusal to tackle the issue of stamp duty by ignoring calls to increase the threshold from its current level of £60,000. Although he did confirm that the government would provide further support for first-time buyers, he chose to exclude such a change which would undoubtedly help every first-time buyer in the UK. Given the huge windfall tax that stamp duty has become as house prices have soared, it is surely an area the Chancellor would prefer to continue ignoring for as long as possible. Surely some form of index linking, as is used with other tax thresholds, should now be introduced along with an increase in the starting level.
Within his report, the Chancellor stated indicators showed that activity in the housing market was slowing down. Although unable to rule out a potential market crash the moderation in house price inflation was described as ‘now underway’. Continued low mortgage interest rates have helped to maintain equilibrium in the housing market with rates averaging 6.1 per cent since 1997 almost half the average of 11.4 per cent from 1979 to 1997.
Commercial measures
In the commercial market, the report stated that the government is considering the merits of introducing legislation on commercial leases, particularly to address the issue of ‘upward only’ rent reviews. This would be positive news for commercial tenants. In addition, there will be a Business Premises Renovation Allowance Scheme which would provide 100 per cent capital allowances in enterprise areas for renovating business properties vacant for more than a year. This will help to continue the re-generation of our city centres and also provide increased business opportunities for those involved in the commercial and development sectors.
The government also announced that ‘measures will be introduced in the Finance Bill 2005 to enable securitisation vehicles to continue to apply existing UK accounting standards for tax purposes for a further year and to specific technical issues’. This will be good news for lenders, particularly mutual organisations, who were concerned by new requirements expected to be introduced under International Accountancy Standards on 1 January. The lobbying of the CML and the BSA has been successful in removing this issue and enabling lenders to continue with the current treatment of securitisation. The impact of this will be to prevent lenders being further restricted in their funding options.
Good news
There was good news for savers and low income families. In a somewhat surprising move, the Chancellor announced that consultation would take place on extending current ISA limits to 2009 and an extension of the Savings Gateway scheme, whereby the government matches the savings of low income families. The government is also to consult on extending the child trust fund scheme. It will also give additional sums of £250 and £500 when children reach the age of seven.
Elsewhere in the report, the Chancellor focused on giving greater support to working families through the creation of a ‘return to work bonus’, 15 hours a week free child care and paid maternity leave of nine months (up from six months) from April 2007. A freeze on fuel duty continued, due to the current volatility of oil prices and £1 billion will be allocated to local authorities to keep council tax down.
Housing report
The mortgage industry will now wait with baited breath to see when the ‘pulled’ housing report is announced and what, if any, changes will be made to stamp duty. Plus whether there will be greater support for first-time buyers. It would be nice to know what is in the Treasury Report that was withdrawn as it is here that we will see the government’s intentions for our market.
Paul Howard is associate director of Portman Group Intermediary Sales
