Action to increase lending by improving liquidity in the mortgage market is essential as part of a coherent package of measures alongside help for first time buyers and protection against repossession. Without making it easier to get a mortgage, the Government is doing no more than tinkering around the edges of the housing market downturn.
Stamp duty :
A one year stamp duty holiday could provide some much needed relief for first time buyers currently struggling in the current market. However, 9 out of 10 of total transactions will be unaffected by the band movement. The move will have little impact in London where the average price a first time buyer pays is around £260,000. At best the relief will save buyers £1750, a drop in the ocean of the £27,738 RICS estimates as the average upfront costs of buying a home. RICS is pleased that the Government has ended the uncertainty over stamp duty but there should be a complete holiday from stamp duty followed by reform of the slab system to a marginal system similar to income tax.
CLG package
Mortgage rescue schemes are a welcome step to help prevent the trauma of families having their homes repossessed and are likely to be the most effective part of today's package. RICS has been calling on the Government to introduce a scheme of this type as we predict repossessions will rise significantly over the next year. The scheme should help reduce the trauma faced by families threatened with having their home repossessed.
Mortgage providers are still reluctant to lend on shared equity properties so the extension of the HomeBuy scheme will only have a limited impact on the current market. At best an estimated 10,000 people will be helped by the scheme so the overall effect will be insignificant in a market where over a million transactions occur under normal market conditions.
Bringing forward funding for social housing that has already been allocated for future years may provide a short term boost but could lead to future budget problems. This could lead to a repeat of the situation in the early 1990s where Housing Associations were given funds to buy properties then suffered in subsequent years when their budgets were restricted. More serious reforms are needed to the Housing Association business model so it is less adversely affected by changes in the market.
