What could be the final Budget by Chancellor Gordon Brown has been announced, analysed and digested by all and sundry. In general, the response to the Budget from the mortgage industry has been fairly muted, with most underwhelmed. The biggest headline grabber for us has been the announcement that zero-carbon homes will now be exempt from Stamp Duty up to the value of £500,000, but this has done little, if anything, to help first-time buyers (FTBs) get on the ladder.
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A vital element
FTBs are a vital part of the housing market, and the government should be doing everything it can to encourage more people to become homeowners. For many years FTBs have been facing an up-hill struggle to get on the property ladder, as house price inflation has seen the average cost of property in the UK rise to just over £200,000. The reality is that most properties are well above the average FTB budget and invariably subject to Stamp Duty.
For example, in London, the average house price now sits at over £260,000. With current Stamp Duty bands, this means that FTBs have to find around an extra £7,500 in order to pay the 3 per cent Stamp Duty which applies to houses over £250,000. This extra cost simply adds to the substantial start-up costs FTBs have to meet.
Therefore, Stamp Duty remains a key concern for customers – a concern shared by brokers who see it as yet another barrier for entry for most potential homeowners. Recent research prior to the Budget revealed that half of UK brokers think Stamp Duty should be raised immediately and be fixed at the average national house price.
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If the Chancellor had implemented this, the rise would have taken the exclusion band from £125,000 to just over £200,000 – an increase of more than £75,000 – and would have saved the average buyer over £2,000.
The FTB market is a well-known story. Put simply, houses are now simply out of reach for the traditional FTB, despite the best efforts of many lenders to introduce products to help ease the burden.
The industry itself has taken the FTB bull by the horns by introducing several tools to help alleviate the problems many people face when looking to buy their first home. New products and tools such as 100 per cent mortgages and affordability calculators are providing some solution to the issue, but with the average house price at just over £200,000 and the exclusion of Stamp Duty being just £125,000, many still have to pay-out huge amounts in tax on top of the purchasing price and other costs associated with buying a property.
The next Chancellor
Property tax revenues – including inheritance tax and Stamp Duty – in the UK are the highest in the OECD. They make up 12 per cent of total taxes in the UK and also the US, the highest percentage in the OECD. As a percentage of total taxes, property taxes in the UK have risen from 10.4 per cent in 1995 to 12 per cent according to the latest statistics.
One action, which could be taken by the next Chancellor, would be to abolish Stamp Duty completely for FTBs, encouraging and allowing younger people to take that much desired step on the property ladder. Our research shows that 30 per cent of brokers would support this move, with a third of consumers also in favour. Even the industry is supporting the view, with FirstRungNow campaigning for FTBs to be exempt from Stamp Duty. However, if this seemed too drastic an option and unrealistic given the inevitable drop in tax revenues the government would lose, 19 per cent of brokers would simply favour a reduction in Stamp Duty as an alternative solution.
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Other options could include the availability of more affordable housing for people trying to get on the ladder; increase of housing stock, and even allowing Stamp Duty to be added to the cost of a loan.
Back to reality
Despite the current government’s previous efforts to help FTBs, many in the industry see Brown’s last Budget as a missed opportunity.
The industry has worked hard over the last few years to design products that help FTBs as much as possible but there is only so much the industry can do. Without help from the government, young people will continue to struggle unless house prices fall.
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Some may say that the Department of Communities and Local Government’s plans to announce the second stage of its shared equity competition, will help FTBs get on the housing ladder. But the effects of this are yet to be seen, and it remains Stamp Duty and increasing house prices that are impacting younger people the most.
The silver lining
As lenders it is important that we continue to develop innovative ways of helping first-time buyers. We need to work together to provide borrowers with essential information on the tools, products and services available to them. A rise in the use of affordability calculators means that customers will be borrowing an amount they can afford, which should decrease the number of people struggling to make their repayments.
So, despite what many FTBs think, and the lack of support from the Chancellor in his latest Budget, home ownership is closer than they think.
