Finally, some concrete assistance from the government for the housing market in the form of a raft of proposals aimed at helping first-time buyers and those in danger of having their homes repossessed.
While assistance is welcome, predictably the proposals don’t go nearly far enough. The biggest advantage of the Stamp Duty announcement is that it finally removes uncertainty surrounding the tax but it is unlikely to do much more than that.
Since the news was leaked last month that the government was planning to abolish Stamp Duty, estate agents have seen the housing market come to a standstill as potential buyers have put their plans on hold.
At least the announcement that no Stamp Duty will be charged on residential properties costing £175,000 or less for the next year puts an end to this speculation. According to the government, half of all properties will now be exempt from Stamp Duty – up from a third. Hardly an earth-shattering development.
Of more use to a wider number of home buyers would have been a wholesale reform of the tax. Stamp Duty is one of the unfairest taxes we have because it isn’t tiered in the way most others are. Unfortunately, when the housing market is buoyant Stamp Duty is too much of a money-spinner for the government to do much more than tweak the lowest threshold.
There was further assistance for first-time buyers with the introduction of HomeBuy Direct – a scheme for borrowers who have a household income of £60,000 or less. A five-year interest-free equity loan of up to 30% of the property’s value co-funded by the government and developers is aimed at giving the new-build market a boost.
This is effectively an extension of Open Market HomeBuy, a scheme which has been so successful that many housing associations have run out of money and are having to turn away customers.
HomeBuy Direct should be attractive to borrowers who don’t have savings to put down on a property purchase be-cause it gives them the pick of the cheapest deals as the equity loan effectively acts as a deposit. Affordable housing schemes represent one of the best ways the government can help get the market moving but it is important to ensure there are enough funds available for what can turn out to be popular schemes.
And while these measures as well as those intended to help home owners facing repossession are welcome, they do nothing to address the real problem – lack of liquidity.
Liquidity remains key and the Crosby review, which is now rumoured to be released this month instead of in October’s pre-Budget report, will hopefully go some way towards freeing up the money markets.
It doesn’t matter how many Stamp Duty holidays or free equity loans we give first-time buyers, until criteria ease on mortgages and they become more readily accessible to those requiring high LTVs the housing market will remain at a standstill.