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Budget 2013: Plenty of scope for unintended consequences

As if Budget Day this Wednesday was not already loaded with significance, it comes just weeks after ratings agency Moody’s decided to downgrade the UK from its cherished AAA rating, which will only heighten the anticipation when George Osborne leaves No. 11 Downing Street to present his plans for the economy.

Peter Williams MS blog

There will be housing related announcements in the Budget, or indeed just before it, so there is no doubt housing is on the agenda.

For the mortgage market, expanding the Funding for Lending Scheme would be a good starting point when it comes to individual measures.

While it is certainly having an impact in its current form, a considerable weight of lending is taking place in existing low-risk areas. 

Second time buyers, remortgages and buy to let borrowers are all feeling the benefit, but while conditions are also improving for first-time buyers, FLS could certainly be better targeted according to market needs. 

Its focus on banks and building societies also means the scale of its impact continues to be hamstrung by the omission of the non-banking sector. A more inclusive approach would do no harm from a consumer point of view to support competition and innovation.

But with FLS being a temporary measure, due to expire around the time of the 2014 Budget, there are broader questions to ask about funding the mortgage market, and how much of it can be supported by retail savings. 

With lower or even negative interest rates being floated as an avenue to explore, any move in this direction would surely be to the detriment of savers. Many are already receiving poor rates of return, and supressing the nation’s appetite for retail savings even more could restrict the amount of funding for mortgage lending that can be achieved.

At the same time, making saving less attractive is already having the opposite effect on housing, prompting more people to look to property for a better return on their investment. Increasing demand from investors is only heightening the pressure when housing supply is already short and we are building less than half of the new homes that are needed.

Is it too much to hope for a cohesive, joined up approach that brings greater clarity to the future shape of our industry?

The Government and the Opposition have adopted different stances on a mansion tax, and with the country’s finances remaining in a poor state of health, there needs to be a proper discussion about the future shape of housing policy and the housing market – including exploring the implications of tax policies which might be used to bring downward pressure on prices.  

Such is the scale of the problem that there is certainly a question as to whether supply responses alone will be enough.

There is a careful balancing act to achieve, of course, with few guarantees and plenty of scope for unintended consequences.

For example, would abolishing capital gains tax prompt existing landlords to sell for greater profit, thus increasing the supply of properties in the market, or would it encourage more people to purchase second homes and further limit the options for first-time buyers?

Beyond individual measures, it must be hoped this Budget will bring more insight into the Government’s broader view of the housing and mortgage market, how it will develop in the years ahead and what commitments can be made to support its growth.


Lloyds TSB Scotland pulls plug on intermediary mortgage lending

Lloyds TSB Scotland’s intermediary arm will stop accepting new mortgage applications at the end of the month. Customers with existing Lloyds TSB Scotland Spearhead mortgages are unaffected by the decision. Brokers must submit requests for new decision in principles by 10pm on 15 March and full applications must be submitted by 10pm on 31 March. […]


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