New Buy
by Mike Bowen, April 27th, 2012
The NewBuy Scheme (see http://www.mayowynnebaxter.co.uk/blog/government-aid-to-first-time-buyers/) has been amended so it can assist people who want to sell and move up the ladder.
Whilst not brilliant, for the reasons stated in my earlier blog - i.e. the money disappears into developers pockets rather than moving into the general market, it may help sellers who are unable to either raise the deposit lenders now need or have little equity available to move up the ladder. This may free up more houses for first time buyers to buy which is also good.
The more property available then I think the more people will perceive a revival in the market and that will lead to increased activity.
What would be better still is if the scheme applied to any property as then the “boxed in” sellers would stimulate the whole market and the tax income received could then go to new builds.
All this could do is shift the boxed in sellers up one level of the property ladder.
Time will tell.
SET BACK FOR NEWBUY SCHEME
by Daniel Pike, March 30th, 2012
My previous blog, which focussed on the prospects for further supportive measures for the housing market, predicted the chancellor was unlikely to introduce any significant giveaways in the budget and Mr Osborne didn’t disappoint. In fact, arguably the most significant change for the housing market was a planned increase in Stamp Duty Land Tax for properties worth more than £2,000,000.00, hardly something that will have estate agents rushing into their local Mercedes dealerships.
But if the coalition was banking on the success of the “NewBuy” scheme and a new stream lined planning process to form the bedrock of a sustained house building boom then the headlines in the media over the last couple of days will have made for difficult reading.
First, the government has been forced to compromise on its flagship planning reforms in the face of stiff and well organised opposition from environmental lobbies and now it appears its high profile scheme designed to revitalise the housing market is in disarray, as mortgage lenders have failed to support it.
The Daily Telegraph reported on Thursday that crisis meetings have been taking place between the Treasury, the Home Buyer’s Federation and the Council of Mortgage Lenders to work out these problems.The main difficulty, it would seem, is with the Lenders and their requirements governing the eligibility of building companies. Although seven major builders are already on board the Lenders are still deliberating about the rules of entry for smaller builders. These are being presented as teething problems, but this will be little consolation for buyers desperately trying to get a foothold on the housing ladder.
The NewBuy scheme was officially launched on 12 March but has been a long time in the making and some will wonder why these problems were not thrashed out beforehand. The government had hoped that the scheme would provide a welcome boost to the housing market by providing 95% loan-to-value mortgages of up to £500,000.00 on new build properties, guaranteed by the builder and the state. It was also claimed that the “NewBuy” initiative would help create up to 50,000 jobs.
The news of this set back comes close on the heels of an announcement by construction firm Balfour Beatty that it has notified all 12,000 of its UK construction services staff that their jobs are at risk.
Sceptics remain unconvinced bythe NewBuy scheme and have questioned whether complex schemes involving highly leveraged products arenot the sort of “quick-fix”the wider economy could do without, especially with the fall-out from the credit crunch and unravelling of complicated financial instruments still fresh in our minds.
No one can argue that there is a housing shortage in the UK but it remains unclear whether a building boom built on subsidised mortgages is really the solution.
By Daniel Pike
Budget punishes stamp duty cheats & first-time buyers
by Nick Warde, March 21st, 2012
George Osbourne’s budget speech left a question hanging – where is all the money coming from? Raising the income tax allowance is predicted to cost £3.5b. Then there are cuts to corporation tax, no change to alcohol duty and the loss of the 50p tax rate – can it really be at only a cost of £100m? With growth predicted to remain sluggish it looks like smokers and home owners will be paying the bills – along with anyone attempting “aggressive tax avoidance”.
From midnight tonight the Government will begin its effort to crush stamp duty land tax (SDLT) avoidance. Those buying residential properties worth £2m plus under the cover of a company in an attempt to avoid SDLT will face a furiously high charge of 15 per cent. That’s £300k for a £2m property.
We were told today the Government has doubled the number of staff working on tax avoidance at HMRC and I can see why. Any transactions claiming exemption from SDLT will now have to be much more carefully scrutinised. Given the key place this measure took in today’s budget speech I’d be surprised if it wasn’t accompanied by serious efforts to enforce it.
With the stakes so high it’ll probably work. For example someone buying a £2m property for residential use and declaring it as such will pay £140k SDLT at seven per cent but that more than doubles to £300k for those caught using a company to buy the same property for personal use.
So far, so fair and I can’t see anyone sticking up for millionaires who attempt to shirk their share of tax, but an opportunity was lost at the other end of the property market.
At the last minute the Chancellor could have extended SDLT relief for first time buyers purchasing properties worth less than £250k. Sadly he didn’t do so. From this Saturday (24th March) any residential property of £125k or over will incur stamp duty.
Ask anyone who bought their first home in the last 24 months and they’ll say the stamp duty relief Alistair Darling introduced on properties of less than £250k was a significant help. Many say they wouldn’t have been able to buy without it. This has important consequences for all home owners and indeed all businesses that rely on the property market. When first time buyers dry up the effect ricochets up the whole property market. Families needing to move into their second home can’t find a buyer and the chain grinds to a halt.
So the question is how well first time buyers will cope with the extra financial pressure. From next week someone paying £150,000 will have to find SDLT of £1,500. This is on top of all the other costs associated with moving and the higher deposits now demanded by mortgage companies. The New Buy scheme introduced last week to help first time buyers raise a deposit sounded positive, but we’ll have to wait and see whether it will help more than a handful of people.
By Nick Warde
First time buyers. Do they exist?
by Mike Bowen, February 20th, 2012
I ask the question as our BDM (business development manager) sent me a link to a article on the BBC website about first time buyers a few days ago and said – you should blog about this.
Due to various things like holidays and internal meetings I have not got round to it until now.
The year on year figure for First Time Buyers is up 14% according to the Council for Mortgage Lenders. This sounds good but is it?
I guess being a lawyer I tend to be pessimistic plus we have all seen surveys normally in the same week that say things are improving then getting worse and then are dire.
I think there are a number of reasons why this figure is perhaps slightly inflated.
1 First Time Buyers are getting geared up to exchange and complete before the 24 March when the stamp duty threshold will revert to £125,000.00. One has to wonder how many first time buyers there will be in the system after 25 March. I suspect there will be a significant decrease whilst they all save up to pay SDLT at 1%.
2 The various Government Schemes are now available that means that First Time Buyers are sucked out of the general market as these schemes relate to new builds.
On the other hand there are some glimmers of hope.
1 Lenders are now lending at higher loan to price ratios – possibly with a view to helping when the SDLT changes.
2 First Time Buyers have had time to save up.
The real test will be to see what the increase (if any) of First Time Buyers is in April when the effects of the SDLT exemption being withdrawn will appear.
Given also that the number of movers is down (see my earlier blog) I think regrettably we will see a slow start to the year. Still the sun is shining which always helps and the number of enquiries is reasonable which is good.
Isaw a report today that shows that the % of home owners is down to 66% of the total the lowest figure since Mrs Thatchers reign. Certainly buy to lets have been high and given the amount charged for rental I think we will see a swing back to ownership provided that people can save money towards the deposit (and Stamp duty) they need.
I think that the market will be stable for a few months more but I am not sure, so I am sitting on the fence and getting splinters.
No sign of the UK property market picking up
by Mike Bowen, January 10th, 2012
There is no sign of the UK property market picking up in the coming months, the Royal Institution of Chartered Surveyors says.
I think that is a very sweeping statement and like many things it depends how you look at them and where you look at them from. I, for instance, can appear slim in some fairground mirrors!
I think that, generally speaking, the market will be stable but a number of factors can have an effect:.
- Whether you believe it or not, the weather plays a part especially in the Spring. A sunny Spring always creates a small blip (upwards) in the number of transactions.
- An early Easter also helps as, for some reason, people like to move at Easter.
- The Olympics may put some people off moving but I think that it will have minimal impact.
The four things that will affect the market and about which the Government could do something are as follows:
1) Extend the First Time Buyers Stamp Duty holiday thus encouraging more first time buyers to buy and reducing the amount they need to save. At the moment this is due to end 25/3/2012. I can see a mini boom when people wake up to this and then a slump.
2) I have blogged about this before the First Time Buyer helps schemes need to be available for non new build properties as well. Otherwise the market as a whole does not get any benefit – see my blog
3) Lenders must be encouraged to lend but not just to first time buyers. Many years ago (1980s - I am that old) lenders allowed you to port your negative equity to a new property. Provided that the amount did not increase and the client could afford the payments they were no worse off and indeed the loan to value ratio went up. If lenders did this (perhaps with some support from the Government like an equity loan for some of the negative equity) this would free a lot of first time sellers to move this would help chains get started.
4) Lenders panels – now I know you do not care really dear reader but some lenders have just done this. In one case a limited number of law firms are on the lenders panel and there are probably referral fees payable to third parties. This is the thin end of the wedge, it is in restraint of trade and restricts consumer choice. If you want a local solicitor or to choose a solicitor you may well have to pay 2 lots of fees once to your chosen solicitor and once to the panel solicitor. This will obviouosly increase costs and could cause delay.
I could drone on about potential problems that this could cause but I have done my 400 words so will save that for another day.
Government Aid to First Time Buyers
by Mike Bowen, November 30th, 2011
I have blogged about this before and yet strangely it would seem Dave (Mr Cameron to most) has not read it so, in view of the speculation on the scheme in the press, I think it is time to make the point again.
This time I am using some statistics to prove my point. These have been obtained, in part, via government statistics stated in the press and statistics from a lesser known source called the Department of Guesswork.
I am aware (but can not recall who said it) that there are ‘lies, damn lies and then there are statistics’. I am no mathematician or economist but here goes…..
Under George’s (Mr Osborne to you) ‘new build indemnity scheme‘ - and assuming the average house price for a first time buyer is £140K (seems reasonable based on my experience and the fact that the average total value is only £160K) - then if the Government chips in £14K then that £14K goes into the economy. Given the percentage of foreign workers in the building industry we can assume that 20% of that leaves our economy (but doubtless helps out our friends in Europe) so rounding down that is the best part of £12K into the UK economy.
Now if you give this to first time buyers who puchase in the ordinary market what happens?
Assume the average chain length is 5 (it used to be higher) and the average price is £160K . Now lets assume that the top half pay 3% SDLT and the bottom half 1% and of course the First Time Buyer zero.
The SDLT received is £10,200
Agents fees 2% again with the same split of values = £16.4 K VAT is £2,320
Solicitors fees (This is depressing) say £5K VAT is £1,000
Then based on recent experience of Mrs Bowen’s best friend, each of the people in the chain will spend at least £2,000 on various soft furnishings (as I understand they are called) I expect the real amount is much higher but lets assume £2,000 per transaction is £8K with the VAT element being £1,600.
Removal firms could add a bit to the VAT again based on Mrs B best friend its £5K plus in total so say £1,000
That is a total revenue of over £16K (and I think my figures are conservative). That is £4K extra than the Government’s proposed scheme. So they could, if they wished, do both and still make a profit over their proposed scheme.
There would be other benefits too; the increased spending in the shops would increase employment as would the increased demand for removals and the land registry may need more staff. Solicitors and agents would probably need more staff thus increasing tax revenue and reducing unemployment.
In my not so humble opinion, giving first time buyers in the ordinary property market access to this type of scheme will have a much greater benefit to the economy than just giving the funding to new builds as not only does some of that money leave the country, the investors in the big building companies tend to be pension companies and they will not invest the dividends back into the economy again.
The above guess-timate of course takes no account of the money multiplier on the economy i.e. all those estate agents going out and buying new BMW’s (or whatever the latest ‘must-have’ car is). When I did economics many, many years ago the multiplier was about 3.5, so that is £150,000 back into the economy.
As Alexandar would say “Simples”.