Yet again, the budget has passed us by and I am left thinking ah, what if?! Whilst I hate to come across as a pessimist, it wasn't amazing was it? There was nothing in there that lept out and said, "we are tackling the issues of assisting First Time Buyers head on". In fact, to me it looked like a headline grabber plain and simple. A token gesture of assistance to first time buyers if you will. One that they are really hoping no one will delve into, because if they do, they will realise that nothing has been done here at all apart from really assist private landlords. How? By assisting them to corner more of the current repossession market and purchasing more stock which will result in more people renting. Perhaps rental prices will stabilise a little more now as we start to see some of the experienced landlords come out and purchase again but I see no assistance to the purchase market of first time buyers at all.
So lets look a little more deeply into the assistance we have seen. FirstBuy Direct is the new shared equity scheme that will certainly help developers, lets make no bones about that one! Stock that has been hard to sell will be assisted greatly by this scheme so we'll see developers finally offloading some "deadwood" and recouping some cashflow. But what about the first time buyers this is supposedly helping? Well unless things change in the mortgage industry quickly, this will not help them too much. New builds are something lenders try to steer well clear of at present and most lenders severely restrict the borrowing against them due to the way this market was heavily exploited a few years back. Maximum borrowing on these as flats at present is 75% of the purchase price and there are few that want to get involved at this level, meaning lack of competition and high rates only at this stage. This needs to improve for us to see any benefit!
You may remember the ever popular, "buy this flat and we pay your stamp duty", or the "buy now with 7.5% cashback", or "buy now and have a fully fitted new kitchen and floors throughout". All that happened here was that the cost of these incentives were built into the sale price and the resulting factor was simple. The market was flooded with over valued properties that absorbed the incentive into the purchase price. The resulting factor, two years on clients would come to remortgage or sell, look at older properties in the area that had increased in value by 10 - 15% and would be surprised that theirs had actually dropped in value or simply remained stagnant! Why? Because all the other properties had not been overpriced with incentives included and had maintained "real value" rather than being masked in a false economy. Lets not also forget, that we have seen an equivalent FirstBuy Direct scheme already! Wasn't the most popular of schemes now was it. Home Buy i believe it was called and it ran out of funds very very quickly.
What is evident, is that it appears we are growing ever closer to the European culture, whereby renting is simply the way of life and purchasers are few and far between. Germany, France, Italy, rental has always been high there and I believe the average age of a first time buyer is nearing 40. So whilst we evaluate the direction we appear to be heading, whilst we sip our coffee alfresco in the streets of pedestrian only city centres, and the sun shines rather brightly, early on in the Calender year, let us look to our European brothers and sisters and accept this budget hasn't had the effect we had hoped for on first time buyers and realise that perhaps our housing market is starting to get closer to those abroad than perhaps we had hoped.
For me, the assistance could have been a simple one. Government owned banks being instructed to offer at least one 5 year fixed rate mortgage at 95% to first time buyers in its product mix. Whats more...offering it on an interest only basis. Being tied to the property for 5 years will mean there should be sufficient time for the property to gain in value, and this would diminish the concern over negative equity. So, mortgages at interest only for the first 5 years would be affordable, no concerns there. Negative equity? No issue there as 5 years should be long enough for a property to gain equity anywhere in the UK. But perhaps most importantly, the more that start to offer this type of deal, the more competition that arises and rates at this level may begin to drop from the current 7% plus deals we are seeing at present, that must be done on repayment. Lets be clear, we want to help the first time buyers but also want to the help the property market as a whole. First time buyers create the chains we need to get the market going again and without the help to get them on the ladder, we are all going to suffer.
To me it seems the budget has assisted developers more than first time buyers, it has also assisted private landlords with the means tested stamp duty on multiple properties. Could the reason for this be that the government know that the more properties are sold to developers and landlords the more capital gains tax, and corporation tax they could recoup? The more income tax they could claim on rental incomes? Surely not...
Lets look at the positives though. At least petrol fell by a penny! Although correct me if I am wrong but, I am pretty sure my local BP had inflated their costs per litre by at least 7p over the last month. Wow. Thanks for that one! That should help balance out the inflationary concerns announced last week which saw it announced at 4.4% for February. That one penny in my back pocket is like a protective armour to get me through this inflationary battle...
Paper armour...
That is wet...
Tescos offered me more this budget with my 5p off petrol voucher I received, so forgive me if I am not singing from the hills right now.
Rome wasn't built in a day thought was it.
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