Interesting timesPosted on: 21 March 2016 by Steve Wanless
Steve Wanless looks at why the Chancellor's stamp duty reform has had a detrimental effect on house sales.
Every time the Bank of England delays raising the base rate, we breathe a sigh of relief that mortgage repayments are likely to stay at record lows for a little longer.
Mark Carney, the governor of the Bank of England (BoE), has suggested that the UK might not now see a rate rise until 2017 – although his predictions in that area have not always been accurate.
He did warn, though, that UK borrowers should cost in that rate rise in 2016 so they are prepared and ready when the inevitable does happen!
The 5th of March 2009 was the date that the BoE reduced rates to 0.5% - early in 2008, rates had been 5%. Few expected that reaction to financial crisis would still be in place in 2015!
Those who lived through and survived the various property crises of the 1970s, 1980s and 1990s became used to rates jumping around and the almost weekly letter from the building society with notification of a new repayment amount.
Rates reached 17% in the 1970s and the last time we had a double-digit BoE lending rate was in 1991. In 1982, there were 36 changes to the rate, including six in an 11-day spell in August. How quickly we forget.
That was the environment today’s elder generation grew up in and, in many ways, came to accept as normal. Is that correct? Or are periods of relative rate stability more common than periods of turmoil?
The Bank of England rate was launched in October 1694 at 6%; it took nearly 163 years (1857) before interest rates reached double figures, and then only for a week. It was the 1970s before double-digit interest rates became a regular fact of life.
In June 1932 rates were reduced to 2% and, apart from a three-month period (August-October 1939 when Britain went to war) when they rose to 4% and came back to 2%, that is where they remained until November 1951 when they went up by 0.5%.
So rate stability is nothing new or unusual. Events around the world probably affect us more these days, such is the impact of new technology and the growing influence of new economic giants, China and India.
If the governor of the BoE doesn’t know when rates are going to rise, why should we expect our Independent Financial Adviser (IFA) to have the answer? Should we fix our mortgage, and for how long, or should we go with a tracker?
All sensible questions, and the expert advice is to consider all your options and your personal circumstances. Some borrowers like to take a chance (and that’s probably paid off in the last few years with rates not moving); others prefer to lock in for two, three, five or even 10 years so they know exactly what the monthly costs are going to be.
Buying property is a double-edged sword. There’s the cost – and then there’s the value of what you are buying. The rise in house prices since the 2008 recession, especially recently, with a few exceptions, has defied the property experts.
Your IFA will insist you take care in deciding how you pay for your new home -when your basic instinct and desire is to plunge into the property market as quickly and fearlessly as you can. The figures keep suggesting you are not wrong.
The Nationwide house price index showed that even big lenders have under-estimated the jump in house prices, especially since 2013, when some believed the market would fall.
The figures since the recession are revealing. There is clearly a North-South divide and London property seems to be in a universe of its own. It also shows the consequences of where you are in a cycle when boom becomes bust.
Hardest hit – and still suffering – is Northern Ireland, which was at the very height of its property boom when the market collapsed. Prices are still 20% down from their 2008 level; that’s better than it was, but shows the tough battle home owners are still facing there.
The only other property minus is Scotland, which is 0.9% lower. Gains in the Northwest (0.8%), the North (1.1%), Yorkshire and Humberside (3.6%) and Wales (5.2%) are minimal.
The closer to London and the South, the bigger the price increase – East Anglia (22.4%), the Southwest (21.4%), the outer Southeast (28.9%) and the inner Southeast (40.1%). And London – a whopping 61.8%!
Getting on the property market makes sense; but is not that easy, even if you do have the deposit and the mortgage. In very simple terms there are too many people chasing too few properties.
There are not enough new homes being built, there are not enough suitable (i.e. smaller) homes being built, the cost of moving can be expensive, many purchasers are not selling their existing property – and are either buying-to-let or letting-to-buy.
The chancellor George Osborne is trying to help by making “buy-to-let” less attractive for the individual investor, but his recent changes to stamp duty are being slammed and blamed for the slump in housing sales.
Osborne’s changes made it cheaper if you were buying for less than £937,500, but more expensive for more expensive properties.
Land Registry analysis shows that sales of under £1 million have dropped by almost 20% in the since months since the change – and sales over £1m have fallen by nearly a third.
Property transactions from Dec 4, 2013-June 3 2014 were 421,891 and brought in £2.58 billion in stamp duty; from June 4-Dec 3 2014 they were 492,462 and produced £3.31bn. The latest figures (Dec 4-June 3 2015) were 380,528 and produced £2.24bn.
The chancellor will not be impressed by the falling tax revenue; unfortunately, it’s his stamp duty “reform” that’s become part of the problem, rather than part of the solution!
For a free, no obligation initial chat about your individual finances, call us on 0800 0112825, e-mail firstname.lastname@example.org or take a look at our website www.wwfp.net.
Last edited March 2016
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