Yesterday we got the conformation we expected that the UK establishment cannot stop itself from meddling in the housing market with the intention of pushing house prices up. The various readings that the house price was turning highlighted by actual falls in the London area was always going to focus their minds. Thus the headline proposal in the Budget was this. From City-AM.
The government has used the Autumn Budget to abolish stamp duty for first-time buyers on purchases of up to £300,000.
First-time buyers will also receive a stamp duty holiday for the first £300,000 on purchases up to £500,000.
Launching the policy, the chancellor said 80 per cent of first-time buyers will pay no stamp duty as a result of the change.
Firstly let me wish those who are about to buy for the first time good luck with their windfall although not everybody sees it like that as this from the chief economics correspondent of the Guardian Aditya Chakraborrty indicates.
Jack up your asking price to show him how stamp duty really works.
However sadly it will not end there as we know that such moves tend to boost house prices and of course this is the reason the policy is announced. For the government can claim it is helping first time buyers and boost house prices for property owners in a win double for it. If we think more deeply then poorer areas will see little benefit at all as the £125,000 limit for zero rate Stamp Duty was enough but areas with higher prices will see benefits and I note the way that the gains were given to those paying up to £500,000. That will benefit first time buyers in London ( albeit not some of central London) which makes me wonder if it is an attempt to stop or slow this? From the Evening Standard on London house prices.
Savills anticipates prices will fall 1.5 per cent in 2017 and a further two per cent in 2018, before stagnating in 2019
Things are usually really bad when an estate agent predicts price falls!
How much will house prices rise?
I put in a maximum public service effort yesterday on social media to point out that the first rule of OBR ( Office for Budget Responsibility) club is that the OBR is always wrong. Some seemed to learn but others parroted its claim that house prices will rise by 0.3%. So let us move on knowing that it will not be that as we mull that the gain can be up to £5000 so some prices will probably rise by that and of course some desperate to buy might leverage via a mortgage and be able to pay even more than that. There will be a small downwards effect above £500,000 as there is an extraordinary marginal tax rate where £1 costs £5000 on the other side.
Some however appear to be unaware of the record of the OBR and in this instance seemed as the TV series puts it Lost In Space.
You may note the large number of people who sent this one and wonder how many of them realise that Torsten now thinks it is between £160,000 and £190,000 although of course that may have changed by the time you read this. Does it qualify as fake news?
The BBC seems oblivious to the continual failures of the OBR too.
It also estimates that it will result in only an additional 3,500 first-time buyer purchases…….The policy will cost the Treasury £3.2bn over the next five years.
There is a further irony about this which is that Stamp Duty was one of the few areas where we seem able to raise tax rates and revenues. Partly of course due to the fact that housing benefits from capital gains tax exemptions for the main home.
Term Funding Scheme
Just a reminder that house prices will be pumped up by the extra £25 billion of this that the Bank of England requested on Monday and will therefore presumably supply before it ends in February. This works in several ways as you see banks get funds at or close to Bank Rate as opposed to going to savers which is both easier and cheaper than the 1.1% ( plus costs) they have to pay for new deposits from individuals according to the Bank of England. This means that the banks can mix between wider margins and lower mortgage rates than otherwise. The lower mortgage rates boost business volume compared to otherwise and of course via their impact on house prices improve the mortgage book of the banks.
There was a by now familiar refrain that we must build more houses which has been proclaimed by every Chancellor this century. From the BBC.
£44bn in overall government support for housing to meet target of building 300,000 new homes a year by the middle of the next decade.
I am sure you have already spotted that for housing demand it is jam today whereas for housing supply it is jam tomorrow! Indeed it is hard to avoid the thought that by the middle of the next decade the odds are that the current Chancellor will be long gone. Indeed according to Yes Prime Minster if you want to kick things into the long grass you announce an enquiry.
So I am establishing an urgent Review to look at the gap between planning permissions and housing starts.
It will be chaired by my Right Honourable Friend for West Dorset.
And will deliver an interim report in time for the Spring Statement next year.
Some care is needed as it takes time to plan and build houses and flats but we find yet again that demand and consequently house prices come first. On past track records the houses may not ever be built.
It is clear that some of our poorest people have been affected by the clunky way that Universal Credit has been introduced. So I welcome the effort and money put forwards in the Budget to help with this and fixes if not all at least some of the problems.
The obvious cherry to pick for the headline writers has been the economic growth downgrade given to the UK. However this is based on the productivity forecasts of the OBR which have been well take a look for yourselves.
Oh and remember they were saying that UK borrowing will be higher this year than last? From the Budget Speech.
Today, the OBR confirm that we are on track to meet our fiscal rules:
Borrowing is forecast to be £49.9 billion this year; £8.4 billion lower than forecast at the Spring Budget.
So we received a giveaway Budget of which a lot of the giveaway was focused on the housing market. Again. Whilst some will initially gain the problem is that next time around the house prices that are being boosted will be even more unaffordable and thus more “Help” will be needed in a cycle which is so far endless. Existing home owners can continue to listen to some Hot Chocolate.
You win again
The problem is that for all the talk of rebalancing the UK economy we continue to lean towards the housing market. So whilst I welcome the efforts to boost productivity and technology they may find they are swimming against the tide. Still at least the extra maths teachers may help us in measuring productivity which may yet turn out to be the problem that never was. Also the technology issue needs to be in the right areas. I understand that one needs to provide stations to encourage use but my area has seen a considerable number of charging points for electric vehicles built in the last year or two but they are so rarely actually used.
As a last point welcome to the Ashes series of 2017 which seems to have had a fairly even start.
Core Finance TV
You can check my predictions against what happened.