Rescue remedy fails to address industry woes

by Russell Jervis

The Government's rescue package for first-time buyers sorely lacks the gravitas needed to kick-start the housing market.

The state of the housing market has deteriorated dramatically over the past 12 months, transforming from a bullish market, which was characterised by high demand, price inflation and rapid sales, to a stagnant one with falling prices and transaction levels down 60% year-on-year.

With the property market on its knees, the Government's rescue package was long overdue and strong measures were imperative. However, most members of the industry will agree that there is a huge discrepancy between what is needed and what has been proposed.

While the Government's measures offer benefits for a minority of first-time buyers, low earners and, to a certain extent, the house building industry, they are not going to be anywhere near enough to kick-start the housing market.

The Stamp Duty holiday for homes valued below £175,000 is a case in point. The Government may consider it to be a well-intended gesture on its part, but in reality it will barely make a dent in the current housing market crisis - according to the Land Registry, the average property price is currently £178,364. That said, prices are lower in the Midlands, Yorkshire and Humberside and the North of the country, which at least means buyers there will be able to enjoy a cheaper buying experience. In these areas, the tax holiday will enable first-time buyers to save between £1,250 and £1,750, although this is offset by the fact that mortgage lenders are requiring a deposit of as much as £35,000 for a property worth £175,000.

Benefit

Only one-fifth of properties currently on the market are exempt from Stamp Duty under the holiday agreement. The measure was a real slap in the face for first-time buyers in London and across most of the South of England, who will struggle to find a property below the new threshold.

Our house price index shows that the average property price in the capital is £247,500, which means a whopping £2,475 Stamp Duty bill on top of a 20% deposit of almost £50,000. This is no laughing matter, particularly when coupled with buyers' increased household expenditure, including groceries and petrol costs. I wonder who these buyers will vote for in the forthcoming general election and whether the Stamp Duty change has influenced their decision.

The temporary nature of the Government's decision is ridiculous. Instead, the lower level of this stealth tax should have been abolished and the higher boundaries bought in line with house price inflation. What is going to happen in a year's time when the holiday ends and prices are, dare I say it, on their way up?

HomeBuy Direct

The second proposal in the Government's package was the £300m HomeBuy Direct scheme, intended to help first-time buyers earning less than £60,000 to buy new-build property and consequently boost construction activity.

Again, the intentions are good, but consider the facts. The scheme offers buyers an interest-free loan worth up to 30% of the value of a property for five years. From year six a 3% charge will be levied and from year 10 onwards the Bank of England Base Rate will be charged, increasing by Retail Price Index plus 0.5% each year thereafter.

But it is unclear which lenders will be prepared to lend on shared equity properties, an issue which the Royal Institution of Chartered Surveyors has rightly raised.

We have the beginnings of a workable first-time buyer rescue package in place, but as the consensus in the industry reveals, the measures are simply insufficient to help first-time buyers, kick-start the housing market and probably the Government's primary motivation, to win voters' support. A far stronger package of reforms is needed if any of these objectives are to be achieved.

For now, it is crucial that the Government works with lenders to ascertain which are prepared to help implement its new measures and of those that are, what lending criteria they have in mind, which will determine the scheme's success.

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