Budget 2021: A case of short term gain for longer term pain
Chancellor Rishi Sunak delivered his second budget this afternoon and it had welcome short-term news for those currently buying or considering buying a home. We use the term 'short-term' advisedly, it will benefit some now, but in our view, it has simply moved and increased the size of the cliff edge rather than dismantled it.
Stamp Duty Holiday extended
Goods news...
The extension of the Stamp Duty holiday from 31 March 2021 to 30 June 2021 will be widely welcomed by all those who were facing the cliff edge of missing out on the stamp duty holiday altogether. And there is more good news to come because the cliff edge has been lowered, the nil rate will move from £500,000 to £250,000 on 1 July 2021 before returning to its pre-holiday levels (a nil rate of £125,000) on 1 October 2021. This should provide those currently facing the edge of the cliff ample opportunity to avoid it altogether.
...but with unintended consequences
However, beware of the law of unintended consequences. Whilst the stamp duty holiday is an extension for some it will be a brand new holiday for others. Those on the cusp of starting the home buying process are likely to accelerate their buying plans to take advantage of the extended tax give away.
Aside from the home buyers and sellers, the main players comprising our homebuying infrastructure are estate agents, conveyancers, solicitors and mortgage brokers. If you happen to know anyone working in these sectors you will know how busy they currently are. The last thing they want right now is a surge of new clients and customers. The very surge that today's BUdget could very well lead to.
There is a real risk in our view that the extension to the stamp duty holiday which was meant to diffuse a tense situation will actually create a bigger problem than the one it was trying to solve.
We were genuinely surprised that the Stamp Duty Holiday extension was not limited to those near the cliff edge and committed to buying a particular home rather than being open to anyone who identifies themselves as a homebuyer irrespective of where they currently are in the homebuying process. Such a policy would have taken the heat out of the system and paved the way for a new equilibrium and a return to a more normal housing market rather than risking raising activity levels and setting up many more homebuyers for future failure.
High Loan to Value Mortgages
We welcome the re-introduction of Government-backed high loan to value mortgages, a Godsend for those without access to the bank of mum and dad and a good example of levelling up the playing field. Some will say it will stoke up house prices, but we disagree. High loan to value mortgages maintains the link between mortgage capacity and wages, which in turn helps to link house prices to earnings.
What, in our view, has stoked house prices more than the availability of high loan to value mortgages is the bank of mum and dad funding house purchases which would not be possible with wages alone. We are not saying that the bank of mum and dad is a bad bank. Few would criticise a parent for helping their children or grandchildren out at a family level it makes perfect sense. However, at a societal level, it increases inequality of wealth that so plagues our housing market. Balancing the family with society is not always easy, but if we do want to do 'whatever it takes' to improve the housing market for future generations, maybe we should look at the impact of the bank of mum and dad haves on the bank of mum and dad have nots.