Home—Blog—The real reason that the budget is great news for first-time buyers
Mar 23, 2011, 05:06
Posted byMerryn Somerset Webb
Comments (24)
George Osborne announced a new scheme to help out buyers having trouble getting their hands on deposits and hence houses. Under the Firstbuy direct scheme you have to save up a 5% deposit. Then the government and a housebuilder will both put up another 10% for you, via an equity loan on a very low interest rate. That gives you a total of 25% – enough to make sure you can get a well-priced mortgage. According to various employees of estate agency Kinleigh, Folkard & Hayward this is "great news" for property companies and "great news" for first time buyers.
I'll go with the first – any buyer is a good buyer for a house builder these days. But the second? No. House prices are too high and they will come down – in real terms at the very, very least. So it doesn't make any sense for the young to buy them now. They are much better off saving and waiting regardless of the various bribes chucked out by interested parties. So why should the budget be making them happy? Because it has at a stroke made investing in what they really need – good quality rental portfolios – a much more attractive thing for big investors to do. Until now, if investors have bought groups of flats, they had to pay stamp duty as one tax on the lot. So if they bought five £200,000 flats together they had to pay 5% of the purchase price away – £50,000. That was pretty off putting.
Now they won't have to do that any more. Instead they will pay stamp duty based on the median value of the properties in the portfolio, so 1% (the rate on properties that cost below £250,000) or £10,000. That makes a big difference – to them because it makes investing more likely to give them the yields they need, and to non-home owners because it means they will end up with more choice in the rental market.
Right now the rental sector in the UK is dominated by buy-to-let investors. This isn't good enough. Some buy-to-let landlords are great. Some are awful. But most suffer from lack of scale one way or another (they don't have full-time handymen at their beck and call) and from cash-flow problems: when the purchase of a new boiler requires several months' worth of rent to be set aside and there is a mortgage to be paid, not very many tenants get new boilers. That's why 40% of the privately rented property in the UK is considered substandard.
However that aside, the buy-to-let sector just can't provide for the fast-rising number of people needing quality rental property in the UK; they aren't big enough and they can't get the finance to ever be big enough. For that we need institutional investors. Cutting their stamp duty bills is a good way to start luring them in.
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(23 March 2011, 05:50PM) Complain about this comment
I will come back to this , but I really can't believe I am reading this in Money Week. You really have lost it.Just for starters; how is it even logical that not becoming a first time buyer is good for first time buyers. That is like saying not becoming a butterfly is good for butterflies. If they don't become first time buyers, they aren't first time buyers.Do you mean? - The real reason the budget is good for renters.Or? - The real reason the budget is good for the young, who have been priced out of the the housing market, by the over lending of the banks, with the collusion of the government, who now expect them to spend their life renting properties bought with money provided to the banks borrowed on behalf of current taxpayers which they will have to pay off and take the capital risk on but get no capital benefit from at the end of the deal.
(23 March 2011, 05:56PM) Complain about this comment
Mike, I think that the young should in general now consider renting rather than trying to buy. It makes sense to me, given flat to falling prices and very high stamp duty, that they wait to buy until they are ready to settle in a "lifetime house." So anything that encourages the emergence of a high quality rental sector they can be in while they save is a good thing. In that sense this change is good for first time buyers in waiting.
(23 March 2011, 07:15PM) Complain about this comment
I couldn't disagree more, Merryn. The last thing would-be first-time buyers like myself want is more people buying to let, propping up inflated house prices, justifying the current mortgage market and keeping us in a position of paying off other people's mortgages rather than starting our own.
(23 March 2011, 07:30PM) Complain about this comment
That's nothing Mike, I was reading one of Merryn's editorials the other day, where she professed to have been bullish on equities for the past 12 months!!!
(23 March 2011, 07:57PM) Complain about this comment
The real reason that the budget is bad news for all property buyers is that it is a licence for REITS (Real Estate Investment Trusts) to dominate both the residential and commercial property markets, turning the Nation into tenants. Only 5% of commercial properties are owner occupier. The residential market looks to be going down the same slave route? Soon the number of Britons who own their property will fall below 50%.REITS already pay no corporation tax, no capital gains tax, and now George is going to let them off most of the stamp duty. The Tories are unashamedly the party of the Rentier Class, who operate parasitically upon the rest of society.It will not be a level playing field. First time buyers pay stamp duty, tax on renting a room out, inheritance tax at death, and perhaps even capital gains tax if Merryn gets her way. In time, the whole country will be owned by British Land and a few other major players. But... one day the slaves will rise in revolution!!
(24 March 2011, 08:00AM) Complain about this comment
I agree with Merryn, ( at least I think that is what I am doing), because prior to this article my view is house prices will drop at least 25% in the next couple of years, if not more.This would mean I think that in two years, a first time buyer now would have 25% on the low interest rate, (Yeah right) to pay off, while living in a house that is only worth 75% of its orginal value and that takes no account of inflation and the depreciation of sterling and life as we know it.So best for a first timer (or mugs as they are known at present to the Financial Services) to wait for the 25% cheaper houses to come on the market. They certainly will be spoilt for choice. US of QE is double dipping on houses and we normally like to follow in all matters of destruction.
(24 March 2011, 08:10AM) Complain about this comment
I am with Merryn on this one. The best thing that young people can do is rent right now. That is what I have been doing for the last 15 years. During that period I have saved up enogh money to buy a house for cash as and when I choose. This approach will have worked out as being far cheaper than a 25 year mortgage. And I have been able to rent really nice places to live for a pittance in the meantime.
(24 March 2011, 08:48AM) Complain about this comment
The "help" for first time buyers is a taxpayer gift to house builders. pure and simple.I understand Merryn's point about the desirability of more professional investors buying housing stock. But it still makes me feel sick. I think we all know, deep down, that no savvy investor will buy such overvalued assets. The only ones who will are the 'property porn' educated amateurs.Besides, all this nonsense is only possible while the BofE can keep on printing and have low IRs. They are rapidly running out of road.
(24 March 2011, 09:00AM) Complain about this comment
Merryn, surely if it is wise for first time buyers to hang on until prices drop further, it is also wise for institutional investors to do the same.
(24 March 2011, 09:25AM) Complain about this comment
A large part of the reason the young are 'priced out' is because there are far too many BTLs and far too many people doing it. I think the budget should have recognised that and make BTL investing less attractive rather than more attractive.
(24 March 2011, 10:03AM) Complain about this comment
Hi Merryn, I see where you are coming from in your article but its a the sides are to some extent mutually exclusive. Yes this is just another case of the government propping up a failing market. Yes this is still a bad time for FTB.But increasing the tax breaks/reducing initial BTL purchase costs actually doesn't help FTB's at all. Anything that helps institutional or corporate borrowers is undermining the real FTB cause of lower prices. So what if the new budget means that a large scale purchaser puts less money down up front... buy buying those 5 x £200k properties they are reducing the market size for FTB's to choose from and what's worse they prop up the market at current rates when those properties should be worth only £150k at affordability based prcing. We need rates to rise, savers to be able to beat inflation and mortgage costs to rise whilst total mortgage borrowing falls - that's the only way that the market will stablise for long term growth.
(24 March 2011, 11:41AM) Complain about this comment
Stimulating activity in an over priced market with illusions will do no-one any favours. Encouraging buy to let at the moment is irresponsible, will continue to keep prices artificially high and in turn create even larger debt for those that cannot afford it.
(24 March 2011, 05:19PM) Complain about this comment
Hmmm, the devil is in the detail, I bet you a penny to a pound that if the price of the house falls the FTBs 5% deposit goes first, then the deposit from the taxpayer ( the Government only collects our money there is no such thing as Government money ) then if prices are down more than 15% we get to the housebuilders 10% then finally the banks 75%. I'm not sure I agree with my money being put down as a deposit on a total strangers house so that they can buy some awful place on a new estate worth about 60% of face value. Nation of Tax dodgers Merryn? When it's used for purposes like this is it any wonder we are? I'm always getting told my taxes are necessary for essntial public services like Drs and nurses not buying other people houses.
(25 March 2011, 12:56PM) Complain about this comment
Merryn,Anything that stops house prices falling is bad for FTBs and anyone looking to upsize.The best thing for FTB would be if BTL landlords had their tax benefits removed. This budget has done the exact opposite. Great swathes of houses are going to be bought up by large corporations with tax breaks to do it.The best thing any FTB or anyone else with transferrable skills could do is leave the UK as soon as they can. The UK is now a kleptocracy. Several aspects of this budget prove it.
(25 March 2011, 01:06PM) Complain about this comment
I disagree with Merryn. I'm a first time buyer of 37 years old. Bang on statistic. I have 13 year old and 9 year old children. Please explain to me how I'm supposed to afford a 'forever' house, or any family sized house at all before my children leave school at this rate? Not all first time buyers, and certainly not those approaching 40, are goign to be in need of a one bed flat. This stamp duty adjustment is just another move to prop up house prices instead of letting them drop to an affordable level as the market forces at work woudl otherwise do if left to it.
(25 March 2011, 02:00PM) Complain about this comment
This is atrocious news for first-time buyers. As the stamp duty tax break is based on the average price of the houses bought, it will be most effective for those institutional investors buying cheaper homes - exactly the homes that first time buyers would purchase otherwise.FTBs have had a raw deal with the increase in the BTL brigade over the last decade, who can use their equity to outbid on these cheap 'starter homes'. This tax break is going to make things much, much worse.(As an aside, my experience with renting is that individual landlords have generally given a much better service than faceless companies that own multiple properties, so I'm not sure your argument about an improved rental market stands up).
(25 March 2011, 02:05PM) Complain about this comment
I am sitting on the fence. Where I want to live (centralish London) the last thing I need is more BTL piling into the market. There's enough problem with overseas buyers and city fat cats blowing their government funded bonuses on "units" around the city, east end, shoreditch etc. BTL seems to be booming according to estate agents I talk to, and even getting a lookin on a new development is difficult especially with lenders demanding 30% downpayments on new build flats.What the housing market could do with is a bigger number of institutional investors coming into the private rental sector. the 40% of rentla property that is substandard number is gobsmacking. It sums up the totally f**cked up situation the renter has to put up with in this country.The government don't have a coherent housing policy. Its a mess. Shapps, if you are reading this, listen to Merryn instead of that posh woman from the telly.
(25 March 2011, 02:09PM) Complain about this comment
I can kind of see Merryn's point, in tems of renters waiting for nominal prices to drop. Kind of been taking that advice for the last 5 years now, so thanks for that Merryn. Hope you're enjoying the pad in Edinburgh. No doubt lining up your brood for free education at St. Andrews. Meanwhile back in renter land, the reality is that if prices do drop, this is likely to be accompanied [in various scenarios] by an increase in interest rates, so we'll end up stumping up the same cash flow to the lenders. So lose, lose really for the first time buyers & win win for any BTL with a load of cash [to wash].
(25 March 2011, 05:17PM) Complain about this comment
So does this mean that if interest rates go up and a lot of BTL portfolios are repossessed, then these property companies will be there to hoover up the repossessions en masse? How handy. Banks will not be left with unwanted properties and will probably lose less money passing them on and the lack of a glut of repossessions will avoid the long-awaited fall in property prices.Perhaps I'm reading too much into this but it's a little suspicious. Interest rates the lowest in three hundred years, not controlling inflation, weakening the pound - anything to support the banks, probably with an eye to a nice little banking job once they're out of power.
(26 March 2011, 07:16PM) Complain about this comment
I disagree - if large institutions start buying up "FTB" properties there will be greater demand and will become ever more unaffordable! In order to keep prices restrained the Govt might consider placing planning restrictions on some developments for "FTB occupancy only" which would prevent BTL investors from competing and driving up prices, and ensure prices are kept lower than normal market value (as in the case of some age-restricted retirement developments).
(26 March 2011, 07:17PM) Complain about this comment
If the Chancellor seriously wanted to help FTBs get onto the property ladder he would have liaised with the Banks & Building Societies to devise a special zero-taxed high interest FTB saving scheme to help them save the required 25% deposit, and in the meantime let the market correct itself by market forces...
(30 March 2011, 06:05PM) Complain about this comment
If the BTL brigade, including the big companies, buy up all the properties, then house prices will RISE not fall.In many EU countries renting from huge corporations is the norm. HOWEVER, tenants are very well protected and the corporations really must toe the line. I know this as I am an ex pat living abroad in rented accommodation from one of these corporations. If the slightest thing needs repairing they will immediately send someone out. As for the interior, it is up to us how we decorate and everyone keeps pets. People save money for their pensions here, not houses.I live in a nature reserve on the edge of a lake. To live like this in the UK I would have to be a millionaire. Only in the very long term will UK house prices fall to affordable levels as in Germany and only if there is less of an obsession for owning a property which could only happen if tenants were as well looked after as here. That misses a whole generation!
(30 March 2011, 06:07PM) Complain about this comment
I think this budget is disgraceful and vindictive against our young people. Almost to the point of taking revenge against FTBs who have practically gone on strike. "We'll show you FTBs if you do not get yourselves in debt." continuation from last post............I think the FTB should show the elite a thing or two by moving abroad. You can buy a villa in Germany or France for the price of a passageway in the UK even after considering the high legal cost of buying and the fallen pound. It is obvious that the UK elite do not want young people to own a house. Disgraceful!!!! Do not wish or hope otherwise, just leave!from a baby boomer ex pat
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