Mortgage experts say housing minister Grant Shapps is out of touch with the mortgage market and should focus on reforming stamp duty to kickstart lending.
Shapps (pictured) gave a speech at the Building Societies Association’s annual mortgage seminar recently in which he urged lenders to offer 30-year fixed-rate mortgages and spoke of his desire to create “a self-build revolution”, to make it easier for people to build their own homes.
Shapps’ suggestion of 30-year mortgages was roundly criticised by many in the mortgage industry, who stress there is not enough appetite for these products and difficulties in funding them.
Association of Mortgage Intermediaries director Robert Sinclair says: “Thirty-year mortgages are interesting but we have had them before and they were not popular, plus, given the current financial cycle the banks are in, in terms of capital and liquidity, tying up assets for that length of time means there is likely to be a significant premium paid over prevailing interest rates.”
It is not the first time the housing minister has suggested that lenders offer niche products. In July, he called on lenders to offer “mates’ mortgages” so groups of friends could pool their savings and buy a house together.
The Government’s £500m FirstBuy scheme, which launched in June and offered first-time buyers purchasing a newbuild property a joint top-up loan from the Government and a housebuilder to help with a deposit, was criticised for being limited to newbuilds and being too small.
Some commentators have expressed concern that Shapps does not understand the needs of the market.
John Charcol senior technical manager Ray Boulger says: “He clearly feels the need to accept these high-profile speaking events, like the BSA conference, and his challenge is finding something to say. I do not think he really believes we are going to have a lot of people taking out 30-year fixes. Making these kinds of suggestions actually make him look out of touch.”
Ennes Private Clients partner Hugh Wade-Jones says: “In principle, 30-year fixed rates are a good idea but the reason people tend not to want to fix for longer than five years is the desire for flexibility.”
During the seminar, Shapps revealed the Government has no plans to reform stamp duty in the near future, which is one thing the mortgage industry has lobbied for in a bid to increase the number of housing transactions.
Sinclair (pictured) says the Government should abolish the tax for purchases under £500,000 and make the seller pay the tax instead of the buyer.
He says: “We need to build a situation where it is not only easier for first-time buyers to purchase a property, but for second-time buyers to move and to do that we need to look at stamp duty again.
“I have always said we should abolish stamp duty for any transactions under £500,000. The Government should also move stamp duty from the purchase side of the transaction to the seller side, which would move the tax away from the first-time buyer.”
Many in the mortgage industry have called for the Government to end the “slab structure” of stamp duty, which charges the highest appropriate rate on the whole purchase price once either the £125,000, £250,000, £500,000 or £1m thresholds are passed.
Council of Mortgage Lenders head of member and external relations Sue Anderson says: “The slab system will tend to create bunching at values just below the thresholds, so we have always been of the view that a marginal system makes more sense, like income tax.
“We think there is the potential for the Government to have an even more radical look at the taxation of housing, although we have not formulated any proposals at this stage.”
Convincing the Government to amend stamp duty would be a difficult task, given that it is likely to result in lower tax revenues while the economy is under immense strain.
Emba group sales and marketing director Mike Fitzgerald says for this reason it is likely that the stamp duty holiday for first-time buyers up to £250,000 will not be extended in March.
He says: “I understand the Government has not got much money to play with, so we have got to accept that the stamp duty holiday will come to an end in March. I think Grant Shapps’ hands are tied every which way.”
IMF Mortgages partner Ian Marcusfield says: “Making first-time buyers pay stamp duty only adds to their deposit woes, which slows down property sales.”
Intermediary Mortgage Lenders Association executive director Peter Williams says another way to inject some life into the market would be to kickstart local authority mortgages.
He also wants to see Shapps put more emphasis on encouraging mortgage indemnity insurance to ease lenders’ concerns about higher-LTV lending.
Williams says: “The Government could encourage local authority mortgages, which could improve the lack of capacity in the market at the moment. Then there is the question about whether there could be any more done on mortgage guarantee insurance. The Government could offer its own scheme. Reopening these options would be helpful.”