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FTB tax relief could distort the market

The Government should not offer mortgage tax relief for first-time buyers as it would distort the market, according to the Great Housing Market Debate panel.

Speaking last week in London in the debate sponsored by Hometrack, Nationwide chief economist Fionnuala Earley said: “I think it it very difficult to say you should favour one group of buyers over another. It is a very difficult time for first-time buyers clearly and everyone wants to own their own home in this country but by giving specific incentives to particular groups, you introduce distortions into the market.”

Earley pointed out it could inflate house prices even further because of an increase of demand in that sector.

She said: “You have to be very careful tinkering with things like tax relief for certain groups of people, particularly when you cannot identify who that group is. It could be someone returning to the market or it could be the genuine stereotypical first-time buyer.”

BBC economics editor Evan Davis said: “Sometimes, gains and measures to help one section of the buying market actually accrues to the sellers because house prices get more sustained.”

Morgan Stanley chief economist David Miles said he was sceptical about subsidies and tax relief for a particular group of buyers.

He said: “The idea if you take commodities that are essential and expensive for young people with limited income and that the right way to solve it is to subsidise them is a little bit strange. We do not do that with food, clothes or energy, all of which are essential and expensive for people on low incomes. We tend to address that by using the income and tax benefit system.”


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