Chancellor George Osborne missed an opportunity to revitalise the mortgage market in his Budget address, according to industry experts.
There were relatively few proposals to address the challenges facing the market, which may come as no surprise given the Government’s conflicting messages with regard to its housing policy.
Prime Minister David Cameron has in the past urged the banks to help get the market moving while housing minister Grant Shapps has consistently called for a period of house price stability.
Osborne did set out a £250m Government-backed shared-equity scheme, FirstBuy, in association with housebuilders to help first-time buyers raise a deposit for newbuild properties and an extension of the support for the mortgage interest scheme for another year to 2013.
The Chancellor also revealed stamp duty will be based on the mean value of a property in a portfolio, not the bulk cost, and pledged to look at making sure high-value property owners pay their “fair share” of tax, promising to end three types of stamp duty avoidance.
But there is a feeling among mortgage industry professionals that he could have gone further.
Aldermore managing director of residential mortgages Charles Haresnape says FirstBuy will not solve the problems in the market by itself.
He says: “It is better than nothing but we should not fool ourselves into thinking that this scheme will kickstart the first-time buyer market into action.”
If I Were You managing director Rob Clifford says: “This Budget did not tackle the stark fact that housing transactions currently sit at little over half a million a year, against the long-term average of well over one million.
“I am in favour of initiatives that help first-time buyers but FirstBuy is only likely to help 3 per cent of the annual FTB population. Its limitation to newbuilds threatens to exacerbate the stagnation in private sales and does not help movers to upscale.”
Clifford, Chadney Bulgin mortgage partner Jonathan Clark and Association of Mortgage Intermediaries director Robert Sinclair believe the Chancellor should have looked at stamp duty, which brokers have consistently called on recent Governments to modernise. FTBs are currently exempt from stamp duty on purchases up to £250,000.
Sinclair says: “A boost for the entire housing market would have been a commitment to address the inequity of the overall stamp duty system.
“We want a more graduated scale and more people to be taken out of it altogether. It would be best to introduce £250,000 increments but only on the additional amount.
“If you had a £750,000 house, you might pay nothing on the first £250,000, 2 per cent on the next £250,000 and 3 per cent on the next £250,000. You would end up paying to the effect of 2.5 per cent on £500,000.”
Clark says: “There was no adjustment of thresholds, no further exemptions for first-time buyers and no smoothing by introducing a marginal stamp duty system as we have for income tax. The £250,000 limit still massively distorts house prices around this price level.”
Intermediary Mortgage Lenders Association executive chairman Peter Williams says: “First-time buyers already benefit from 0 per cent stamp duty on properties up to a value of £250,000 but the threshold for house movers should also be reviewed to encourage greater activity in this segment of the market.”
Since the financial crisis, wholesale markets have been all but closed due to reluctance to invest in mortgage-backed bonds, meaning banks lost a vital source of funding to fuel new lending.
Williams says: “We would like the Government to properly address the funding issue in the mortgage market. Although it has recognised the importance of the wholesale funding sector to the availability of mortgage finance, we have seen little in the way of support for this market.
“Imla believes the Government can play an important role in supporting the securitisation markets, which will result in wider availability of mortgages across the board.”
Clifford wants to see the Government put pressure on state-backed lenders, including Lloyds Banking Group and Royal Bank of Scotland, to lend more to would-be homebuyers.
In May, the UK’s biggest banks signed the Project Merlin agreement with the Government to make £190bn available in gross new lending to business, with £76bn for small and medium-sized businesses. However, there were no targets set for mortgage lending.
Clifford says: “There is no question the Chancellor could have forced lenders, particularly those in which the taxpayer has a stake, to lend more.”
Clark suggests a Government-backed mortgage indemnity scheme that would encourage lenders to offer more competitive deals.
He says: “Nothing was done to encourage the state-owned banks to help first-time buyers with more competitively priced 90 to 95 per cent products.
“Surely a Government-backed mortgage indemnity guarantee scheme or something similar would kickstart this end of the market?”