On the eve of Harry Houdini’s 137th birthday, George Osborne pulled his second Budget out of the hat with both hands tied firmly behind his back. Last May’s five-year deficit reduction plan left very little room for manoeuvre and even less for growth.
The Chancellor did manage to keep a little something up his sleeve for this occasion, however – the unexpected 2 per cent reduction in corporation tax was as smart a move as it was a crowd- pleaser – a much needed boost in our stifled economy. Unfortunately, the mastery soon gave way to smoke and mirrors and, in the housing market, Mr Osborne definitely missed a trick or two.
The first of these was the problematic area of first-time buyers. Quickly adopted by the media as one of the Budget’s headlines, the FirstBuy Scheme was billed as “help at last for first-time buyers”. But dig a little deeper and it is clear that only a small number, around 10,000 FTBs, will benefit. Why restrict access to those with a combined maximum income of £60,000 and newbuild homes? There are plenty of 90 per cent LTV mortgage products currently on the market.
Therefore, in my opinion, a 10 per cent loan offered to a wider pool of borrowers would have been far more beneficial.
The Chancellor also stopped short on the support for mortgage interest scheme. He certainly made steps in the right direction by extending the scheme until January 2013 – this move was vital in my opinion given the number of people at risk of repossession due to unemployment. However it only covers interest payments for mortgages of up to £200,000 – a ceiling that fails to recognise regional variations in property prices. As is so often the case, broad-brush Government policy does not fit all.
An opportunity that Mr Osborne missed entirely in this Budget was to introduce a stamp duty holiday for purchases of up to £250,000. Without question, this would have been the quickest way to get the stagnant housing market moving once again. We all remember the positive impact that the £2,000 scrappage scheme, introduced by the previous government, had on the car industry. Similarly, stamp duty relief would prompt many first and second-time buyers into action, providing much needed momentum in the housing market.
The Chancellor faced an unenviable task in this Budget. There are only so many ways to slice the pie and so many insatiable lobbyists to feed with it. But the housing lobby needs to be fed. It is such an integral part of the economy and its success is vital to reduce the deficit.
We are faced with inflation at 4.4 per cent, more than double the Bank of England target. Most experts agree at least one interest rate rise is on the cards. This leaves many already stretched borrowers in a vulnerable position, so the stakes are high.
Dominik Lipnicki is director of Your Mortgage Decisions