24th March 2010

First time buyers & the mortgage market

There is a lot in the press about the state of the British economy and with a General Election fast approaching this debate will increase.  I am surprised that at this stage there is not more discussion regarding the housing market and how best to stabilise it.  As a professional who is heavily involved in the property market it seems very clear to me and not open to dispute that our economic boom of the last few years was based on the increase in the value of houses.  Unless the housing market can be stabilised I do not think that the economy will ever get back onto a stable footing – certainly for the banks, once the housing market does stabilise, this will increase their confidence to start lending again.

One way of increasing this and one of the problems with the housing market at present is that it is very difficult for first time buyers to get a product.  It would be a brave political party that came up with a bold initiative to create a fund to help first time buyers get back on the market – why not force the banks to lend 90% to first time buyers with the Government guaranteeing the 5% over and above that meaning that first time buyers only had to find a 5% deposit?  This could be done at little risk if the lending criteria was correct, i.e. between 3 and 4 times salary and that there was a degree of affordability.  This would allow more first time buyers to get on the market thus stabilising the housing market and allowing the housing chain to get moving again.

Also what about again raising the idea of allowing people to use their pension funds to purchase buy to let properties, perhaps limiting the number of properties they can buy, this would then allow further funds to be injected into the housing market, stabilising house prices and again increasing confidence.

A way of funding this may be to introduce an enhancement to the Capital Gains Tax regime meaning that taxing people a higher percentage of the gain if they trade a property other than their sole or main residence within 5 years of purchasing, i.e. 70% after first year, 60% after second year and so on.  By assisting first time buyers to get on the market, the housing market will begin moving again, benefiting the whole economy.

 

 

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