Budget does nothing to make it easier to get on to the house purchase ladder
PUBLISHED: 06:02 30 November 2017
Last week’s budget was as big a non-event as I can remember from a Chancellor of the Exchequer. But he still got a lot of column inches for what he said and did to try to help the housing crisis.
Why? Philip Hammond’s actions to try to improve the housing shortage facing young people were totally pointless and will make absolutely no difference to the vast majority of people struggling to find their own home.
That is because you’re not going to make a jot of difference by tinkering with the details of housing legislation – only by tackling the underlying essentials of the economy will you make it easier for people to buy their own homes.
The much-heralded abolition of Stamp Duty on first-time buyer homes up to £300,000 was a total case of style of substance. It will do nothing to help people buy their first home.
That is because it will simply push the cost of the house up. When buying a home, especially their first home, people tend to spend up to their limit. That means if sellers think they will be able to pocket a bit more from the abolition of Stamp Duty they will.
The abolition of this tax will do nothing to help first-time buyers – only the property sellers.
Then there’s the idea that raising the ceiling to £300,000 will help “ordinary buyers.” That’s total rubbish. How many “ordinary buyers” do you know who could afford to spend £300,000 on their first home?
I checked with a couple of mortgage broker sites. A young couple on average earnings of about £25,000 each would be able to afford a maximum mortgage of £180,000.
Mr Hammond, a Conservative Chancellor of the Exchequer, may know some extremely wealthy young people who are able to buy a £300,000 home as first-time buyers – but if he thinks that is “average” it just shows how out of touch he is.
Because the housing market for purchasing homes is only going to sort itself out once interest rates are at a more realistic level – ie somewhere between 5% and 10% – and the market is not totally distorted by buy-to-let purchasers seeking to buy properties to provide them with a rental income because they cannot earn enough from investing their money in a bank.
Buying property for rent is seen as a safer way of investing money than in the stock exchange and has become increasingly popular over recent years. You only have to watch television programmes like “Homes Under the Hammer” to understand the attraction.
If you’ve got someone with a small property portfolio and the ability to borrow money at a very low interest rate secured on that, it is no wonder that buy-to-let owners are able to outbid genuine first-time buyers.
Because the amount of social housing available is so inadequate, they are then able to charge rents that are so high that no one living in their homes are able to save for an increasingly-large deposit.
What the Chancellor could have done to ease the housing crisis was to take the lid of strict rules which restrict the number of council homes that can be built.
But he didn’t. Unlike the Tory governments of the 1950s and early 1960s.
Councils like Ipswich have the land available for more homes to be built. They can borrow the money to build the homes if normal financial criteria are applied – but the government says they can’t. Why?
The government is quite happy, in fact encourages them, to allow them to build or buy commercial premises – so Mr Hammond’s claims that it is because he doesn’t want them adding to the National Debt instantly falls down.
A cynic might think that a Conservative chancellor doesn’t really want more people living in council houses, especially in marginal seats, because they might vote Labour. As I’m not a cynic I wouldn’t dare suggest such a thing!
And don’t tell me that he did open the floodgate for new council homes. What homes he did allow councils to build were a comparatively small number in areas with “exceptional needs.”
Unsurprisingly none of them were in this part of the world.
All this means that things really won’t get that much better for an increasing proportion of young people. They won’t be able to get on the housing ladder and they won’t be able to get a council (or housing association) tenancy. They will be stuck in the privately-rented sector.
There’s nothing wrong with that in itself – but please, Mr Chancellor, don’t try to kid us that you’re trying to change things!