Budget 2017: does it help first time buyers?

Yesterday, Chancellor Philip Hammond announced that Stamp Duty will be abolished immediately for first-time buyers buying a home of up to £300,000.

For properties costing up to £500,000, no stamp duty will be paid on the first 300,000.

This is an attractive headline. However when you look at the reality, in many parts of the country the average house price is less than £200,000. At £200,000 the stamp duty payable was only £1500, which effectively is what they will now save.

If you are in the south-east of England then it is likely that a first-time buyer property would be in excess of this, and at £300,000 the pre-budget stamp duty payable would be £5000. So, yes it’s a valuable saving that we should be grateful for, but in the context of buying a property for £300,000, does this make properties more affordable?

When you have to find £45,000 for a deposit and you need to fund the balance of £255,000, which, using a sensible multiple of 3x household income equates to an annual income of £85,000, then patently the answer is no!

The country is faced with a much bigger problem. Property prices are far too high, but no government will be prepared to take the risk of reducing house prices. Most people have inadequate pensions and they are relying on their property to fund their retirement. This means that any government that takes action to reduce property prices will get voted out of power.

In my opinion the government needs to have policies designed to reduce demand for buying property so that it is no longer seen as an investment. Certainly in many parts of the north of England, it certainly has not been an investment as prices in some areas have not even recovered from the 2008 crash!

It is a myth that property prices double every 10 years!

In the south of England, certainly to make property more affordable, much smaller sizes and higher density occupation would make sense. Making existing flats smaller is complicated and prohibitively expensive, but building new properties with non-traditional designs internaly and externally of different construction (containers?) could provide more affordable accommodation.

With houses, HMO’s are likely to increase. Not just for students, but for singles and maybe families sharing communal areas.

Unfortunately the government appears to be perpetuating the perception that people need to get on the housing ladder. This is an opinion that I strongly disagree with. It is speculating on house price increases, and this is irresponsible.

Renting is perceived by many people that I speak to as throwing away money because you do not have ownership of an asset. However with an interest only mortgage, you are in exactly the same position! At the end of your mortgage period, usually 25 years, you have to pay back what you borrowed. If your property has not increased in value, then you have a serious financial problem in trying to find a substantial sum of money. We used to buy endowment plans that were designed to be invested so that the proceeds would pay off the mortgage. In those days we expected 10% growth every year!!!

What growth will you get now unless a fund is gambling and they get lucky?

If you rent a property you have far more flexibility.

If for whatever reason you want to relocate, you can do this quickly and cheaply. You don’t have to arrange to sell an illiquid asset that cannot be sold quickly.

You don’t have the stress in buying and selling.

You are not responsible for organising, carrying out and paying for any repairs (unless you have caused the damage yourself). It is also much easier to manage your budget.

Now I am not trying to sell you the idea of renting because it suits me as a landlord. Recently I have also been renting because it not only gives me greater flexibility of where I choose to live but it suits my finances. By renting I have been able to use lump sums of money to invest in more profitable property developments and other businesses.

I just believe that we need to challenge accepted thinking, ask the question “why”, and have more flexibility in our thinking.

Another major factor in the south of England helping to fuel property prices are the excessively large salaries and “obscene” bonuses that many people are being paid in the London area. This is a separate issue because it adversely affects social cohesion as a result of much greater disparity of incomes and a feeling of unfairness.

It could also be the root cause of recent surprise election and referendum results notably in UK, Europe and USA (rebellions against the system?). However it needs to be tackled from the top and across international boundaries, as does taxation.

Well I’ve diverted somewhat away from the budget announcement, so in a quick conclusion, the budget announcement is an attractive headline. Beneath the surface there is little substance because it is of little real benefit to first time buyers.

There are other issues that government will need to tackle, but for anyone who believes that its imperative that they MUST get on the housing ladder I would suggest that they think again and not get despondent about house prices.

At the moment I personally do not believe that owning a property, unless it is for a business that gives a planned return on investment, is necessarily a good way to manage our finances or our lives.

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