Newsletter 8 - Christmas newsletter
Pre-Budget Report – Implications for Mortgages
The recent Pre-Budget report was all the more significant considering the current economic climate. Maintaining an active Mortgage Market is seen as a key driver of economic growth and consumption, especially in the UK. .
Here we provide a run through of the main implications for the Mortgage market. Next year will be an interesting one for the mortgage and housing market that’s for sure and if rates do start to rise it will be interesting to see how many people decide to place their properties on the market and the effect this will have on house prices and demand for housing finance.
Mortgage and Housing Finance
- The Mortgage Interest Scheme will be extended for another 12 months to help some homeowners who experience mortgage difficulties.
- The stamp duty holiday on properties under £175,000 will end on 1 January 2010.
- The Government will explore ways of "encouraging more sustainable, transparent and standardised UK mortgage-backed securities markets". They intend to do this by working with the Bank and FSA through the Council for Financial Stability, and in discussion with issuers and investors, in order to establish a broader investor base and lay the foundations for stronger markets in the future. The Government will update on progress at Budget 2010.
With thanks to the Association of Mortgage Intermediaries for the above summary. They also commented:
We were disappointed that the Chancellor did not extend the stamp duty holiday. The housing market is showing signs of recovery but a further stimulus is clearly required. The extension of the Mortgage Interest Scheme will help some homeowners who experience mortgage difficulties and this, combined with lender forbearance, is helping many people in financial difficulty stay in their homes. However the greatest problem we face in the mortgage market is a lack of competition. We are therefore frustrated that the Chancellor has not sought to address this more urgently. The commitment to work through the Council for Financial Stability on Mortgage Backed Securities needs accelerating together with the promise to clarify the rules on Covered Bonds. We will continue to seek government support for our proposal to draw Building Societies and non-banking institutions back into lending.
Mortgage intermediary firms, like other small businesses, have been affected by the financial turbulence. We therefore welcome the delay to the proposed increase in corporation tax, which will help SMEs in these difficult times. However, we are concerned that the planned increase in National Insurance contributions will prove an additional burden and merely counteract the freeze in corporation tax. While the £500m capital growth fund announced by the Chancellor appears to be a beneficial move for SMEs, we await the publication of the full details before we can fully welcome this announcement.
As for the announcement of a windfall tax on bonuses, we believe the Government needs to carefully consider the introduction of such a tax of this kind on bonus payments. While the banking industry must take account of public opinion, the HMRC wording appears to capture other firms, such as intermediary businesses as constituent parts of wider banking groups.
The Pre-Budget report was surprising in its simplicity and the lack of ‘shocks’ for the housing market. The end of the stamp duty holiday will affect property demand outside of London but if prices do fall in 2010, buyers will be enticed into the market by the possibility of obtaining a ‘good deal’.
The main aspect is the final point, to get lenders lending again. There have been a couple of new market entrants as margins are relatively good for lenders with the correct lending strategies. Fingers crossed for 2011 but as I always say, make sure your own house is in order before trying to fix anyone else’s!