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The Budget 2009

The Council for Mortgage Lenders describes the Budget's response to the crisis in the housing market as "modest". Others are blunter and say its measures are not radical enough. Despite widespread expectations that the Budget would include concrete measures to kick-start the housing market, the reality is that they are likely to have limited affect.

The Budget 2009Little impact

Michael Coogan, director general of the CML, says the Budget measures "will have little short-term impact on the housing and mortgage markets". But he welcomes the decision to continue the stamp duty holiday for properties up to £175,000 for a further three months, to the end of 2009.

"The Chancellor had little room to make substantive interventions, so there are no real surprises in this list," adds Coogan. "The measures overall are unlikely to significantly improve prospects for higher market activity in the coming months."


Stamp duty criticism

But Chancellor Alistair Darling disappointed many who had been calling for a much greater extension of the stamp duty holiday, either by permitting it to cover all residential property sales, or else by fundamentally reforming its application.

James Hyman, residential sales partner at Cluttons estate agents, argues: "The Government has missed a huge and obvious opportunity to change the way stamp duty is charged, which is having major repercussions for both buyers and sellers in a slow housing market. Extending the £175,000 stamp duty exemption to the end of the year will achieve very little. Tiering the system in £50,000 price bands would have been a fairer and more helpful initiative in today's market.

"Buyers are now not only having to find additional cash to make up the shortfall required by lenders for higher loan to value mortgages, but also stamp duty on properties in the ranges just above the present upper thresholds of £250,000 and £500,000. Sellers are not able to realise values above these thresholds and there is a general reluctance across the board for buyers to pay the higher level of stamp duty which is causing considerable stalemate in the market."

Some recovery

Other housing market professionals are happier with the Chancellor. Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA) welcomes, in particular, the Treasury's progress in providing guarantees to mortgage-backed securities, which is designed to improve banks' access to funds, enabling them to increase lending. Williams says IMLA "is pleased" the Treasury "has acted quickly" on this. He says that he hopes, this, together with the stamp duty holiday extension and other measures will lead to "some recovery in mortgage funding and the wider housing market".

The CML's Coogan agrees. "The most important element of this Budget for the mortgage market over the long term may prove to be the new asset backed securities guarantee scheme," says Coogan. "This potentially offers an opportunity to restart the capital market funding for mortgages that will be a crucial factor in delivering an adequate supply of mortgage credit."

HSBC is also positive about the Budget's impact on the housing market. Andy Mielczarek, head of retail products at HSBC, says the stamp duty holiday extension is "welcome news". He says: "Since the stamp duty holiday came in place in September 2008, first time buyers with relatively small deposits have struggled to benefit due to a lack of mortgage availability. Now for the first time in six months people looking for their first home can realistically hope to take advantage of lower borrowing costs and a tax free property purchase."

Investment stymied

But there is disappointment that expectations of a £1bn Public Private Partnership to encourage institutional investors into the social housing market were ignored in the Budget. Richard Parker, housing leader at consultants PricewaterhouseCoopers, believes that while the Government wants the scheme to go ahead, it proved too complex to pull together in a limited time period.

"I was expecting something around this," he says. "I have had discussions with government, house builders and institutional investors on this, creating a bigger private rented sector." It seems, he suggests, that arranging the detail of such a large project could not be managed in the weeks leading up to the Budget. Instead it may take a year to 18 months to organise.

Parker also downplays the significance of the Treasury's announcement of funding for an extra 10,000 new homes and £100m to go towards new council house building. "£100m is frankly a drop in the ocean," he says. "Birmingham City Council alone has increased its prudential borrowing from £2bn to £3bn."

And with the Government's house building aspiration being some 240,000 new homes to be built a year, the programme will have a very marginal affect on progress towards achieving this, believes Parker.

Time for rethink

The Chartered Institute of Housing - which represents professional housing officers in the social housing sector - was also lukewarm about the Budget. CIH chief executive Sarah Webb says: "It is right that government continues to support families in danger of repossession and stimulates a stagnant housing market through stamp duty tax breaks. But we must recognise that these measures are a reflection of a failed boom-bust market and the product of a system that only existed on the back of high house price inflation and irresponsible lending.

"We need a better balance and choice of places to live. The infatuation with home ownership must be tempered. We need to talk less about housing as an investment and housing ladders, and more about ways to address waiting lists, ways to reduce housing as a polluter, and ways to close the gap between the number of homes being built and households being formed. This major conceptual change of approach is needed. And with the economy in such a parlous state the time is right to introduce new thinking."

  • by Paul Gosling
    23 April 2009
Extending the £175,000 stamp duty exemption to the end of the year will achieve very little. Tiering the system in £50,000 price bands would have been a fairer and more helpful initiative in today's market.