George Osborne announced a new scheme to help out buyers having trouble getting their hands on deposits and hence houses. Under the Firstbuy direct scheme you have to save up a 5% deposit. Then the government and a housebuilder will both put up another 10% for you, via an equity loan on a very low interest rate. That gives you a total of 25% enough to make sure you can get a well-priced mortgage. According to various employees of estate agency Kinleigh, Folkard & Hayward this is "great news" for property companies and "great news" for first time buyers.
I'll go with the first any buyer is a good buyer for a house builder these days. But the second? No. House prices are too high and they will come down in real terms at the very, very least. So it doesn't make any sense for the young to buy them now. They are much better off saving and waiting regardless of the various bribes chucked out by interested parties.
So why should the budget be making them happy? Because it has at a stroke made investing in what they really need good quality rental portfolios a much more attractive thing for big investors to do. Until now, if investors have bought groups of flats, they had to pay stamp duty as one tax on the lot. So if they bought five £200,000 flats together they had to pay 5% of the purchase price away £50,000. That was pretty off putting.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Now they won't have to do that any more. Instead they will pay stamp duty based on the median value of the properties in the portfolio, so 1% (the rate on properties that cost below £250,000) or £10,000. That makes a big difference to them because it makes investing more likely to give them the yields they need, and to non-home owners because it means they will end up with more choice in the rental market.
Right now the rental sector in the UK is dominated by buy-to-let investors. This isn't good enough. Some buy-to-let landlords are great. Some are awful. But most suffer from lack of scale one way or another (they don't have full-time handymen at their beck and call) and from cash-flow problems: when the purchase of a new boiler requires several months' worth of rent to be set aside and there is a mortgage to be paid, not very many tenants get new boilers. That's why 40% of the privately rented property in the UK is considered substandard.
However that aside, the buy-to-let sector just can't provide for the fast-rising number of people needing quality rental property in the UK; they aren't big enough and they can't get the finance to ever be big enough. For that we need institutional investors. Cutting their stamp duty bills is a good way to start luring them in.
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
