"The Chancellor has, in effect, just created a potential influx of new demand for these but at the same time, done nothing to satisfy the supply side of the market."
There is no argument, that on the surface this appears to be a welcomed scheme but scratch a little deeper and this approach isn’t quite the game changer it would at first seem to be.
Yes, this tax break will help first-time buyers put an additional £10,000 towards their deposit on a £500,000 house rather than pay the stamp duty. Had this happened pre-Covid lockdown, when we had an active 95% LTV market, such a scheme would have equated to around 40% of a minimum deposit. However, the market has since changed – and changed dramatically! We simply cannot rely on an approach that leans solely on an SDLT holiday.
The coronavirus situation has rocked the world, and the UK property market, to its core. Economies are failing and we, if you want to believe the economists, are waiting with bated breath for the largest economic crash ever recorded. There is little appetite for risk on the side of the lender today. A few months ago we saw 90%+ LTV mortgages available and even ones at 95%+ but not today. With less appetite for risk these have been withdrawn. The Chancellor has, in effect, just created a potential influx of new demand for these but at the same time, done nothing to satisfy the supply side of the market.
Whereas the Government initially took on all the risk vis-à-vis furlough and other such schemes, they have not done so here. The supply side of the mortgage market is going to need support if we are going to move forward. Our recent monthly data snapshot showed a real mismatch between demand in 90%+ LTV products and supply. Let’s not forget that on top of a lower risk appetite, some lenders, are literally people down and do not have the capacity to handle the transactions. Higher LTV products require more attention and manpower.
Without the Bank of Mum and Dad (BOMAD) many first-time buyers would have struggled to reach the first echelon of the property market. BOMAD is a top ten lender in its own right but with economic uncertainty as we find it today, parents may not be as keen to top up deposits as they had in the past. With fewer higher LTV products out there and no additional help from BOMAD – how many actual first-time buyers will be in a position to take advantage of this holiday? Without this section of the market, the market as a whole will struggle to function. Government effort needs to be more focussed on the demand side if this is to help.
Also, worth a mention is the lack of housing stock in the market. Boris may have promised to ‘Build! Build! Build!’ but these homes will not be ready in time to benefit from the scheme. We are likely to actually see house prices rise now on the back of this news. It is true that this could help to bring much needed confidence back to lenders on house price risk, however the demand from top to bottom is likely to be felt over the next few month.
There is no denying that these are unprecedented times and the Chancellor is facing huge challenges that could not have been foreseen but there is still much to do to ensure a housing led recovery. The market needs to come together, work together and survive together if we are going to make it through this.
