Osborne's Autumn Statement and house prices
Posted by jdavis on November 25, 2015
Prices have been increasingly fragile. Governments, of all colours, will do what they can to prop up house prices.
I tweeted this shortly after the Autumn Statement:
A tweak to Help To Buy is that, from April, in London, if you have a 5% deposit for a New Build property (which you will have), the State will lend you 40% of the purchase price and you go to a bank for the remaining 55%.
Standard HTB is 5%, 20%, 75%.
To the uninitiated, there will be smiles all round. Oh, that's nice. He's helping young folk. Of course he's not!
He's helping developers who cannot sell their New Builds that they've already built and are building. The number of sales has plummeted over the last year and some London postcodes have a FOUR YEAR supply of stock.
Thus, 'young folk' will have to borrow vast amounts to buy overpriced flats.
Take away the lending and the prices would plummet. Would that not help the 'young folk'?
1. Help to Buy Shared Ownership: current restrictions on who can buy a home through shared ownership will be removed from April 2016
So, HTB part of the property and rent the other part. This drives up house prices. If the price of the property rises, you only get part of the rise. If prices fall, you get ALL the fall.
2. London Help to Buy: As above. This keeps New Build prices high. The problem is, you have a 95% debt on a high priced property. Wouldn't you rather have, say, a 75% debt on a lower priced property? Likely to detrimentally affect prices of older properties - which means anything which isn't a brand New Build.
The initiative applies only to New Build. This is a very small proportion of properties for sale in London. I see many reasons why prices can fall in London if non-New Build needs large bank-funded mortgages.
3. First-time buyers, under 40, to have a 20% discount on 200,000 new Starter Homes.
This keeps house prices high as developers have zero incentive to reduce prices to clear unsold stock, of which they have large amounts.
4. An extra 3% Stamp Duty, from 1 April 2016, for buyers of Buy To Let and second homes.
This is negative for house prices.
Fewer will buy second homes (or will expect a reduction to do so). Fewer than now will simply buy a new home and let out their existing home.
Fewer will enter BTL. More will sell off BTL. This is major. With significant tax changes coming already for BTL, be assured, BTL is no longer a sure thing. In most cases it will be loss making, without capital gains. Most BTLers cannot afford to subsidise ongoing losses. Obviously.
Until April there could be a rush to buy. Remember 1989 when the then Chancellor ended MIRAS and gave 6 months. Created a short term bubble. What happened afterwards?
Stamp Duty tax on a mere £250,000 goes to £10,000.
At £500,000 the buying tax will be a hefty £30,000!
Why would anyone invest in Buy To Let now what with all the other taxes coming?
5. Right to Buy extending to Housing Association tenants.
Likely neutral for house prices.
It seems to me the effect on house prices, from April 2016, will be negative overall, when you add in the extra taxes for Buy To Letters already coming in.
Add to all that that we have slower growth and the outlook is sharply lower growth in 2016/17. They can't slash borrowing rates ever again. As far as I can see we may indeed be seeing the peak in house prices for years, if not decades.
What do you say?