Mortgages |
|
Your Money > Mortgages Articles > Why we should...
|
By Harvey Jones
Latest figures suggest that the housing market has some way to go before it finds the bottom. After research from Nationwide said prices had fallen just 0.4% last month, new figures from the Halifax reveal I surprisingly sharp fall of 1.7% during the month. More worryingly for many of us, the annual rate at which prices are declining has increased from 17.5% to 17.7%. While estate agents report that potential buyers are returning to the market, a chorus of mortgage and housing specialists have criticised Chancellor Alistair Darling's lacklustre Budget Day attempts to revive the property market. "Disappointing", is the common refrain, while others sing of "missed opportunities" and "largely ineffectual" measures. They all believe he should have done much more to prop up the housing market, and get the economy moving again. While I'm in harmony with their complaint that Darling is fiddling while the housing market burns, we don't think he should have done anything at all to reverse the fall in property prices. He should simply let them slide. Half measures As we have come to expect from this Government, Darling's attempts to coax first-time buyers into the property market are more about appearing to be doing something, rather than actually achieving anything. So, we see the stamp duty holiday for properties up to £175,000 extended until the end of the year. An £80 million extension to Homebuy Direct, the Government-backed shared equity scheme for wannabe homeowners. And a £500 million injection to help housebuilders to finish mothballed newbuild projects. These measures may attract a few vaguely positive headlines, but the real impact will be minimal. Why the Government's tinkering won't work First, the £175,000 stamp duty threshold is to be extended for a paltry three months, and its subsequent withdrawal could spark further volatility at the cheaper end of the market. It will also do little for first-time buyers in pricier areas such as London and the south. Second, £80 million isn't that much. And frankly, nor is £500 million. It is enough to complete around 2,500 average-sized homes - a mere 1% of the Government's target of 240,000 homes a year until 2016. In any case, it isn't the shortage of homes that is the problem, but the shortage of mortgage finance. Finally, none of these measures will help first-time buyers who can't scrape together the 25% deposit most lenders now demand. Liquidity lunch Darling is attempting to increase the supply of finance to first-time buyers, by guaranteeing £50 billion in mortgage-backed securities. This may improve liquidity a little, but even £50 billion won't replace the collapsed securitisation market. And critics claim that most of the support will go to 60% or even 80% loan-to-value mortgages, which very few first-timers will be able to access. Please, sir, can we have some more? Lenders, brokers, housebuilders, estate agents and chartered surveyors have all been singing the same tune, that Darling should have done (they mean spent) so much more. And of course they do. They all want a share of the taxpayer cash that has been so liberally sprayed over the banks. But they're wrong. The nation's coffers are hardly flush with cash, so it seems a shame to squander what little we do have on schemes that will have such a marginal impact. And the last thing we need is to lavish scarce public money on trying to prop up an unaffordable and unsustainable housing market. High tax, low growth economy The market may have fallen a fifth, but we still think prices need to fall further, for the good of us all. And they will. The nation's finances have all but collapsed. Hauling us out of this mess will take years, and involve startingly higher taxes and depressingly lower economic growth than politicians will admit. First-time buyers of the future will be desperately struggling to clear student debts, find halfway-decent jobs and pay austerity taxes on the money they do earn. We can hardly expect them to borrow five or six times their income to keep house prices buoyant as well.
Why estate agents think it's a good thing As a homeowner myself, I take no pleasure in the prospect of further house price falls, but neither do I reap any joy from the thought of first-time buyers taking on a mountain of debt to buy a molehill of a property. And I definitely don't believe that they should be given financial incentives to climb on the property ladder at the moment, while the market is still overpriced. That's what the National Association of Estate Agents is calling for, claiming it will get the entire market moving again. In other words, use the younger generation to shore up the overvalued properties of their parents and grandparents (and fund estate agents' bonuses into the bargain). Down, down, down Perhaps I'm being too brutal. After all, the taxpayer had to bail out the banks, why not the housing market? The nation feels happier when house prices are rising, sadder when they are falling. Propping them up would put a smile back on the face of UK PLC. It would also defer a lot of human misery - something I'm normally in favour of. But I still believe it would be the wrong decision. I would like to see house prices fall below their long-term average of four times average income, to reflect the new economic reality. They aren't there yet. The sooner that happens, the better. Only once the bubble has been conclusively pricked can the housing market, and the economy, begin the slow process of rebuilding. Until that day, any first-time buyer suckered into the property market will rightly feel they have been cheated. Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||