News: Weekly News Round Up - Darling Urged To Help Housing Market

Thu, 16 Apr 09

Another week, another set of UK housing market figures from the Royal Institution of Chartered Surveyors showing that buyer interest is not being turned into sales.

RICS latest survey of members shows for the fifth consecutive month new enquiries increased. However the survey for March shows agents are still struggling to turn that interest into actual sales, with the average agent managing to sell only three homes a month, around half the amount sold in March 2008’s survey.

A break down in the new inquiry figures shows that interest is highest in London and lowest in south-east England. The survey also shows that the majority of agents are still reporting price falls.

The depressing conclusion from RICS is that 2009 will continue to be a dire year for the housing market with buyers struggling to find good mortgage deals to buy a home.

Rics spokesman Ian Perry said: "Buyer interest is starting to gain real momentum, but will remain frustrated while mortgage finance is scarce.”

While sales are still down there has been some slight improvement in the latest mortgage market figures from the Council of Mortgage Lenders.

The body’s figures show a 4% increase in new mortgages between January and February this year. There were 24,300 house purchase loans in February worth around £3.1bn, compared with 23,400 loans in January.

However the CML is quick to point out that this is just an indicator that the market may improve rather than a sign of actual improvement. Activity is still historically extremely weak in the mortgage market, currently running around one third the average February total between 2002 and 2007.

There was further depressing news in the latest CML figures, which show that remortgaging is in steep decline. In February there were 35,000 remortgage loans, down 20% on January’s figure of 44,000.

The main reason for this decline is that in the current climate of low interest rates lenders’ standard variable rates are more attractive than new mortgage deals.

“We expect demand for remortgaging to remain muted as lenders' standard variable rates are attractive compared to new mortgage pricing, and house price falls continue to erode equity levels which will exclude some borrowers from the best remortgaging deals available to those with large deposits,” said a CML spokesperson.

The CML figures also show a shift away from tracker products towards fixed rates, with 56% of new loans at fixed-rate, up from 49% in January, while 31% were tracker products, down from 38% in January.

Michael Coogan, CML director general, added: "Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.

“We need further market measures to be introduced by the government around the Budget to encourage a mortgage market where all types of lenders – banks, building societies and specialist lenders, and large and small businesses – are encouraged, and enabled, to commit more funds to the mortgage market if we are to enhance lending activity significantly."

Further reform of stamp duty is also being called for in next week’s budget.

Last year the government increased the threshold temporarily to  £175,000, which has meant that in February 57% of all house purchase loans did not incur stamp duty, compared with 48% a year earlier.

David Smith, senior partner at estate agency Dreweatt Neate, is calling for the stamp duty threshold to be permanently raised to £200,000 and for a 1% tax band for properties sold at between £300,000 and £500,000. He also wants to see a  3% for properties sold at between £500,000 to £750,000, 4% for those up to £1m and 5% for properties sold at more than £1m.

He said: “The tax would be graded throughout to diminish the effect of the threshold system that we have now. If a person buys a house under the current system for £250,000 then the tax is paid at one per cent on the price. But take it up to £250,001 and there’s a £5,000 tax penalty payable to the Treasury. It puts a 45% income tax bracket in the shade and hits ordinary working people in the process.” 

“Many new homes fall in the £200,000 to £300,000 range and the change I suggest would prevent the slightly more expensive homes facing this tax strangulation, which is blocking the market. The effect is easy to see from the disastrous financial results posted by house builders in recent times.” 

With the Chancellor set to announce that public borrowing has rocketed to £175bn next week, further tax breaks are unlikely to be high on his agenda.



By Joe Lepper

See also  - Mortgages, House Price Indices Asking Price Index, House Prices and Trends


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