Property Price Growth Comes From Here…

Property Price Growth Comes From Here…

If you can’t beat them – join them – First time Buyers to drive the market

The earlier during an economic cycle you get on the ladder the better for two main reasons: 

Firstly – you’ll enjoy more house price growth time before a downturn.  

Secondly – predicting downturns is hard. As the housing market gathers momentum it becomes a more and more nerve racking decision. Best get on with it. The longer you wait – the greater the uncertainty. It’s going to get harder, not easier, more expensive, not cheaper, to take the leap. 

Of course – as Philip Hammond, Chancellor of the Exchequer knows, the housing market always needs first time buyers. New entrants. New money and participants in the game. Yesterday’s housing market revolutionaries, will be tomorrow’s housing market establishment. Even Jack Whitehall, the stand up comedian, 28, claims he now discusses Stamp Duty at dinner parties. *  

So it came as no great surprise that the Chancellor delivered a Stamp Duty giveaway at his autumn budget. 

Mr Deputy Speaker, as we invest in our country’s future I have a clear vision of what that Global Britain looks like: a prosperous and inclusive economy where everybody has the opportunity to shine, wherever in these islands they live… Where the dream of home ownership is a reality for all generations.” 

He announced the reduction in stamp duty land tax (SDLT) for first-time buyers (FTBs). As of 22 November, the government will eliminate stamp duty on purchases of dwellings up to £300,000 and have an incremental charge for properties up to £500,000 – potentially saving such buyers up to £5,000. The rationale is that this will reduce the amount of funds they require for a property purchase and so help FTBs on to the housing ladder. 

But here’s the rub. While this will provide some short-term relief to those who are about to purchase property right now, beyond this it will simply push house prices up by £5,000. In fact, the impact is so obvious that even the Office of Budget Responsibility picked up on it. 

In other words, it will end up in the pockets of those who already own properties. A FTB competing with other FTBs, can now afford to pay up to £5,000 more for a given property. Furthermore, if a FTB is prepared to increase the deposit put down, this potentially increases the amount that can be borrowed to purchase by a much greater amount. 

For example, if you were buying a £300,000 property under the old SDLT regime, and was able to borrow up to 80% of the value of the property (£240,000), you would need a £60,000 deposit plus £5,000 for SDLT. Under the new arrangements, you could now put down a deposit of £65,000 – which means that you can borrow up to £260,000 (at 80% loan-to-value, or LTV). This means you can purchase a dwelling of up to £325,000. 

At the moment, mortgage approvals are down and the number of transactions is low – particularly in London. This is why prices are not growing much. Perhaps the SDLT changes will only increase prices by £5,000. But when the market is hot, and buyers are in the market in greater volume, the price will jump by the larger amount, based on how much people are additionally able to borrow. 

Either way, the winners are current property owners (including housebuilders who are releasing new-build property into the market). Note that while people are talking about higher house prices, it is really the value of the land that is going up. The price of the dwelling sitting on the land remains unchanged. 

A gift to all property owners 

But the gift is not just for those who own the property that the FTBs are buying: it will have a knock-on impact all the way up the property chain. If FTBs can bid up to £25,000 more for property, this means that current owners will be able to do the same when they look to sell and buy something bigger – this is because they have more housing equity. But if they are able to bid higher, then those they are buying from can do so as well. 

* Jack Whitehall – Travels with my father, episode 1. Yes that is a genuine reference.


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