I am yet to buy a house as I believe that house prices are still overvalued. I try and demonstrate this monthly with the house affordability ratios that I present. This current government however seems intent on using our taxes to prop up this property market bubble. This offends me because my (and your) taxes are being used against me to keep me out of the market and also as an electioneering tool.
Let’s discuss a couple of examples.
My first example is last week’s budget. The chancellor decided that first home buyers would not pay stamp duty on house purchases up to £250,000. I’m not against this concept in principle as I’m one of the first to suggest that there shouldn’t be stamp duty on property purchases at all. This though is not because I want house prices to be propped up but because we should be encouraging social mobility. Why? Well if global warming really is occurring we should be looking to reduce emissions. At the very least we should be trying to save our natural resources for the future generations. One way is to reduce travel which could be achieved by making it easy and low cost to move house allowing us all to live closer to our places of work.
What I am however against is why I think the chancellor abolished the stamp duty. This in my opinion was clearly done to keep first home buyers entering the market in an attempt to keep property prices rising as well as attempting to buy an election by getting these very first home buyers to vote labour as they think he is helping them so much. I tell you if the bubble does burst and I was one of these first time buyers I wouldn’t be best pleased knowing I’d been used to keep the house price inflation going while at the same time understanding that I’d been saddled with a life time of debt by overpaying for an asset.
I also have an issue with how the chancellor paid for this. He has placed a stamp duty of 5% on those buying properties over £1 million. So if I’m buying a million pound house (don’t worry its anecdotal I’m not that rich) I need to find £50,000 to move from one house to another before I even think about removal fees, conveyance fees and estate agents fees. All this is doing is forcing those with large houses to stay where they are and drive (or worse fly) half way around the country. I’m with Merryn Somerset Webb who suggested that all stamp duty on houses should be abolished and instead replaced with capital gains on the sale of property. That way whether you move each year or move once every 10 years you are not overly disadvantaged.
My second example is that The Times this week revealed that our taxes are not only being used to pay the interest payments for those reckless people who over leveraged themselves and have then landed in financial difficulties but also to pay down the principle on many of the loans. These in my opinion are people who bought property using a mortgage without first creating themselves an emergency fund to allow for eventualities such as periods of unemployment. The article states that the ‘Chancellor extended the Governments mortgage rescue scheme for another 6 months at a fixed rate of 6.08%’ however ‘about a third of homeowners are on a standard variable rate and 15% are on tracker deals. The average interest rates on these mortgages are only 4.1% and 3.65%.’ This means the government will overpay on the mortgages by as much as £280 per month. That’s your and my taxes we’re talking about. The Department for Work and Pensions reply. It does not keep ‘“robust figures” of the interest rates payable by the 220,000 claimants’.
In my opinion what should have happened? If we were in a free market economy many of these people would have been repossessed. Now I don’t wish that on anyone but it would at least discourage moral hazard in the future. All these people have learnt is that if you get into financial difficulties you go to the government cap in hand. If they were repossessed then these properties would have come back onto the market. Maybe the laws of supply and demand may have then been able to operate. Excess supply may have resulted in reduced house prices. Of course that wouldn’t win an election though would it.
As always DYOR.