Stamp duty threshold raised to £250k for first-time buyers only

Yorkshire and Humberside saw property prices increase by +146.6%

Arrears and repossessions fall but mortgage supply still restricted

A new alternative to the Government-backed tenancy deposit protection schemes

UK economy to remain sluggish until the end of 2010

The base threshold for stamp duty has been raised in the Budget by Chancellor Alistair Darling, removing the 1% charge for residential properties worth between £125,000-£250,000, however this only applies to first-time buyers and has been branded a ‘ tax loophole waiting to happen’ by the Council of Mortgage Lenders (CML).

Darling said: "The housing market has now stabilised and has begun a slow recovery. But many first-time buyers, particularly those without large deposits, still find it hard to get a mortgage. I want to help them, but in a way that is properly funded."

The change was implemented immediately and will last for two years. Darling believes it will enable nine out of ten people buying their first home to avoid having to pay the tax. According to both Nationwide and Halifax the typical UK home costs just over £160,000.

Stewart Baseley, executive chairman of the Home Builders Federation (HBF), said: “This Budget is a huge boost to both home buyers and the house-building industry. I am pleased the Government has recognised the importance of ensuring that people are able to buy homes.”

However because of this change, properties which are at the lower end of the £250,000-£500,000 band, that are liable for a 3% stamp duty, will be on the threshold and so become out of reach or harder to sell to first-time buyers. For example a property worth £251,000 will result in a stamp duty charge of £7,530 whilst a property costing £249,000 would be nothing or £2,490 depending on the buyers’ circumstances.

Properties worth over £1m are now liable to a stamp duty charge of 5% and with 81% of all UK homes worth over £1m located in London and the South East it is likely to cause a rush of million-pound property owners selling up in order to avoid the increase in tax.

Nicholas Leeming, commercial director of Zoopla, said: “Taxing the rich makes a good headline, but it won’t raise much money for the Government’s fiscal black hole. Only around 4,100 homes sold above the £1m mark in the last year. With the total stamp duty tax take reaching almost £3bn last year, this measure will contribute only roughly 2% extra tax, a tiny amount. Raising stamp duty on £1m homes is a cynical move by the Government to tax home buyers who tend not to be their core voters. The burden will fall overwhelmingly on London and the South East.”

London is home to 57% of all property millionaires with the largest share residing in Kensington (W8) where 48% of all properties are worth over £1m with an average price of £1,566,549, next on the list is South Kensington (SW7) where there are 39.1% with an average price of £1,258,986 . Outside the capital, Virginia Water in Surrey leads the property millionaire stakes as 28% of homes are worth over a million pounds, compared to a national average of just 0.88%.

The stamp-duty cut is projected to cost the Treasury £230m in 2010-11 and £290m in 2011-12, while the new stamp duty band on £1m-plus properties is predicted to raise £90m in 2010-11, £70m the next year and £230m in 2012-13. Homes costing between £500k-£1m are liable to a charge of 4% in stamp duty.

Yorkshire and Humberside saw property prices increase by +146.6%

House prices across the UK have grown by +121.1% in the ten-year period from December 1999-2009 but by just +12.8% in the past five years since 2004 and +4.5% in the year to December 2009, according to Acadametrics.

The region with the greatest rise in the ten-year period was Yorkshire & Humberside with an increase of +146.6%, which is higher than Greater London which saw a +115.4% rise. However, in the past five years since 2004 Greater London has seen the largest increase at +26.5% with Yorkshire & Humberside in third place with a rise of +13.5%. The worst performer was the East Midlands as it saw just a +2.5% increase over the five-year period.

David Thorpe, director at Acadametrics, told PIN: “We see house prices remaining broadly stable this year. However, prices are subject to the wider economy and such a sharp rise in unemployment, or a loss of investor confidence in government bonds, would have a severe effect on the housing market.”

In the year to December 2009 Greater London was the top performer with average price rises of +7%, followed by the South East with +5.7%, the West Midlands however was bottom with just a +1.5% increase, barely ahead of the East Midlands at +1.8%.

Arrears and repossessions fall but mortgage supply still restricted

Data from both the Financial Services Authority (FSA) and the Council of Mortgage Lenders (CML) has indicated that both arrears and repossessions fell in Q4 2009 and, according to Capital Economics, the number of loans also fell for the second consecutive quarter.

However, there was no improvement in the number of borrowers who were in arrears by 5% or more, but the drop in arrears did indicate a fall in the number of new cases.

Ed Stansfield, chief property economist of Capital Economics, said: ‘Although the broader coverage of the FSA data which, unlike the already-published CML figures include second charge loans, results in a higher level of arrears and possessions, the big picture was similar.’

Access to the most attractively priced mortgages also remains limited as in Q4 2009 only 12% of mortgages were based on an interest rate that was 2% or less above bank rate which is down from 96% at the end of 2007 and 45% at the end of 2008.

The number of new mortgages available with a loan-to-value (LTV) ratio of 90% or more halved in the second half of 2009, as they went from 2.8% in Q2 to 1.4% in Q4. In Q2 2007, there were around 15% available.

Stansfield said: ‘There is some evidence that lending criteria have loosened a touch further in the early part of 2010. But the bottom line is that tighter lending criteria look set to remain a drag on any housing market recovery for some time to come.’

A new alternative to the Government-backed tenancy deposit protection schemes

An alternative to the Government-backed tenancy deposit protection schemes has been launched by FCC Paragon called the Smart Deposit Solution.

It is a warranty product which has been introduced to help landlords deal with the increased legislation which they are required to adhere to and the rising cost of living which may mean tenants are unable to afford the upfront cost of a deposit. The scheme allows tenants who pass the reference process to pay a small one-off fee enabling them to move into a property.

Bryn Cole, managing director of FCC Paragon, said: “I felt it was time that something changed and I wanted to create a real alternative to one of the insurance or custodial schemes currently on offer, especially with the deadline for re-registering fast approaching on 6th April 2010. With our guarantee, once the tenant has successfully passed the full referencing process, they pay a one off fee which allows them to move into a property without having to find a large, sometimes unaffordable upfront sum.

“The landlord is then provided with a Smart Deposit Solution warranty contract which covers them for any damage to the property, up to a maximum of two months rental value, and the final month’s unpaid rental if the tenant should leave not having paid this, without them having to worry about holding a tenant’s deposit. Not only do both the landlord and tenant benefit, the managing agent avoids having to place a deposit in a costly national scheme and the property can be advertised to a wider range of prospective tenants.”

Letting agents have been impressed by the new product, with some ready to switch from the current scheme they are attached to.

Kevin Winchester, managing director of Winchester lettings, said: “Feedback from landlords so far has been extremely positive in the main because it offers them greater protection. We would only ask for a deposit to the value of one month’s rental value but, with this scheme, they receive up to two months rental value for dilapidations. With our current scheme, if a dispute occurs, the Alternative Dispute Resolution (ADR) service is the default way in which to resolve the problem but this can be a long and drawn out process. If there is a dispute under the Smart Deposit Solution warranty, claims are processed within a 14-day period so the landlord doesn’t have to wait too long.”

Under the new scheme, claims can be made for either dilapidations, non payment of the final month’s rent or a combination of both if the situation occurs.

UK economy to remain sluggish until the end of 2010

The UK economy’s recovery is not expected to increase until the middle of 2011 and will remain sluggish for the rest of 2010, according to the CBI.

The economy is expected to grow in Q1 2010 by +0.3% and then +0.4% in Q2, and by slightly more in the next two quarters at +0.5% giving an overall growth in gross domestic product (GDP) of +1.0% in 2010. It also predicts an annual UK GDP growth of +2.5% in 2011, but although the pace of growth should pick up, GDP is still not expected to have returned to pre-recession levels by the end of the year.

Richard Lambert, CBI’s director-general, said: "The economic outlook is improving, but the lack of a clear driver for growth will make for a bumpy ride in the months ahead. The CBI expects the recovery in 2010 to be slow and sluggish, with few signs of real strength until well into next year.

"To convince international investors that the spiralling budget deficit will not derail the economy, the Government must set out a credible plan to balance the books by 2015-16, two years earlier than currently planned.

"It must also avoid damaging tax rises. Targeted spending cuts and smart re-engineering of public services can preserve front line services and deliver the savings that will have to be made. At the same time, it is vital that business has the space to grow, invest and create new jobs. That’s the only way out of our current fiscal mess."

The CBI has forecasted that the Bank of England (BoE) will move away from the current emergency rate, with a small rise in interest rates in Q3 2010, which is later than previously expected, with further small incremental increases taking the bank rate up to 2% by the end of 2011.

Whilst inflation is expected to be slightly higher than previously predicted in the near-term, it is expected to fall back considerably in 2010 with CPI inflation dropping below the BoE 2% target by the end of 2010 and remaining below target throughout 2011

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