Has the Chancellor gone far enough?
On the face of it, an immediate stamp duty holiday for first-time buyers on properties valued up to £500,000 has to be a good thing – after all, this amounts to 90% of all searches that we have seen so far this year on our systems!
The holiday will allow a great many people to now use the £10,000 that they would normally have paid in stamp duty towards their deposit.
A few months ago, when we had an active 95% loan-to-value (LTV) market, that would have equated to around 40% of a minimum deposit.
The problem is that the market has moved significantly since then, and three systemic challenges call into question an approach which leans purely on a Stamp Duty Land Tax (SDLT) holiday:
The appetite for risk
There’s a different risk appetite at the lenders today than there was a few months ago.
Even with buyers suddenly finding themselves with a larger deposit due to these changes, this could easily push the capacity issue with lenders from the 90% to 95% band, into the 85% space. There are few lenders with an appetite for 95%-plus LTV mortgages, and only a handful at 90%-plus LTV.
This lender capacity issue is not to be underestimated. The Chancellor has just created a potential influx of new demand for 90% mortgages. However, he has done nothing to satisfy the supply side of the market.
This is out of keeping with the approach that the government has taken to venture capital-backed entities, where it has shared risk to the tune of over £300m, or on furlough, where it initially took on all of the risk.
At some lenders, in addition to a lower risk appetite (because they are pricing in default risk), there are literally fewer people to handle the transactions due to illness and furlough. Higher LTV products require more attention and manpower.
It feels as though the existing mismatch we saw between demand in 90%-plus LTV products and supply in our recent monthly data snapshot will only be exacerbated. This is where support could make a difference on the supply side of the mortgage market.
The bank of mum and dad
Parents have been the basis of topping up deposits over recent years. The bank of mum and dad (BOMAD) is a top 10 lender in its own right, and has been able to bridge the gap between 95% and 90% LTV products.
But these are strained times, and parents quite possibly have less to gift right now and less appetite to do so compared to a few months ago.
Without the help of BOMAD, the first-time buyer tranche of our market cannot function which means that the broader market also struggles to function.
This is where efforts could and possibly should have been focused on the demand side.
While stocks last
There’s not enough housing stock in the market. So, we’re likely to see house prices rise in relation to this news.
While this could help to bring needed confidence back to lenders on house price risk, the demand on all sectors of the market, top to tail is likely to be felt over the next few months.
No one underestimates the challenges that the Chancellor has faced in navigating the UK economy over recent months. He has shown a desire to use some innovative thinking to get us through these uncertain times.
Potentially, there’s more that can be done to produce the housing-led recovery that is so central to his economic plans.
The market now needs to work together, more so than ever.