Despite the fact that the UK property market seems to have run a little ahead of itself in the short term todays budget by George Osborne has certainly given this particular investment sector a boost. Aside from the fact that there have been a number of upgrades for short to medium term economic growth forecasts for the UK it was perhaps the specific property related announcements which caught the eye of many property investors.
Help to Buy ISA
The surprise announcement of the day was perhaps the Help to Buy ISA which involves the UK authorities topping up deposits for those looking to acquire property. The scheme is targeted at first-time buyers and every £200 saved for a deposit will be topped up with an additional £50 by the UK government. As the average first-time buyer deposit in the UK stands at around £15,000 this means that the government will pay £3000 towards this figure.
It is no surprise that George Osborne left this particular gem until the end of his speech by which time his sharpened barbs towards the Labour Party had been delivered. Even though the vast majority of the Chancellor’s budget had already been leaked to the press the Help to Buy ISA was not mentioned in any of the UK media.
The Conservative party has also announced plans to revamp the inheritance tax system amid speculation that it could allow parents to pass properties valued at up to £1 million to their children without paying any inheritance tax. There is also speculation that there will be a significant reduction in inheritance tax obligations for those with properties worth up to £2 million. When you bear in mind the number of properties which have to be sold to cover inheritance tax liabilities this could cut off some of the supply line to the UK property market in the longer term.
The idea was floated in the media ahead of the budget amid speculation that the Conservative party will confirm the changes over the next two weeks – conveniently just ahead of the general election.
Not all good news for the property market
In a surprise development it seems that the UK government is negotiating a fire sale of loan books acquired when the authorities bailed-out Bradford & Bingley, Lloyds and Northern Rock. While the authorities were always going to sell on the loan books at some stage the fire sale has prompted some concern.
Experts believe that the UK government will accept “less than the market rate” for the risk factor associated with the loan books which will likely attract significant interest from the corporate arena. The concern is that once these loan books have been acquired at “favourable prices” the purchasers will then be able to increase the mortgage rates and/or encourage customers to remortgage. Either way this could have an impact upon the wider UK mortgage market potentially pushing mortgage rates higher in the short term.
All in all there were a number of factors announced today which are beneficial to the UK property market including a general improvement in the economy, the Help to Buy ISA scheme and leaked proposals to change the inheritance tax system. However, the expected fire sale of UK government loans books acquired at the height of the economic turmoil could not only place pressure on individual customers but also the mortgage market as a whole.