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Mortgages: What the 2009 Budget means for homeowners

Updated:Wednesday 22 April, 2009 by Seamour Rathore
seamour.rathore@consumerchoices.co.uk

If you’ve got a mortgage or are trying to get on the first rung of the property ladder, don’t miss this essential guide to what was in the Budget for you…

As property changes from being a cash cow to a millstone around many people’s necks, Chancellor Alistair Darling moved to kick-start the lower end of the property market in the 2009 budget.

Last week the Council of Mortgage Lenders (CML) warned that 900,000 of Britain’s 11.7 million homeowners, with loans totalling £1.2trillion, were already in negative equity.

Alongside measures to stimulate house sales, the Chancellor is also planning to provide funding for new house building and the government’s HomeBuy Direct scheme which lends buyers part of the money to purchase a new-build property.

In this guide we'll look at the measures introduced to attempt to stimulate the mortgage and housing markets.

• The 2009 Budget and mortgage finance
• The 2009 Budget stamp duty holiday
• The 2009 Budget housing package
• The 2009 Budget - housing market recommendations

The 2009 Budget and mortgage finance

In the 2009 Budget, the Chancellor arguably did not go far enough in introducing measures to stimulate the housing market. Despite a series of bank nationalisations and bail-outs, the conditions in the mortgage market continue to be very tight.

Poor availability of mortgage funding means that few first-time buyers have a large enough deposit to consider purchasing a home, and data has shown that they need around 24% of the property’s value in cash before they can have access to any best deal.

Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA) said: “The housing market is the engine of the UK economy and it is likely that this Budget will be remembered as largely ineffectual.”

The government did, however, put forward a plan to boost lending to consumers through the banks. It will do this by guaranteeing mortgage-backed securities issued by the banks, which will mean banks should have more money to lend.

CML director general, Michael Coogan, said: “The most important element of this Budget for the mortgage market over the long term may prove to be the new asset-backed securities guarantee scheme.

“This potentially offers an opportunity to restart the capital market funding for mortgages that will be a crucial factor in delivering an adequate supply of mortgage credit.”

NAEA’s King warned that more of these mortgage-backed securities may have to be sold to make a difference to the housing market. He added: “Our figures show there is a huge demand for property that is being frustrated because responsible people do not have access to appropriate levels of finance.”

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The 2009 Budget stamp duty holiday

The stamp duty holiday for properties worth up to £175,000 was extended until the end of 2009. The measure is intended to tempt first-time buyers into the market, but is only really going to make a difference at the less expensive end of the housing market.

Ray Boulger of independent mortgage broker John Charcol (www.charcol.co.uk) called on the government to axe stamp duty altogether, “a move that would cost relatively little but would provide a lot of ‘bang for buck’ in the current environment,” he said.

Halifax figures show that 26% (45,500) house buyers in England and Wales have benefited from raised stamp duty threshold since it was introduced in September 2008.

The bank also pointed out that first-time buyers in particular, have benefited from the change. The average first-time buyer paid no stamp duty in the first quarter of 2009 (the average house purchase price was £131,374) compared to an average first-time buyer stamp duty bill of £1,575 in the first quarter of 2008.

Fionnuala Earley, chief economist at Nationwide Building Society (www.nationwide.co.uk)) said of the stamp duty holiday extension: “The level of the threshold will still predominantly benefit those in the North.

“House buyers purchasing property above the £175,000 will still be faced with the full burden of stamp duty.”

Peter Bolton King of the National Association of Estate Agents said: “Merely extending the stamp duty threshold is disappointing. Mr Darling had a real opportunity to get rid of this hated tax.”

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The 2009 Budget housing package

First-time buyers are to be given a further funding boost as £80million will be injected into the government-backed shared ownership scheme, HomeBuy Direct.

HomeBuy Direct works by allowing buyers to take out a mortgage up to 70% to buy an unsold house from a property developer. The other 30% is provided jointly by the government and the property developer as an interest free loan for the first five years.

The move may help some of Britain’s biggest developers. 133 developers are involved and in some cases it will help first-time buyers onto the property ladder.

Another budget measure – a £500million housing package to help complete partially built estates - stalled due to the recession, should help facilitate the HomeBuy Direct scheme.

Fionnuala Earley, chief economist at Nationwide Building Society said the move should increase the availability of housing options. However, she cautioned: “Previous experience has shown the administrative challenges of managing such initiatives means we should be cautious about expecting these measure to have an immediate impact.”

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2009 Budget - housing market recommendations

If you are a first-time buyer who wants to get on the property ladder, you should examine your options and talk to an independent financial adviser.

In addition, you should compare mortgages to find out more about the best deals available.

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