Budget Comment 2015 – Bottoms Up
Alex Mackay of Mishon Mackay looks at the key property related feature in this year’s budget.
The property market is like a building. It is built from the bottom up. Good foundations underpin the market just as they do a fine building.
Much nonsense is spoken about the market being driven by the wealthy. In fact it is driven by the needy – those people who simply need a roof over their head rather than desiring a better home for extra convenience or social status.
The two central piles of good property market foundations are affordability and confidence. Chancellor George Osborne sought to further strengthen these in this year’s Budget speech.
The most important Budget feature for the property market is a Help to Buy ISA which will act as a 25% top-up on deposits. The government will add £50 to every £200 that an intending home buyer saves in one of these new ISAs. George Osborne said the new scheme could be used by a first-time buyer needing a 10% deposit of £15,000. Therefore a buyer now only needs to save £12,000 as the Government will top up the amount by £3,000. The chancellor said, “A 25% top-up is equivalent to saving for a deposit from your pre-tax income – it’s effectively a tax cut for first-time buyers.”
The scheme will be available on properties worth up to £450,000 in London and up to £250,000 outside the capital. It can also be used by couples buying a home together, potentially doubling the government’s contribution to the scheme which should be launched this autumn.
For deposit-strapped first time buyers this is a welcome and timely boost. It should accelerate the speed in which they can get into the market by shortening the period they have to spend in saving for a deposit. This is important at a time when in many areas house price inflation has outpaced wage inflation.
So confidence in the economy is growing. Unemployment is falling. Some are beginning to see their wages rise ahead of inflation and interest rates are at an all time low. Hand in hand with this confidence boost is growing affordability. Buying a home will for many now be a cheaper option than renting. So far so good: but what we need now is some more stock for these aspirational purchasers to buy! Property is never all Champagne and roses. But at least some first time buyers can now crack open the fizz.