There are reasons to be cheerful, argues Dean Jones, head of paaleads.com
It’s been almost two months since the former Chancellor, Mr Darling, doubled the threshold for stamp duty for first-time buyers from £125,000 to £250,000, but introduced a new 5% rate on transactions worth £1 million or more. We’ve all been eagerly awaiting the impact of this change.
Up until now, it’s been somewhat of a false storm in terms of mortgage purchases, although our recent analysis is beginning to show something of an upturn. According to data from our parent company, moneysupermarket.com, April saw the highest number of consumers looking for purchase mortgages in 2010 so far.
From paaleads.com’s data, remortgage volumes were still around a third lower than at the start of the year, despite a 5% gain on March, but the steady growth seen over the last few months on the purchase side is an encouraging sign of first time buyers coming to the market. In April in particular, we saw an uplift of 14% on those looking for a purchase mortgage suggesting that the first time buyer market is slowly but surely warming up.
To see such a movement in one month is very encouraging from a market perspective, and having seen consumers flock to moneysupermarket.com to compare mortgages when the stamp duty announcement was made, we are now seeing this uplift shift to the advice side.
Now given this seeming positive impact this legislation has had, I couldn’t ignore what the likely impact of the new coalition government may be on this. Firstly, there are no plans to change stamp duty levels which frankly would have been very unpopular,
However, I’m unsure if the same can be said for interest rates. On 10 May, the Monetary Policy Committee voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%, although it remains to be seen whether these will begin to slowly creep up, as the Bank of England seeks to control climbing inflation rates. I personally think rates will remain low, but I know there are some bears out there who foresee hikes before the year is out, with the sovereign debt crisis showing no signs of easing.
With a rise in interest rates, comes the knock on effects on mortgage rates. In the unlikely event of a steep rise we could potentially see further defaults and repossessions – which would be a major headache for a new government looking to maintain growth. This is a double edged sword for the government which will need addressing.
The low remortgage levels I’ve highlighted suggest there is still some way to go before the market could be said to be ‘on the up’ as a whole, but brokers can take some comfort from those who appear to be taking their first steps on the property ladder. Going forward, I hope that buyers are not scared away from the market again when interest rates begin to creep back up after what will have been an extended period at 0.5%.
