There’s a Radiohead song called ‘2 + 2 = 5’ which, if I’m not mistaken, is about the way in which people can be made to think one thing even when all the facts tell them another.
In more modern times it might be reshaped as ‘fake news’ were it not for the fact that this phrase itself has been corrupted by those who want you to think that their truth is correct and to cast aspersions on the actual truth.
Before I begin sounding like an Adam Curtis documentary, where am I going here? Well, politically at least, I think there’s an element of ‘2 + 2 = 5’ when it comes to some government and political thinkers’ view of the housing and mortgage market. We are constantly told that if measure X + Y was introduced, the outcome would be Z, even when large numbers of market stakeholders line up to tell them this actually wouldn’t be the case. How many unforeseen circumstances were actually foreseen by those who do this job every single day?
Take what I think has become the cause celebre of our market, certainly since house prices stopped going up significantly, and that is stamp duty. There’s no denying that stamp duty is a major influence on the housing market and the number of transactions that take place, but in some areas, I think its influence is over-estimated and in others I think the opposite.
Let’s look at both ends of the purchase scale – first-time buyers and older homeowners. In recent years, a policy has been followed which effectively posits that cutting stamp duty equals greater numbers of first-time buyers, when the actual truth of the matter is that cutting stamp duty merely saves those who were going to purchase anyway money.
It can be a significant amount of money but for ‘average first-timers’ the stamp duty saving is unlikely to make the difference between them purchasing and not. In other words, no first-time buyer is looking at stamp duty cuts as a catalyst to them buying; what they’re doing is thinking they now don’t need to save or borrow more to pay for the stamp duty and therefore they’ll either use that money elsewhere (perhaps to bump up their offer) or they’ll not need to borrow it.
The same logic might well be applied to older homeowners who, we are constantly told, would benefit greatly from their own stamp duty cut in order to downsize into a smaller property. The actual workings of this are never fully explored because, in my view, they are mired in many complications, and one thing we don’t need with stamp duty is more complications. One of them being an adequate definition of ‘downsizing’ and who might/and might not benefit.
But again, it’s posited, that one way to free up large numbers of family-sized properties is to incentivise downsizing for those older homeowners who may have lived in these homes for many, many years. The truth is actually very different, as recent research from Standard Life and Age Partnership reveals – four out of five individuals who took out equity release did so because they wanted to stay in their own home. They actively did not want to downsize.
Again, the policy-makers and those calling for a downsize stamp duty exemption, appear to have missed out on a rather crucial fly in their particular ointment. The vast majority of homeowners do not want to move out of their existing homes and no amount of stamp duty saving is going to get them to do so. Indeed, much like first-time buyers, those likely to benefit the most will be homeowners who were going to downsize anyway.
So, if we’re looking to incentivise new purchasers onto the property ladder, or free up properties to allow those stuck on a particular rung to climb up, then the powers-that-be are going to need to look beyond stamp duty.
It’s a particularly blunt tool for the job and instead they need to consider the true obstacles in the way – for first-time buyers it’s saving for a deposit and accessing high LTV mortgages to allow them to only need a 5% deposit, plus it’s increasing the supply of affordable homes within the market, and for older homeowners it’s giving them property options that they are happy to move into, or it’s building more family-sized homes – again within an affordable budget – so that if we are not overly reliant on a generation of homeowners moving out of their family homes in order to free up the next rung.
Having said that, what’s the bet that stamp duty changes will be front and centre at next month’s Budget? Transaction numbers might receive a boost because of it, perhaps because people have been waiting for the Budget to make their move, but what will really make the difference is a series of policies on many levels that genuinely make purchasing/moving easier. Whether we get these however remains another thing entirely.
Patrick Bamford is business development director at AmTrust Mortgage & Credit