If you’re a First Time Buyer …
You may see the proposed change as an opportunity, because you think it will cause house prices to drop. That may happen, it may not. Or at least it's not likely to happen nationwide unless there are other forces acting upon the market.
Right now you can compete with Landlords in buying houses as long as you have saved a deposit and can obtain a mortgage. The latter can be difficult to get as there are lots of rules and conditions you will need to meet. We see no reason that this will change under the new tax scheme.
However if you currently rent your home, or plan to do so soon, then you will likely be hit with higher rents because of the tax changes. This may mean it will be harder for you to save for a deposit.
Whilst we don't think prices will drop far (if at all) let's assume for a moment that they do.
It is not unusual for parents to remortgage their own home to raise funds for their children’s deposit but if their home has dropped in value, it will be harder for them to do so.
It is widely believed that some Landlords will sell off properties and others will have their houses repossessed. These repossessed properties are often sold off at auction but buying at auction is very different from buying in the normal manner through an agent. It is not usually something the first-time buyer would consider as you normally need to have the funds available to complete the purchase in 28 days, sometimes less. Trusting a standard lender to do this is very unwise.
Sometimes the lenders will sell through an agent but drip feed the market, meaning that there isn’t a big glut of houses for sale at one time. This of course has the effect of keeping prices up. In addition to this the agent will advertise that he has received an offer for ‘x’ amount and is looking for any higher offers. In effect then it is just like an auction but can go on for a long time. It is unlikely you will get much of a bargain when buying in this way.
If prices start dropping at any time then the house builders will likely scale back production which will help to keep prices high, for a while at least, though if large numbers of properties are sold off then of course the market could nose-dive. However if there are lots of houses coming to market at any one time it will probably be in specific geographical areas where there are lots of tenanted houses, or where it isn't possible to increase rents to cover the extra tax burden.
This could also include places where a particular Landlord has invested heavily, but due to the tax change is forced to sell off his portfolio. Normally if this was a Landlord's intention he would spread the action over several years but the tax change may have made this impossible.
So, low prices and eager first time buyers would perhaps be a match if it were to happen, but in a falling market the banks are not going to be keen to lend. They will almost certainly be asking for much higher deposits and that could be very difficult for most first time buyers to meet.
On top of that, because builders have scaled back on production, it will make it even more difficult for you to buy a starter home and for future generations too.
We do not believe that the change in tax on mortgage interest relief will help first time buyers in any way, but will instead, in many cases, just make it harder for them to save a deposit because rents will be higher.
The Chancellor has said that he wanted to remove this relief to make it a level playing field for people buying their own home and both the Institute of Fiscal Studies and the think-tank Policy Exchange have said his views are wrong.
We would suggest that if that was really the Chancellor’s intention it would have been better to re-introduce mortgage interest relief for the owner/occupier first time buyer.
If you think that we’re right in what we’ve said and want to stop the proposed tax change on mortgage interest relief please write to your local MP to ask him/her to support you.