The Bingo Budget – A Boon for Interest Only Mortgages?
20th March 2014
In just under an hour our dear Chancellor delivered the latest budget blockbuster, under a torrent of attempted heckles from an opposition struggling to gain a foothold in the conversation.
Don’t get me wrong, I am not a Tory sympathiser, but it was hard to see a chink in the Chancellors smile as he rattled through a series of upbeat, upward revisions of growth and downward revisions in the deficit and public sector borrowing.
It will be interesting to see if, in a pretty blatant “elect me” plea, a surplus can actually be achieved by 2018 / 19.
The big announcements were reserved for savers, with some pretty stunning changes to ISA’s, allowances up to £15,000 and the ability to merge cash and shares, as well as to pensions which results in restrictions on pensioners’ access to their pension pots being removed, ending the requirement to buy an annuity. This has led to some pretty sharp share price falls for some companies!
Looking at this in more detail, as far as the pension changes are concerned there has been some discussion on the fact that being able to use your whole pension rather than just 25% of the fund will make it easier for those with an interest only mortgage.
In fact, for those who already have an interest-only mortgage and were wondering how they were going to pay back the loan fully at the end of the term, this change could be considered a get-out-of-jail-free card as they may now have a clearer idea of how to tackle that issue.
Together with the ISA changes this is all good news for many who have long argued that they should be able to control the destination of their hard earned savings, however it remains to be seen whether these changes are enough to convince lenders, and indeed the FCA, that interest only is less of a risk than it was before.
I suspect we will see a gradual relaxation of interest only policy over the coming years although for the most part it will continue to be the preserve of higher net worth borrowers and more of a specialist product rather than a return to the mass market.
But what of the housing market? Were we finally going to see a much rumoured change in Stamp Duty? Perhaps a new 2% rate band or even the holy grail of a complete overhaul to charge the tax like income tax and end the much maligned “slab” effect?
Were we heck! Nada, nothing, not even a glimmer of hope and another opportunity ebbed away into the Osborneosphere.
There was one change to stamp Duty however. Perhaps a further smack in the face to some wealthy Russian investors in so far as anyone now purchasing a property above £500,000 in any kind of corporate wrapper is subject to Stamp Duty at 15%. Wham!
Actually I have no issue with this. Yes it may upset some people but in London anything that helps put more available property in front of people who are actually going to live in the property rather than leave it empty most of the time is a good thing.
It should be noted however, that for many the actual reason to buy a property in this way is for anonymity rather than tax efficiency. For celebrities who do not want fans or press camped outside their house day and night, or the odd oligarch who does not want an undercover assassination team sneaking up on them in the night, 15% is probably a fair price to pay.
Then we have the already released extension of the Help To Buy 1 Scheme.
Unlike it’s ugly sister, HTB2, this has more immediate merits of helping house builders to actually build, safe in the knowledge that the end consumer will be able to get hold of funds to actually buy their stock. It was always the harder of the two schemes to end suddenly and it’s extension should help more homes to be built and delay the “how the hell do we end this” problem for another day.
And that was about that really, apart from of course “that” Conservative Bingo & Beer advert that proves just how out of touch the average politician has become.
In summary, as the famous Downing Street Cat tweeted, “good news for bingo loving, beer drinking pensioners. Or Conservative voters, as they’re otherwise known”.
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Andrew Montlake, Director and Spokesperson for Coreco, gives his honest and forthright views on the mortgage market, economy and all things property related. Monty was voted "Mortgage Personality of the year 2008", "Best Press Spokesperson" in 2011 and is the current holder of the British Mortgage Awards “Best Marketeer” title. Expect expert analysis, delivered in a down to earth style with a side helping of exuberance.