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Dear Chancellor…

by: Ross Bowen
  • 22/03/2011
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Dear Chancellor…
With the economy still precarious and facing further pressures at home and abroad, now’s not the time to ask for massive dispensations from the Chancellor of the Exchequer.

Nonetheless, there’s still scope in the Budget to help boost the property market and provide solutions for individuals looking to buy a home.

It’s great to hear politicians calling for more generous lending and holding a summit to consider ways to help struggling first-time buyers, but to date, little has come out of this to help borrowers without a large deposit.

Could the Chancellor find scope in the Budget to include an incentive for lenders that offer higher LTV loans to first-time buyers?

Properly underwritten, with mortgage indemnity guarantees in place and provided only to credit worthy applicants, any higher risks involved can be effectively managed and a financial incentive from the government for lenders offering mortgages up to 95% LTV would help regenerate the market.

The current Stamp Duty tax break is great news for first-time buyers, but useless to would-be homeowners who once owned property but have not done so for some time.

Removing Stamp Duty land tax altogether for any owner-occupier buying property worth less than £250,000 would also kick-start the market as former owners are given an incentive to return to the property market.

Further up the chain, changing the way this tax is calculated could awaken the entire market, if the tax rate only increased in increments throughout property value bands unlike the current system.

With unemployment set to rise further (the British Chamber of Commerce estimates it will rise from 7.9% in Q4 2010 to 8.3% by early 2012), the danger is that repossessions will follow suit.

Yet, far too few borrowers currently protect their mortgage against unemployment and ill-health, expecting to rely on State benefits instead.

While mortgage interest is paid after 13 weeks for those receiving selected State benefits, it only covers the bare minimum. Now could be the time to encourage borrowers to become more self-sufficient in the event of unemployment or ill-health by offering tax incentives (along the lines of the life assurance premium relief phased out in the 1980s) to those who protect themselves.

This would help reduce State outlay in the longer term and lessen the fear of unemployment that prevents people from joining or climbing the property ladder. This may also give further comfort to lenders.

The Treasury is doubtless fine-tuning this year’s Budget even as I write, but let’s hope that some of the proposals above are included.

Ross Bowen is mortgage services director at Connells

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