Furthermore, calls for an extension to the stamp duty holiday which has already caused a huge boost to the market suggests government intervention in the property market is sometimes welcomed.
However, input from the sector is often not sought resulting in initiatives such as the Help to Buy scheme not always targeting its intended market, driving up prices and leading to more buyers unable to raise deposits.
More recently, the government went back on its decision for high-rise buildings over 11 metres to require an EWS1 form regardless of whether they had cladding or not, which left many homeowners unable to sell, move or remortgage their properties.
So this week, Mortgage Solutions is asking: Does government intervention benefit or stifle the industry?
Some 13 years on from the collapse of Northern Rock, and the subsequent nationalisation of several major lenders, there’s a strong argument to say government intervention has become essential to the UK mortgage industry.
Schemes such as Help to Buy rumble on and on, and while not direct government intervention in itself, the era of ultra-low interest rates is similarly never ending with base rate at or below 0.75 per cent for coming up to 12 years.
As the Covid-19 economic crises continues to unfold, it’s surely unlikely that government intervention will do anything but increase.
We seem to have swung from one extreme to another over the last decade and a half.
The heady days of pre-2007, ‘light touch’ regulation and Gordon Brown proclaiming we’ve ‘abolished boom and bust’ have been replaced by ongoing schemes, swinging changes in regulation, even more dramatic changes in taxation and billions upon billions pumped into the mortgage and property sectors via the banks and taxation ‘holidays’.
Whether this stifles or benefits the industry isn’t so much the question as what would the industry do without it? There’s a strong argument to be made that, without unprecedented intervention to rescue the banks during the credit crisis, the mortgage industry would have ceased to exist at all.
A more relevant question might be how do we cure the industry, and even the economy, of its reliance on such widespread government intervention?
The solution is likely to take far longer to arrive at than any vaccine.
Recent results have been a mixed bag, as if you just take the Help to Buy schemes, both the equity loan and mortgage guarantee will tell you all you need to know.
With the mortgage guarantee, to my mind, this is everything gone right with how a government can help stimulate business. They offered a guarantee that allowed the return of 95 per cent lending post–credit crunch and when the market stabilised, this was removed.
Clean, efficient and it benefited the industry.
Conversely, when it came to the equity loan, this was extremely problematic as the government had a vested interest in house prices going up.
Hardly the Adam Smith version of free markets.
In the short–term, the benefit is that more transactions happened and faith was restored to the new-build sector. But has this simply stored up issues down the line for people wanting to move?
Has it inflated prices? Time will tell, but this feels more of a long-term stifling that may outweigh the short-term benefit.
The current stamp duty holiday feels very similar to the loan in that on one hand it has stimulated the market. But was it even necessary? Early this year purchase activity was already the highest in many years, so has the holiday simply put petrol on a fire and overly inflated prices which may just correct next year anyway?
This all highlights just how big and complex the property market is, so it is hard to say for sure if government intervention benefits or stifles the industry.
I think it is a bit of both which only highlights the lack of long-term planning that has taken place, which is what a government should really be doing.
I don’t believe that the current stamp duty holiday should be extended. 31 March seemed a very long way away when it was first announced – possibly, too far away – and estate agents, solicitors and mortgage brokers have had plenty of time to adapt, even in the current, admittedly very challenging times.
However, I was a fan of the reduced stamp duty land tax threshold for first-time buyers when it was first introduced, and still am, as well as the much fairer, marginal rates that we’re now used to seeing across all purchase prices.
The question of 95 per cent mortgages is a bit tougher – we desperately need such products to be made available as soon as possible to assist first-time buyers and hopefully, this will in turn encourage lenders back into this vital area of the market with similar products.
However, government intervention really shouldn’t be necessary with lender’s products, it should naturally sort itself out once the current excess demand for properties and mortgages subsides.
It does feel as if the government’s plans have backfired a bit here though. The majority of my clients are currently moving to bigger properties, purchasing holiday homes or even buy-to-let properties and many of my first-time buyers have wealthy parents that are able to gift them a 15 per cent deposit – surely not the intended outcome.