Stamp Duty and Business Expansion Schemes

The Government have been looking at ways of stimulating the housing market, and treasury officials have allegedly been briefing journalists about removing stamp duty.  Unfortunately, whatever they do will not be announced until later in the year and possibly not implemented until next year.  The Government are now playing down these rumours and are just saying that they are looking at a number of options.  This episode has had the effect of hindering the market rather than helping it.  As a result some already nervous buyers are asking for the vendor to either pay the stamp duty or they will pull out of their purchase.  Therefore, sales are now falling through and others are delaying their purchase until the position becomes clearer.

 

Although the removal of stamp duty will be seen as an attempt to help the market, I question the impact it will have on the market.  For example, most first time buyers are not paying stamp duty, in our area and many other areas.  Even second time buyers can find semi-detached properties that dip below the £125,000 level that you would pay stamp duty on.  Even if you go above this level, we are finding builders are very keen to move their properties and in many cases are willing to pay the duty.

 

In my opinion, the removal or deferral of stamp duty will have a very limited effect on the market for the amount of stamp duty that The Government will give up.  Perhaps it would be worthwhile looking back at a scheme that was introduced last time the housing market was suffering from a prolonged down-turn, in the early to mid 1990’s.  This allowed private investors to buy repossessed properties through a Business Expansion Scheme.  Typically this scheme involved a bank or building society grouping properties together and allowing investors to buy a share in these properties.  The minimum investment, I recall being as little as £5,000 and the investment term lasting for 5 years, and then the properties were sold on.  The provider gave a guarantee that the original investment was returned and that was reasonably easy to achieve.  The reason for this was because the properties were rented out and the rent accumulated in the fund.  The big selling point of these schemes was that the original investment attracted tax relief at the investors highest rate and all gains were tax free.

 

Overall I believe that by dusting down the old BES (Business Expansion Scheme) more parties will benefit.  It would provide more quality buy to let accommodation, particularly for people who cannot afford to enter the market, and for people who sadly have been repossessed.  It would also provide investors with a good investment opportunity whilst simultaneously stabilising the housing market by restricting the supply of properties that are offered for sale.  Also, I believe lenders could benefit as most private investors in the BES schemes would not be borrowing from them and this would make it easier for them to cope with mortgage demand.  One of the biggest problems with the housing market at the moment is the lack of funds that lenders have for their borrowers.

 

Whether The Government abolishes stamp duty or not, I believe that the current uncertainty will throw up good buys for purchasers with good credit records, who are prepared to drive a hard bargain.  In addition, mortgage rates are improving and as always, to gain maximum benefit from the market it is important to consult an independent financial adviser who specialises in mortgages.

 

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

 

Kieron Bassett CertPFS

19 August 2008

Across The Pond

Through the wonders of modern technology I am able to write this article whilst enduring an 18 hour delay at Halifax Airport, Canada.

 

I felt it was apt to discuss how the credit crunch has affected our brethren across the pond. 

 

Firstly it is astounding, and I hear that the United States is worse, to see how many properties are for sale.  In the UK, repossessions are on the increase, but those properties that are repossessed are often advertised for sale via the normal routes, being estate agents and auctions.

 

In North America there are estate agents which are in business to solely sell those properties which have been repossessed.  These agents seem to have on offer as many properties as the typical estate agents.

 

GMAC, which until last year was one of the UK’s 10 largest lenders, also has a huge presence in North America.  GMAC are a subsidiary company of General Motors, the company which in the UK sells popular cars such as the Vectra© and Safira©.  In North America, the banks such as GMAC, are setting up their own estate agencies offering buyers direct contact to the bank.  This shows the scale of the problem across the Atlantic.  The banks would only go down this route if the scale of their problem was huge.

 

The big talking point in North America is not the upcoming election, nor is it the price of oil, although both subjects are widely discussed, it is the cost of servicing the debt they have taken on over the last 10 years.  Credit card and unsecured debt is the big killer as mortgages remain overall reasonably affordable.  The Federal Reserve Bank, which is responsible for setting the primary interest rate in The US (equivalent to our Bank of England Base Rate) has cut rates over the last 12 months from 5.25% to 2%, allowing savings of approximately $540 per month against a $200,000 mortgage.

 

As in the UK, American and Canadian citizens have relied upon the ability to remortgage to allow them to consolidate the additional debt they have taken on board. This is now no longer possible.  Previously there were lenders offering so called ninja loans (no income, no job (and) no assets), but this practice has ceased.  Lenders now require a minimum 25% deposit/equity which means that borrowers are unable to consolidate high interest credit card debt.

 

In addition house prices are crashing.  Double digit percentage falls over the last couple of years, and this decrease is gaining momentum with rising repossessions, less disposable income and also redundancies.

 

I feel that we are not nearly as badly off as the Americans, but we need to remain vigilant with our expenditure.  As the economic climate continues to look bleak for the coming months and possibly years, those who focus on the long-term will come out of the other side fitter and stronger, and be able to benefit from the opportunities which will inevitably present themselves.

 

I feel it is important to reassess your finances regularly through an Independent Financial Adviser.  You will be able to agree an income/expenditure plan, and discuss your other financial arrangements.  Protection and preparation are key areas in these difficult times.

 

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

 

Adam Elkin CertPFS

11^th August 2008.

Mortgage Arrangement Fees

Since December 2006 the arrangement fee for a three year base rate tracker mortgage has increased by 121% with the average fee costing £991.  Two year deals have fared little better with the average fee now costing £816.  These costs represent huge increases and for many are adding to their mortgage misery.  This is particularly true of people who are remortgaging, as not only are they facing much higher rates as they come out of their deal but are having to face these increased charges.

 

Sometimes the new arrangement fees are based on the amount borrowed as a percentage of the loan, but more often than not are a fixed fee.  For example The Abbey are charging £2,259 total fees on a £130,000 5.59% two year tracker rate mortgage, and although the interest rate is attractive the fees charged by them add 1.74% to the cost over the two year deal.  This cost adds approximately 0.87% to the interest cost each year making the total cost a much less attractive 6.46%.  Although less attractive it could still be worthwhile considering this type of deal if you are paying a standard variable rate of in excess of  7%.  However if you only want to borrow £75,000 the Abbey fee remains at £2,259 and this has the effect of adding 3% to the loan over two years.  This translates to a payment rate of 7.09% over the two years making it in many cases more expensive than remaining on the standard variable rate.

 

This situation has been a source of frustration for many people recently who do not have larger mortgages, but the good news is that a few lenders appear to be responding with no fee mortgages and remortgages.  Nationwide are leading the way with a two year fixed rate mortgage with a rate of 6.58%.  If you want a longer deal Northern Rock can offer a five year fixed rate at 6.89%.  I believe the Nationwide mortgage does offer good value when compared to other deals, but the Northern Rock offer I feel is more of a niche product as the longer you are prepared to commit to a lender in general the lower the arrangement fee.  So with 5 year rates starting at around 6.00% it is likely with even a fee added you will find a better deal elsewhere, although Northern Rock do have flexible features in their mortgage that will have some appeal.

 

The mortgage market is becoming increasingly complex so it is vital you take Independent Financial Advice to ensure you end up with the mortgage that is most suited to your needs.

 

Kieron Bassett Financial Services have two IFAs.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com.

Kieron Bassett CertPFS

5 August 2008