Budget 2009: No Magic Wand for UK Housing Market Recovery

As expected the reactions to Alistair Darling's 2009 UK budget were numerous and varied from within the property and housing industries. Almost -- if not -- all the major bodies and representatives had urged something of the chancellor to breathe life back into the housing market, some have even said that solving the housing crisis will breathe life back into the economy as a whole.

I have come up with a name for this: industrial-economic blinkers; the art of looking at the economic situation with blinkers so that you only see your own industry in front of you.

The UK economy is in the worst shape of the industrialised world. Our budget deficit is now expected to reach over 12%, compared with 8.9% in the US, 6.2% in France and 3.2% in China. We will be paying for the Chancellor's massive stimulus package announced in the budget yesterday, to breathe life into the housing market and the economy for at least a decade.

But some people with industrialised blinkers on still think he hasn't done enough to tempt first time buyers to take the plunge, and or to get the housing market moving again. I think he did as much as he possibly could to end the housing crisis, because he didn't have a magic wand. The housing market will bottom and start to recover naturally as the wider economy recovers.

The UK Budget 2009 and how it will affect the UK housing market

Stamp Duty holiday on property under £170k extended to the end of the year:

Some people think the Chancellor should have scrapped Stamp Duty, a 3% tax levied on property buyers; Darling has come under criticism because he merely extended the tax holiday on properties under £170k until the end of the year.

For some reason, the industrial blinker wearers think stamp duty is a major hindrance stopping people from buying. But people were paying stamp-duty on their property purchases as we grew into the last boom, and the holiday already in place has done nothing to bring back the buyers. It has just occurred to me that perhaps they don't think it will bring back the buyers at all; maybe they are seeking to make the crisis into an opportunity and get rid of one of Britain's most hated taxes. In truth it is unlikely that stamp duty will ever stop someone from going ahead with property purchase, and the tax will bring in much needed revenues for the government when the economy begins to recover.

£80 million for the shared equity (HomeBuy Direct) scheme

The shared-equity model is a great idea, and if it were not for the generally devastated state of almost the entire UK economy, this would have been and continue to be a massive kick-start to the UK housing industry.

One of the biggest problems for potential first time buyers at the moment, and other people who are eligible for the Home-Buy Direct scheme is either that they cannot afford a deposit big enough to get a mortgage, or can't afford a mortgage big enough to get a mortgage that they could afford to pay.

By loaning these people up to 30% of a new home's value as a deposit HomeBuy Direct removes the only or certainly the biggest hurdle preventing them from buying a home.

However, this does not do anything to increase the number of potential first time buyers, and potential HomeBuy Direct beneficiaries.

I do agree that perhaps Darling could have done more to ensure that more lenders joined the scheme, though I do not know what, short of turning the UK into a communist or totalitarian state.

£500m to kick-start stalled housing projects (£100m for local authority sustainable housing)

This is a tough one. Yeah sure, we are facing an incredible housing shortage in the UK, and this will go towards partly solving this problem. It will also restore, create and save jobs in the construction industry. This is all good for the economy as a whole, and may as an indirect result increase buyer numbers as I said above.

However, how this will immediately benefit the housing industry depends how many of the projects to benefit from this cash-injection are anywhere near completion, and also what the launch prices on the developments will be.

If a substantial amount of said projects are nearly complete, this will be a gradual boost to supply in the UK housing market over the next several months. If a substantial amount of them are launched at unconventionally low prices because they benefited from government funding, then it could allow yet more potential buyers and first time buyers to take the plunge they previously couldn't afford.

However, again, it is not a magic wand, only a recovery to the wider economy will increase buyer numbers greatly enough to really curb the housing market crisis.

Scheme to guarantee mortgage-backed securities to boost lending

This is another good move by Darling that will no doubt play its part in the recovery of the UK housing market whenever that may be.

But again, without recovery in the wider economy the tight lending policies of the banks are merely a minor hindrance compared to the fact that not enough people are even considering trying to get a mortgage because they are so far into negative equity, have lost or are in fear of losing their jobs.

On the Whole...

The main focus then must be stalling the freefall of our economy and getting economic growth restarted; saving jobs and creating new ones. As the economy recovers the housing market will recover as a natural part of that recovery. The measures set down in the budget will ensure that the housing market recovery will be a swift one once the wider economy gets back onto its feet.