Beware of real estate traps that deceive young buyers
This Soaring inflation Is bringing all kinds of problems to our personal finances, from the cost of living crisis to Frozen tax threshold And worried How will our investment behave. But what is one area where it can abnormally make us feel richer? House price.
The surge in demand for real estate during the pandemic means annual housing prices rise 10.2%, Which is twice the consumer price rate and the highest level since 2006.The latest Halifax data shows that stamp duty holidays have boosted the average house price in the UK Over 270,000 GBP first.
All of this makes the homeowner feel richer-at least on paper. But it had the opposite effect on first-time home buyers, who found that as real estate prices continued to exceed wage growth, it became increasingly difficult to increase the number.
The Bank of England is under pressure to adjust restrictions on mortgage affordability. next year, It will consult According to regulations, most mortgage loans are capped at 4.5 times the applicant’s income, and the test that requires borrowers to withstand sudden increases in interest rates may be eliminated.
Relaxing these restrictions can help tens of thousands of people climb the property ladder or obtain larger loans, and prompt some lenders to consider offering mortgage loans of up to 50 years in the near future.
There is a very obvious problem. All these measures actually ensure that real estate prices will fly higher.
For a long time, politicians have been keen to help the next generation of homebuyers realize their dream of owning real estate, but now the government’s measures to help first-time homebuyers have encountered some serious problems related to inflation.
I mean Lifetime Isa, The program was launched in April 2017 to help people under 40 save for their first home or invest in their retirement.
With a generous 25% bonus, those who can save up to £4,000 per year can get a free top-up of £1,000. Your funds can be stored in cash or used for investment-any interest or investment growth is tax-free.
Therefore, Lifetime Isa (or Lisa for short) is very popular.In the past tax year, the number of subscribers More than doubled 545,000 people.
One of them is Julia, a reader of FT Money. She saves the most every year. Her Lisa balance is £25,000, plus a government bonus worth £5,000.
After seeing about 40 different apartments in London this year, she made an offer worth £450,000-but was spotted by another buyer who bid £5,000.
She cannot bid higher because the Lifetime Isa rules state that £450,000 is the highest price you can buy a property.
Since Lisa was launched in 2017, this limit has not changed. Since then, the average house price in the UK has soared by 22%. If the Lisa limit is increased accordingly, it will now be £549,000.
However, it is still nearly £100,000 lower, preventing Julia and many other first-time buyers in London and the southeast from using their savings to purchase properties.
If this is not bad enough, if you do not use cash to buy a property, the fine for withdrawing cash before age 60 is a fine.
This will charge a fee of 25%-this will cost Julia £6,250. This not only recoups the government bonus of £5,000 she received, but it also recoups her own savings of £1,250.A huge cash trap, which has Has always been a controversial feature Isa for life.
As someone who has meticulously saved for many years, Julia is shocked that her efforts to achieve home ownership security are threatened by the rigid rules of the plan designed to help her.
I contacted the Ministry of Finance this week to ask if there are plans to review the £450,000 Lisa limit.
A spokesperson stated that Lisa savers have received support estimated to be worth £3.7 billion since the launch of the plan, adding: “The real estate price ceiling ensures that this huge investment of taxpayer funds is managed carefully and precisely, and at the same time Still supporting most first-time buyers. Buyers from all over the UK.”
This is not the first time I have asked this question directly to HMT.
About five years ago, when FT Money reported on the release of Lifetime Isa, I submitted many Reader query. The first one is: “Will the £450,000 ceiling increase as house prices rise?”
Since most home buyers need eight to ten years to pay the down payment on the property, this is not an unreasonable concern. At the time, the official response was: “Like all policies, the government will constantly review the parameters of the policy.”
Then why not?
Part of the reason for the skyrocketing housing prices in the UK is subsequent government policies such as Stamp duty holiday. I can foresee that depositors like Julia will accuse them of improper sales in the future, and their situation is worse than at the beginning.
This summer, the freedom of information request to the UK Revenue and Customs Administration showed that Fined 48 million pounds In the past three tax years, Lisa holders have been taxed for early withdrawals.
During the pandemic, the government recognizes that depositors need to use cash urgently Temporarily reduce fines From 25% to 20%, this just eliminates the bonus element.
If the Treasury is opposed to adjusting property price restrictions due to inflation to release “trapped” buyers, can first-time homebuyers withdraw funds with impunity because the product is no longer suitable?
Since the inception of Lifetime Isa, there has always been a difference between its maximum price limit and the government’s “Help Buy” program.
Help buy Equity loanProvide cheap government loans to buyers of newly built real estate to bridge the affordability gap, with a regional price cap.
These range from 186,100 pounds in the northeast to 437,600 pounds in the southeast and 600,000 pounds in London-much higher than Lisa’s limit and more in line with the average house price in the capital, which currently exceeds 516,000 pounds.
London is defined as all 32 boroughs. By providing buyers with taxpayer funds of up to 240,000 pounds, it helps home builders to transfer properties worth up to 600,000 pounds in remote areas such as Croydon and Havelin.
How can the government prove that it is reasonable to effectively subsidize real estate developers, who have paid billions in special dividends and executive compensation, while robbing readers like Julia of the savings of thousands of pounds? That is what makes my blood pressure rise.