Building Societies warn on Help to Buy


More criticism of George Osborne's Help to Buy Scheme. The Building Societies Association (BSA) has weighed in, claiming that it could help trigger another house price bubble.

Osborne's scheme has already been described as one of the "most stupid economic ideas" in the last 30 years by a leading City commentator. What are the concerns? %VIRTUAL-SkimlinksPromo%

"Indentured servitude"

Previously the boss of global strategy team at Société Générale, Albert Edwards, said he thought the Chancellor's flagship Help to Buy program could actually inflate property prices further, pushing more homeowner hopefuls into "indentured servitude". Now the Building Societies Association is having its own doubts.

"It [the Help to Buy scheme] cannot become a permanent feature of the market," says Paul Broadhead of the BSA, "beyond the time when the country is in economic recovery mode. Care is needed to prevent the actions taken today inadvertently causing a distorted housing market in three years time - a market where state intervention has artificially hiked prices."

Clinging on

Of course we don't know where interest rates - now at a 300-year-low - will be several years ahead. Many recent British homeowners are just clinging onto home ownership thanks to low interest rates, though many are denied the better loan deals due to their smaller loan-to-value ratio.

Another pressure on new or prospective home owners is that wages aren't rising. Recent Nationwide Building Society data showed that the average first time London buyer was paying more than 50% of their take home salary in mortgage payments - despite the supposedly low interest rate environment.

Market distortion

So, do we really need the Government to artificially distort the market? "I believe it [Help to Buy] truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business," Albert Edwards said.

Meanwhile the BSA claims just one in five first time buyers (20%) says Help to Buy will help them. So what do the other 80% think? What about a climb in interest rates, helping fatten up their deposits while nicely flattening house prices to affordable levels?

What do you think?

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10 wealthiest small towns in the UK
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Building Societies warn on Help to Buy

Windsor is top of the tables for the UK's wealthiest towns and villages, according to research published by WealthInsight. The Berkshire town is home to 850 dollar millionaires (people with assets of more than US$1m, or £653,424)

.

Weybridge is second in England with a population of 19,500 and 800 to 850 millionaires.

Sevenoaks has a population of 18,500 and between 800 to 850 millionaires.

Andrew Amolis, analyst at WealthInsight said Beaconsfield's position, at number four, was "unsurprising." "It has the highest average house price outside of London (over US$750,000 per home). It also has the highest average income per household of US$110,000."

Henley-on-Thames, at number five on the list, is the town where numbers of millionaires is growing fastest, the research suggests. The number of so-called high net worth individuals increased by 25% between 2007 and 2012. "This compares very well with general UK millionaire numbers which declined by 9% over that period," said Andrew Amolis, analyst at WealthInsight.

Marlow just missed out on a top five rank with 14,000 inhabitants and between 350 and 400 millionaires in residence.

Hale is the highest-rated town closest to Manchester with a population of 15,300 and between 300 and 350 millionaires.

"Alderley Edge is considered to be the most affluent town in the North West, particularly Whitebarn Road which is one of the most expensive streets in the UK," said Andrew Amolis, analyst at WealthInsight.

Bray is number nine on the list and is home to Heston Blumenthal's Fat Duck restaurant. Bray has a population of 4,600 and counts more than 300 millionaires among its residents.

Ascot finishes tenth in the list with a population of 11,600 and between 250 to 300 millionaires.

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Budget 2013: Winners and Losers
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Building Societies warn on Help to Buy

The Chancellor has cut the price of beer. He said a planned 3p rise in beer duty tax was being scrapped and replaced by a 1p cut on a pint of beer.

While lower interest rates are intended to boost borrowing for business and keep costs down for mortgage customers, the Chancellor brings another Budget devoid of encouragement for savers. Faced with near 0% interest rates and 3% inflation, there is no help for those who need to save for the future, or those that already live on their savings in retirement.

"Low interest rates are making life ever harder for people reliant on their savings. Their spending power is being reduced and their standard of living eroded on a daily basis," said Simon Rose of Save Our Savers. "The attack on savers is short-sighted and undermines the country's prospects for investment, growth and retirement."

A major headline-grabbing measure to help struggling first-time buyers is the new Help-to-Buy scheme. Made up of two parts, the first commits £1.3bn to shared equity loans that enable first-time buyers to borrow up to 20% of the value of a new build home towards a deposit, providing they can contribute 5% themselves. The loans will be interest free for five years and be repayable on house sale. The scheme will cover all new properties up to £600,000 in value – around 90% of all new homes in the UK.

The second is a Mortgage Guarantee for lenders, intended to help all families who are struggling with deposits. The scheme will make £130bn worth of mortgages available from 2014 and enable lenders to offer loans at higher-to-loan value, which will Mr Osborne said will "dramatically increase" the availability of mortgages. The guarantee will run for three years and apply to bold old and new property. Stephen Noakes, Mortgage Director at Lloyds Banking Group, commented: "We are very supportive of innovation in the housing market and believe that the mortgage guarantee scheme, will give a much needed boost to the housing market and most importantly address the issue of accessibility. "Crucially, this scheme will not only help first time buyers but also second steppers, a key segment of the housing market that is also in need of more support and attention. Whilst the property market is likely to continue to be challenging, the fresh support announced today will have a real knock on effect across the whole of the housing market and we expect it could help around 50,000 people a year."

Payment of taxes is the "glue that holds the economy together" the Chancellor said as he reaffirmed his commitment to crackdown on evasion and the professional services that advise on it. "With more measures to rein in Corporate Tax avoiders, the Chancellor has sent a clear message that aggressive avoidance is no longer acceptable," said Martin Hook, Managing Director of research and development tax specialists, Alma Consulting Group. "This will have a significant impact on the Big 4 and other firms who market tax avoidance schemes and will need to consider the morality of the schemes that they sell and the spirit of the tax legislation."

As was widely predicted, Osborne froze the fuel duty hike due in September 2013. He announced that his repeated scrapping of this duty has saved the average Ford Focus owner £7 on every tank of petrol.

Stating his commitment to helping entrepreneurs get ahead and recognising that the cost of employing people is a huge burden to small firms, the Chancellor announced a surprise move with National Insurance relief of £2,000. Called the Employment Allowance, he said the new measure means than 450,000 small businesses – which account for one third of all companies in the UK - can employ one person earning £22,000 or four people earning the minimum wage, without paying National Insurance.

"The Employment Allowance will certainly be a massive boon for small businesses. Not least because most weren't really expecting it," said Jonathan Elliott, managing director of MakeItCheaper.com. "Put it another way, a £2,000 saving for a typical small business is the equivalent of cutting their annual energy bill in half or putting 1,250 litres of free fuel in its fleet of vehicles." Yet the Government fell short on support for new enterprises, explains John Williams from Kuber: "Noticeably absent from the Chancellor's speech was any news of extending or enhancing the Enterprise Investment Scheme (EIS). Many were hoping to see the Government offer more help to start-up companies looking for second round finances, but nothing materialised."

There was bad news for public sector workers, who will see pay increases limited to 1% in 2015/2016. The government will also revisit 'progressive pay' which sees pay increase automatically each year which he said was 'difficult to justify' given that private sector pay has been frozen or cut. The armed forces, however, will be exempt from this.

Feeling the pressure on help working families, the Chancellor made a welcome announcement that working parents will receive a contribution from the Government towards the cost of childcare. Working parents will receive 20% - equivalent to the basic rate of tax - of their yearly childcare costs, up to a total of £6,000 per child. He said the move will save a typical working family with two children under 12 up to £2,400 a year.

Also, leaked this morning was the news that the Chancellor will raise the income tax threshold to £10,000 from April 2014 – a move he said will give 2.4million people at tax cut of over £200 each a year, as well as lifting two million people out of income tax altogether.
Yet while both moves are widely welcomed, they do little to counter the austere measures of previous Budgets, explains Clare Francis, editor-in-chief at MoneySupermarket.com:"Giving with one hand may be a positive, but taking away with the other through other tax increases and benefit cuts means that people are no better off. "In fact, the cumulative effect of this and previous budget changes, combined with wage stagnation and rising living costs means millions are worse off and an increasing number of families are on the breadline, struggling to make ends meet every month."
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