Government Tax Levy on Banking Bonuses will impact UK Housing & Mortgage Market
After the government bail out of the UK banking system in 2009, there is a now 50% tax levy on all future bonuses. Traditionally we enter “bonus season” in Q2, we expect to see buyers to start investing from this point and despite the new tax constraint the majority of banks have announced their intent to assign significant bonuses.
However, it is estimated that the bonus payments will be lower than in previous years and a larger proportion of payments will be made in shares and other types of investments. Looking to 2010, it is yet to be apparent what extent this will negatively affect sales volumes. In essence, bonus money will continue to play a central factor in the housing market and many cash rich individuals will still invest in the UK and abroad.
The mortgage market will not become any more constrained in 2010 and therefore will be no more problematic for borrowers than in 2008/9. In Q1-2010, the bull-case scenario sees GDP figures rising briskly. At the end of 2009 gross lending was estimated to be about £145bn, well-down on last year’s £256.4bn and even further down on 2007’s staggering £363.7bn.
Predictions for 2010 lending are approximately £155bn to £160bn with potentially some new entrants into the market also taking into consideration the London property market, which is driving a huge sum of the lending. However, the Financial Services Authority (FSA) is currently being tough on applications for lenders. These new lenders could create about £5bn of lending, but it will all be distributed through intermediaries.
With regards to the mortgage market, the bleakest times are definitely over but there is still a long way to go and although stabilised, it may be a sluggish return to previous levels. In 2010 the market will continue to be dominated by purchases as re-mortgaging remains moderate whilst the base rate is so low. Often, borrowers who would opt to re-mortgage are currently unable to do so as they don’t have enough equity. Dual pricing will continue but not to the extent of 2009.
In the short term the lack of mortgage supply should not affect the housing market any more than it is currently doing. It is however, worth noting, that if the volume of properties for sale increases sharply then the lenders will have to impose further conditions and hence be more selective with whom they lend to. The volume of funds available for purchases will be negatively impacted once the re-mortgage market starts to open up.
At present, there a number of borrowers who cannot move despite their aspirations and are known as “mortgage prisoners”. Essentially these borrowers do not have enough equity in their property, (and in some cases may even be in negative equity) or are unable to prove their income. One of the changes afoot for this type of borrower is the development of the FSA’s aspired involvement to prevent borrowers taking out mortgages that may cause them problems at a later stage in life. Currently the market is still grappling with the FSA’s mortgage review discussion paper and responses are due at the end of January.
After examining the evidence that although lower, banking bonuses will still take place in 2010 and that the mortgage market will hopefully experience the end of product rationing, we are optimistic that consumers will gain confidence in the property market once again.
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