December is usually the month when Nationwide’s widely reported seasonally adjusted House Price Index shows the largest upward adjustment from the real figure and this year was no different. Thus a real fall of 0.4% in December is translated into a seasonally adjusted rise of 0.4%. This is the first real monthly fall since the market bottomed out in February and leaves the index 5.9% up on the year. Over any 12 month period the Real and Seasonally Adjusted figures must agree and so 5.9% is the annual rise on both bases.
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December is usually the month when Nationwide’s widely reported seasonally adjusted House Price Index shows the largest upward adjustment from the real figure and this year was no different. Thus a real fall of 0.4% in December is translated into a seasonally adjusted rise of 0.4%. This is the first real monthly fall since the market bottomed out in February and leaves the index 5.9% up on the year. Over any 12 month period the Real and Seasonally Adjusted figures must agree and so 5.9% is the annual rise on both bases.
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The main impact of the Pre Budget Report on the housing market will be at the top end, primarily in London & the South East. The 50% bank payroll tax on discretionary bonuses over £25,000 will surely have some impact either on bonus levels or when they are paid. The new tax will only apply to bonuses awarded between today and 5 April 2010 however, and so banks may simply defer awarding and paying this year’s bonus until 6 April and then pay what they always planned to pay.
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The main impact of the Pre Budget Report on the housing market will be at the top end, primarily in London & the South East. The 50% bank payroll tax on discretionary bonuses over £25,000 will surely have some impact either on bonus levels or when they are paid. The new tax will only apply to bonuses awarded between today and 5 April 2010 however, and so banks may simply defer awarding and paying this year’s bonus until 6 April and then pay what they always planned to pay.
If banks were to award a bonus now they would have to reduce it by nearly one third if they wanted the net cost to them to be the same, after allowing for payment of the bank payroll tax and a slightly lower National Insurance charge (as this will be based on the lower gross amount of the bonus). If the bonus is awarded and paid on or after 6 April next year the employer will avoid the 50% bank payroll tax but the employee, if earning over £130,000, will be subject to an additional 10% income tax. Therefore, although in general those employees earning over £130,000 who get a bonus in excess of £25,000 will pay an additional 10% tax if the bonus is deferred until at least 6 April they will still be much better off, assuming their employer has a set amount available to pay the bonus and any additional employer tax on it.
It should be borne in mind that in addition to banks the bank payroll tax will apply to building societies and UK resident investment companies and financial trading companies in a banking or building society group. The bank payroll tax will be applied to bonuses paid to “Relevant Banking Employees,” who are defined as individuals “employed by the Taxable Company in a ‘Banking Employment’”. “For this purpose, Banking Employment means an employment which wholly or mainly involves duties that relate either directly or indirectly to activities that are “Relevant Regulated Activities”.
This new tax will create uncertainty, both in the short term and in terms of what attacks there may be on bonuses in future years. It will in many cases reduce the ability and/or willingness of those whose bonuses are deferred, or are less than they expected, to buy an expensive property in the next few months. It also increases the likelihood that some employees caught by this new tax will leave the UK and consequently not buy a property they planned to, or perhaps sell one they already own. The prime London market has been particularly buoyant recently in anticipation of a return of big bonuses and so this attack on high value bonuses has the potential to hit that sector of the market hard, at least in the short term. If so there will be some trickle down effect.
Despite many calls for the extension to £175,000 of the stamp duty land tax 0% threshold to be continued, these calls were more in hope than expectation and so seeing the threshold revert as previously announced to £125,000 from 1 January 2010 is no surprise. It is disappointing, but again not surprising, that yet again Darling has followed in Brown’s footsteps and refused to make stamp duty fairer by moving from the current system to an income tax style one where the higher rates only apply from their actual starting level.
The Chancellor also confirmed today that the standard interest rate used for payments on the ISMI (Income Support for Mortgage Interest) scheme would continue for a further 6 months at 6.08% and claimed that this will continue to benefit around 220,000 homeowners. However, according to the CML the number of borrowers currently being helped by the ISMI is only 100,000, but another 113,000 older home-owners are receiving help with their mortgage through pension credits. It is not clear whether the figure of 220,000 claimed in the PBR is arrived at by adding these two figures together or whether 220,000 is the total number of borrowers expected to benefit from ISMI over the course of a year, bearing in mind that many will only benefit for part of a year.
The PBR gives no figures for the number of borrowers in The Homeowner Mortgage Support Scheme, the new scheme announced by Gordon Brown last November without any consultation with mortgage lenders. This lack of consultation and the many flaws in the proposed scheme the PM had overlooked led to a delay in the announcement of the full details of this scheme until some 5 months later. Anecdotal information from lenders suggests that the number of borrowers put on this scheme is tiny.
Over the past few months we’ve published a number of stories which herald the success of the Home Buyers Direct scheme that has helped a number of homebuyers on to the property ladder. Everytime we publish a story I’m amazed at the generosity of this amazing scheme (well it appears amazing from a distance), so I thiought to day I would take a closer look to see if it really is amazing.
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I watched the repeat of Question Time on BBC Parliament yesterday and two points in relation to the housing market in general and the Lib Dems’ revised proposals for a Mansion tax in particular struck me as being worth commenting on.
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Yorkshire Building Society has announced it is in “advanced talks” to takeover, sorry, merge with, Chelsea Building Society. This is not yet a done deal and the statement was no doubt rushed out as a result of a leak reported by Mark Kleinman, City Editor of Sky News, who makes the important point that although the FSA has, as one would expect, been kept informed of negotiations it has not forced the Chelsea into these discussions.
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