CML response to 2010 Budget

The Council of Mortgage Lenders cautiously welcomes the Stamp Duty concession for first-time buyers, but warns that there will be genuine practical barriers to effective implementation. It would clearly be far simpler - but more expensive - to exempt all properties under £250,000, rather than to impose the additional first-time buyer restriction.

First-time buyers (at least as recorded by the CML) typically include a high proportion of "returners", who have previously owned property but no longer do so. Yet the HMRC guidance note says that to qualify, the purchaser "must not...have previously acquired a major interest in ...residential property....anywhere in the world". It is not clear how this will be verified.

The CML cautiously estimates - given the problems noted above - that over the coming 12 months there are likely to be some 136,000 newly exempt first-time buyers under the new concession, resulting in foregone revenue of £224 million. This may be largely offset by the increase in Stamp Duty to 5% (up from 4%) on around 10,000 property transactions over £1 million, which the CML estimates could equate to around £250 million of additional revenue.

The CML also welcomes the retention of the existing higher rate of Support for Mortgage Interest until the end of the year. Although wider long term reform would be desirable, this is a sensible and helpful measure that means those people who do qualify for help under the extremely tight eligibility criteria are at least likely to see their mortgage interest payments met under the scheme.

The CML notes a number of other relevant announcements in the Budget documentation, including confirmation that the government plans to transfer the regulation of second charge lending - including existing second charge mortgages - from the OFT to the FSA. The CML welcomes this announcement, which reflects the CML's long-held view that a single regulator for all secured lending is the most appropriate approach.

Finally, the CML broadly welcomes the government's willingness to work with the mortgage industry on the industry's proposal that an income verification service should be offered to lenders offered by HM Revenue & Customs to enable lenders to verify mortgage applicants' income with greater certainty.

CML director general Michael Coogan commented:

"The Budget offers a modest potential boost to the housing and mortgage market in terms of reducing transaction costs for first-time buyers, and potentially improving efficiencies for lenders. But as always the devil is in the detail, and the detail is confused. The stamp duty concession in particular looks like a tax loophole waiting to happen.

"While the Chancellor rightly welcomes the fact that the government-supported banks exceeded their mortgage lending commitments last year, the Budget was disappointingly light on any detail of how the government proposes to work with the industry as a whole to find a route back to a sustainable and reliable funding framework to safeguard the ability to deliver the lending needed to support future demand."