Bring back MIRAS for first-time buyers?

No, this isn’t some form of nostalgia like bringing back Opal Fruits or Marathon bars (which may well have disappeared around the same time) but a genuine idea to bring some welcome help to beleaguered first-time buyers.

As you are have all no doubt seen, it’s been party conference season with lots of promises about what parties are going to or will do for the housing market.

So far of note we’ve had the Home Buying and Selling Reform from the Labour party which, whilst lacking detail, looks a lot like the short lived Home Information Packs or HIPs that sank in 2010, very unloved.

The Conservatives have just proposed to removed Stamp Duty on residential properties at a cost of around £10bn a year with no suggestion about how they will fill the financial void, and the Greens have passed an ‘abolish landlords’ motion at their party conference!

All very ‘interesting’ I hear you say, but none of them really address the elephant in the room which concerns most brokers and their clients: first-time buyers and how to help them get onto the property ladder.

AFFORDABILITY CRISIS

It’s no secret that first-time buyers face a generational affordability crisis driven by stagnant wages, a lack of housebuilding going back 30+ years and ‘high’ interest rates (which, although not high by historical standards, are seen as such given events of the last 10 years).

For those of you like me who may be are (just!) about old enough to remember MIRAS (Mortgage Interest Relief at Source), it essentially provided tax relief on the first £30,000 of the mortgage given at source by the lender and claimed back by lenders from the Treasury.

It underwent several revisions and was responsible for a housing crash at the start of the 1990s when the then Chancellor Nigel Lawson announced the effective removal of MIRAS (several months before he did it) causing a housing bubble.

Now to be perfectly clear, I’m not proposing we revise the scheme as was; it was quite flawed and expensive and clearly £30,000 wouldn’t help much these days! What I am proposing is a scheme that does allow the mortgages of first-time buyers to be subsidised for a period of time, to allow them to get onto the housing ladder. This would apply for all properties, not just new build.

RATE SUBSIDY

The idea is simply this. We give all first-time buyers an effective rate subsidy on the interest portion of their mortgage for the first five years, directly via the lender who then claims back the cost directly from the Treasury. While this perhaps sounds expensive, the numbers are surprisingly small, especially when compared to the £10bn Kemi Badenoch has just proposed giving away in Stamp Duty!

As an example of how it could work: if we take the number of first-time buyers in 2024, at an assumed average interest rate of 5.0% on a £250,000 loan, and give them all a 0.50% subsidy on their interest payments (reducing the effective rate down to 4.5%), over five years, the cost is approximately £1.5bn; a 1.0% subsidy simply £3bn.

Money is obviously very tight at the moment and with a fiscal black hole somewhere between £20 and £40bn, the onus is on saving, rather than spending. However, we need to acknowledge that housing and household consumption is a huge contributor to UK GDP. Upwards of 12% of UK GDP is directly attributable to real estate and development and a functioning housing market not only helps drives the UK economy it helps significantly with the growing social division housing is causing, not just between rich and poor, but between generations

We owe the next generation a duty of care and real chance to own their own property. As much as society is being increasingly being divided along political lines, we also risk generational divide. To me it is therefore becoming less about, ‘can we afford to help first-time buyers?’ as ‘we can’t afford not to?’

We’ve seen various schemes come and go over the last few years, the next one has to be material, meaningful and have some longevity. Without it we risk a generation being left without a meaningful stake in society.