Monday, 5 March 2012 2:09 PM
The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 47 UK building societies. Mutual lenders and deposit takers have over 25 million members, total assets of over £375 billion and, together with their subsidiaries, hold residential mortgages of nearly £240 billion, 19% of the total outstanding in the UK. They hold more than £250 billion of retail deposits, accounting for 22% of all such deposits in the UK. Mutual deposit takers account for 34% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
The BSA acknowledges, and has welcomed, the Government’s efforts to help stimulate the housing and savings markets. There are however additional, and quite logical steps that should be taken which could further aid homebuyers and savers in these challenging economic times. A number of mortgage schemes to help first-time buyers and other homeowners have been launched, but the awareness of these schemes is limited. More must be done to help buyers determine which, if any scheme they qualify for. Reformation of stamp duty land tax should also be strongly considered which in its current form hinders property purchases and distorts prices.
A low Bank Rate has been necessary to boost demand in the economy, but this has undoubtedly hurt savers. The Government can make small but significant changes to help savers such as reducing some of the restrictions on cash ISA savings, including allowing the two way transfer of money between stock and shares and cash ISAs. Consumers should also be given ability to access a full range of tax exempt savings products from all providers and not just National Savings and Investments (NS&I).
Stamp duty Land Tax
A critical flaw of the current system is that the “slab” structure of the tax causes distortions in the market as rates are applied to the entire value of the property, rather than the marginal value above each threshold. This results in a bunching of properties at prices just below each of the thresholds, rather than there being a smoother distribution of house prices, as would be expected in a well-functioning market. This results in cautious consumers reluctant to buy a property in the next price band due to the prohibitive increase in stamp duty. It also puts downward pressure on prices of properties with market values just above threshold levels, discouraging these sellers at a time when property transactions are near an all time low. A less distortionary structure for stamp duty would be to charge it on a marginal system similar to income tax. The rates could be set so that there is no net effect on total tax revenue, but the distortions to the market are removed.
We also believe that given the very low level of housing transactions in recent years the Government should consider whether there is merit in introducing or extending further stamp duty concessions to aid particular consumer groups to access home ownership or move home at this time.
Government Housing Schemes
The Government has taken a number of welcome steps to support the housing market through the introduction of a range of schemes, some of which were announced in last Autumn’s Laying the Foundations: A Housing Strategy for England. These schemes include a number of initiatives to aid homeownership through shared ownership or equity loan schemes such as Firstbuy; an attempt to make self build properties more of a mainstream housing solution; the introduction of the Newbuy indemnity scheme; and the reinvigoration of the Right to Buy scheme.
Many of the schemes, particularly those providing shared ownership or equity loans have similar names, and navigating the various schemes, or simply being aware that they exist, can be bewildering for consumers. We believe that more could be done by the Government to communicate both the existence and the benefits of these schemes to prospective home owners.
Mutual lenders have a history of helping consumers to buy their own home. However, part of being a responsible lender is ensuring that home ownership is sustainable. The Government must acknowledge that buying a home may not be a suitable option for all those eligible for Right to Buy. Home ownership is a big commitment, and one not to be entered into lightly and we believe that the advice offered to social housing tenants will be crucial in preparing them for this transition. We urge Government to ensure that advice is provided in an accessible format and tailored to its recipients.
The BSA has taken significant steps to promote the availability of shared ownership and equity loan schemes through the development of an affordable housing website. Now live and being populated by mortgage lenders and housing associations, the site is called The Housing Hub (www.thehousinghub.co.uk). The objective of this website is to bring together parties which have an interest in streamlining access to shared ownership and shared equity, via a central hub. We believe that these industry led initiatives can really help to deliver Government policy but much more can be done to ensure consumers are aware of such schemes.
Support for Savers
Savers have endured a record low Bank Rate for three years, and for much of this period have been unable to secure a real return on their savings due to high levels of inflation. The Bank rate is unlikely to rise in the medium term, and so the BSA encourages the Government to help savers during this difficult time, especially those who rely on interest payments as their primary income.
We would like to see transfers permitted from stocks and shares ISAs into cash ISAs. At present, transfers are allowed only in the opposite direction. This change would make adult ISAs consistent with the new Junior ISAs, which allow transfers both ways. In addition, it would enable savers (possibly approaching retirement) to ‘lifestyle’ their portfolios and transfer out of stocks and shares into a less volatile cash ISA. The need to protect one’s nest egg when approaching retirement is increasingly important.
Similarly, we encourage the Chancellor to remove the restriction on the amount of the total ISA allowance that can be saved in a cash ISA. It seems illogical for this limit to be set at half the overall annual allowance, particularly as some savers will be uncomfortable with investing in a stocks and shares ISA and therefore in practical terms only have access to half of their annual ISA allowance.
Overall we welcomed the Government’s commitment to Individual Savings Accounts (ISAs), and the linking of annual subscription limits to CPI. Mutual deposit takers have also demonstrated their commitment to supporting Junior ISAs by offering these accounts since their launch in November last year.
The BSA and its members are pleased to be involved in the development of the Simple Financial Products initiative. We recognise consumers can be put off by the wide range of financial products available.
National Savings and Investments
Banks and building societies continue to face intense competition for retail deposits, and the NS&I net financing target of £2 billion in 2011/12 has added to this pressure. Furthermore, the latest forecast shows that it is likely to exceed the upper buffer of the target and reach £4.5 billion. The added competition for retail funds from NS&I not only distorts the savings market, but increases the cost and reduces the availability of mortgage funding which building societies and other lenders rely on for mortgage lending. These costs are inevitably passed on to borrowers, making life even harder for first-time buyers struggling to get a foot on the housing ladder.
With gilt yields currently at an all time low, the BSA urges the Government to consider alternative sources of financing, and reduce the NS&I net financing target for 2012/13 to zero in line with the 2010/11 target.
NS&I also benefits from the 100% Government protection of its savings products, the returns on a number of its products are also exempt from income tax. Banks and building societies should be able to offer the same tax advantages to their customers, and consumers should have the ability to access comparable products from all financial service providers. One option to make the situation fairer for consumers is to raise the cash ISA limit to enable all other providers to offer tax exempt savings accounts for deposits of up to £15,000, as was available in the NS&I’s latest index-linked bond issue.