Knight Frank gives lukewarm response to Budget

"The positive impact will come in terms of sentiment – the message may seep through to potential buyers that the Government are determined to do whatever to help the market. Despite these announcements, prices, sales volumes and construction levels are likely to remain weak for the immediate future – although there are signs that the market is beginning to heal itself."


Knight Frank said that in particular it noted:

* The extension to the sub-£175,000 stamp duty suspension would be welcome to buyers who purchased properties under this limit, around 50% of the market. However, until prices were seen to stop falling, this 1% tax saving would be a secondary consideration for most buyers. A permanent extension would be far more significant in helping sustain the eventual market recovery.

* The Homeowner Mortgage Support Scheme, which will allow certain qualifying groups access to a scheme which will defer part of their mortgage repayments for two years, has been extended to include the up to two million households in negative equity. This could help to keep more people in their homes if they were made redundant. However it would only cover a maximum of 40,000 properties – whereas the total of households expected to be at risk of repossession this year totals 750,000.

* The £600million earmarked to maintain housing supply would have some effect. However, with construction now at lows not seen since the Second World War, the effect on overall numbers would be minimal – although certain schemes and developers may see significant benefits.

Bailey said: "Interestingly the Government might just find that 18 months after the start of the downturn, that the market will begin to cure itself, albeit very slowly. With prices well down on the market peak, buyer interest is rising and like-for-like sales are creeping upwards.

"There are also growing murmurs from the new build sector that sales are occurring faster than homes are being built. Unlike some other countries, we do not have a large overhang of unsold new homes, and by 2010 we could find that new homes are few are far between. This stock shortage could combine with sustained demand to stabilise the market."

On the development and house building sectors Jon Neale, head of development research, Knight Frank, said: "The £600million earmarked to stimulate construction of both market and social homes is welcome news for the development industry. Only around 60,000 new homes will be built this year, well below the estimated level of need of 240,000 per annum.

"It is also of paramount importance that the industry is kept busy and does not lose capacity, otherwise it will be poorly placed for the upturn when it comes, creating conditions for even greater levels of undersupply.

"It seems that £400million will be used to allow the public sector to buy stakes in key housing projects that have stalled. This money will be used to provide the necessary infrastructure so that developers can proceed with housebuilding.

"This is laudable, but as this money will only help a few schemes, the devil will be in the detail of which developments are seen as most crucial. Moreover, £400million of funding is unlikely to unlock more than a tiny fraction of the homes the Government believes are needed each year.

"The new funding for the popular HomeBuy Direct scheme – in which first-time buyers pay 70% of the overall price of a new property, with the developers and Government lending the remainder – will be welcomed by aspiring homeowners and developers alike.

"However, it will only help a further 10,000 buyers. Given that even in these quiet times, around 10,000 new mortgages are being approved per month to first-time buyers, it seems apparent that its impact on the housing market and developers’ balance sheets will be fairly marginal.

"The new funding for social housing would seem even more marginal, given the massive likely increase in need resulting from increased repossessions and forced sales. However, it is heartening that the Government recognises the need to support the development industry while helping both first-time buyers and those in dire need of a roof over their heads."

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