Nothing Gordon did will hurt as much as interest rates

With a reduction in Miras and an increase in stamp duty, this was not a Budget for home owners. But it could have been much worse, says Felicity Cannell
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Indy Lifestyle Online
Many people involved with the residential property market urged the Chancellor to leave Miras (Mortgage Interest Relief At Source) alone, and it looked for a moment as if he was going to heed their advice. But now its gradual phasing-out looks inevitable, starting with the decrease to 10 per cent announced in last Wednesday's Budget.

Miras has always been hyped as a significant perk for a first mortgage but the benefits were marginal, even before the Budget, as property prices increased. After all, only the first pounds 30,000 paid is eligible, a small percentage of the price of many homes.

"Home owners are more concerned about interest rises, than the abolition of tax relief," says Andrew Clack of Centurion Estate Agents. "A 1 per cent rise on a pounds 90,000 mortgage will cost considerably more than any loss of Miras."

Except that if interest rates rise, so too do the savings made through Miras. That said it is true that the decrease of Miras in itself will not have much effect - a loss of about pounds 10 per month. But as part of the Budget it will hit hardest those it helped most: no longer the traditional middle class tax perk, after the legacy of Margaret Thatcher's move to universal home ownership, the many low-income mortgage holders will have to find an additional pounds 10 per month on top of cigarette, alcohol, road tax and petrol price rises.

Middle England, certainly in the South-east, will be hit much more by the increase in stamp duty. The temporary abolition of the duty in 1991 to help the struggling market was a gift of thousands of pounds to house buyers.

At 1.5 per cent on properties over pounds 250,000, paying an extra pounds 1,250 may stall price rises just under this figure, and this may filter down through the market. An extra pounds 5,000 or more on the many properties in the South- east costing over pounds 500,000 will certainly have people grinding their teeth. However, over the whole country these increases will affect only 2 per cent of all house purchases.

But these measures are minor irritants compared to the effect of Nigel Lawson's March 1988 Budget in which he abolished joint tax relief but delayed implementation for five months. This sent the market spiralling before a spectacular crash.

The Government is determined to prevent any return to those desperate days, and to create and maintain stability in the market. Postponing the reduction in tax relief to allow those affected to make adjustments, while implementing stamp duty rises immediately, should have the required effect.

"The Government has clearly taken a cautious and prudent stand," says the Council of Mortgage Lenders (CML), which is relieved Miras has not been totally abolished. It would have come as a significant payment shock just when interest rates are hovering towards further increases, CML argues. But it is less happy about the increase in stamp duty. "We are unconvinced that the increase is necessary and, indeed, believe that the duty should be abolished altogether. Why should there be a tax on house purchase?"

If Miras is phased out in the future the CML will lobby for a means- tested mortgage benefit scheme.

Despite the whines of estate agents that prices have not reached pre-1989 levels, there is general recognition that market needs to be eased up. Further interest rate rises can be expected to achieve this.

Finally some good news - home improvement grants for the elderly will be aided by the expansion of the home insulation programme. The Chancellor hopes to kill two birds with one stone with this measure; contractors will be urged to take on young people to help with the work.

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