Housing: Budget initiative

The last house price bubble followed a previous conservative chancellors budget.

Nigel Lawson ended the multiple tax relief available to home buyers in his 1988 Budget. Any Application completed after August of this year was only entitled to one amount of tax relief. This encouraged many couples, especially first time buyers to buy a house in the interim months and complete before the deadline. This created a huge demand for houses and increased the value of homes by several percent nationwide.

Once the deadline of 31 August 1988 had passed, the housing market fell flat for the following reasons:

  • Those that had intended to purchase within the next 2 to 3 years decided to take advantage of the double tax relief benefit while it was available
  • Young couples who would have purchased within the next year or two also decided to take advantage of the tax relief opportunity
  • Even those that had no intention of moving saw property prices rising and thought they did not want to miss out.

Once the deadline passed, demand for houses collapsed and the market fell flat. House prices slumped and many were left with negative equity. It took a number of years for the market to recover.

Whilst this new initiative does not have a deadline attached. Without the correct supply of homes, It is difficult not to think that this has the potential to create a similar situation.

 

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