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Armitage Shanks

20% Discount To The Under-40S. Unintended Consequences?

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Maybe I'm seeing this too simplistically but, contrary to adding more hot air to the bubble as people are suggesting, might this measure have the opposite effect of dragging prices down as prospective vendors find themselves having to drop prices to compete with the builder 2 miles down the road who can (theoretically) offer a taxpayer-subsidised 20% discount on a new-build?

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Guest UK Debt Slave

The unintended consequence is so bloody obvious, i can't believe anyone would fall for such a sleight of hand

House prices will increase to compensate so the government will increase its stamp duty revenue and the banks will lend more and make more profit

Nett benefit to first time buyer?

ZERO

Edited by UK Debt Slave

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The unintended consequence is so bloody obvious, i can't believe anyone would fall for such a sleight if hand

House prices will increase to compensate so the government will increase its stamp duty revenue and the banks will lend more and make more profit

Nett benefit to first time buyer?

ZERO

Net benefit to house builders and agents pricing 2nd hand houses along side them....MASSIVE.

It's nothing short of fraud in my opinion.

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The unintended consequence is so bloody obvious, i can't believe anyone would fall for such a sleight of hand

House prices will increase to compensate so the government will increase its stamp duty revenue and the banks will lend more and make more profit

Nett benefit to first time buyer?

ZERO

I share your cynicism - nothing the establishment ever does is done for the greater good but I'm not so sure they've thought this through properly. Regardless of the sinister intention of those behind the policy, is it possible they have misjudged how it will play out in practice? Is it also possible we're so weary from seeing taxpayer-sponsored props that we're overlooking how this might play out? My simple mind, with no economics knowledge or training, is struggling to deduce the process by which this policy will make prices climb.

What this effectively does is create 3 'tiers' of house. New build to under 40s, new build to over 40s (which will *theoretically* cost 20% more) and other. Other will largely be private sells and the prospective vendors will need to decide if they're competing with builders for the under 40s market or competing with them for the over 40s market. This will affect their asking price. Pitch the price lower to compete for the under 40s and what will happen is that a prospective buyer aged over 40 won't go for the overpriced new build, they'll go for the lower priced 'other', meaning builders will be left sitting on unsold houses. This in turn will drive the prices down, and so on.

I'm probably wrong but it feels to me like creating artificial tiers within a market sets peculiar competitive conditions which could induce a race to the bottom. Please tell me I might be right!

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Next time it will cost the country 25%, add it to the bill....so it goes on, unless homes reset to a figure where people are able to buy with the 'productive' money they earn....or else in the future only the wealthy that do nothing much in the way of any productivity will be the only ones buying..... ;)

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A 20% might make the new build more attractive assuming the builder doesn't inflate the price and then reduce it by 20% like the supermarkets do.

If the builder with this scheme does undercut the price of similar second hand homes then the sellers will either be forced to reduce the price or to tough it out until all the new builds sell. As this is aimed at FTBs the second hand home sellers will have been FTBs who are now selling to "move up the ladder", if they are forced to reduce asking price their potential deposit will be smaller so they'll be tempted or forced to offer less for the house they are buying.

I can only hope it does set-off a HPC chain reaction. However, I suspect the builders will be greedy and will inflate the price, reduce it by 20% so it sells for the same amount it would have done anyway (whilst they make more profit due to the sweeteners associated with the scheme).

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What this effectively does is create 3 'tiers' of house. New build to under 40s, new build to over 40s (which will *theoretically* cost 20% more) and other.

Yep. Make the system so complicated that nobody can easily tell whether it's working or not. When people complain that houses are too expensive you can just tell them "what you need to do is buy an under-40 discount Help to Buy 2 shared ownership key worker flat in Woolwich, then you can staircase your way to full homeownership". By the time the questioner has figured out what you are talking about it's too late, interview over, bullet dodged.

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The intended consequences are higher prices and higher local taxes/borrowing and/or lower local spending due to zero embedded infrastructure levy that come with the (probably allocated from already pipelined, not new) builds.

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The intended consequences are higher prices and higher local taxes/borrowing and/or lower local spending due to zero embedded infrastructure levy that come with the (probably allocated from already pipelined, not new) builds.

Why should buyers/builders of new houses pay an infrastructure levy when the vast majority of houses built in this country never had any such tax charged on them. Plus from a simple point of view more houses = more people = more taxpayers = more money for the council.

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Why should buyers/builders of new houses pay an infrastructure levy when the vast majority of houses built in this country never had any such tax charged on them. Plus from a simple point of view more houses = more people = more taxpayers = more money for the council.

Similarly why should existing home owners/renters pay for infrastructure like schools and roads in new developments through their council tax when they won't directly benefit? Also new residents will place a burden on existing infrastructure like roads that were never designed to cope with modern traffic levels.

If I was self building I'd expect to pay to build access to a main road, to connect to utilities etc, if I built in an area with no school or no school places I'd have no one to blame but myself.

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Why should buyers/builders of new houses pay an infrastructure levy when the vast majority of houses built in this country never had any such tax charged on them. Plus from a simple point of view more houses = more people = more taxpayers = more money for the council.

I didn't say they should or shouldn't, but the funding will have to come from somewhere.

The only beneficiary will be homebuilding firm profits. The Government could for example build at cost on cheaper unzoned brownfield land with fewer environmental/community costs, then either let or sell on much cheaper than 'market' prices with an added uplift charge - making back the value-add of permissioning and infrastructure built. But they don't.

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Similarly why should existing home owners/renters pay for infrastructure like schools and roads in new developments through their council tax when they won't directly benefit?

Did you pay for a road to be built outside your house or did it come out of the communal pot?

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Didnt HtB start only on new build (which i see as nothing other than a handout to rescue irresponsible developers who over paid from land in order to stop that land being resold in a firesale and go to other developers who could build the things and sell for a lot less - nonetheless it would increase supply), but then they extended it to existing stock. Obscene.

I presume the same will happen here.

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Don't get how builders would get away with raising the cost bt 20% and then making a 20% "discount". All the buyer has to do is look at what an identical house on the new estate sold for last year and take off 20% - and then some more as obviously houses don't sell for the full asking price. If the asking price has not gone down, a potential buyer would have to be stupid to even look at it. It is not like supermarket tricks, this is the biggest purchase a person will ever make. Fake discounts will undoubtably be exposed by our dilligent media. B)

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Don't get how builders would get away with raising the cost bt 20% and then making a 20% "discount". All the buyer has to do is look at what an identical house on the new estate sold for last year and take off 20% - and then some more as obviously houses don't sell for the full asking price. If the asking price has not gone down, a potential buyer would have to be stupid to even look at it. It is not like supermarket tricks, this is the biggest purchase a person will ever make. Fake discounts will undoubtably be exposed by our dilligent media. B)

It's a classic moron filter, the estate agent will just show prospective buyers a piece of paper saying "It would have cost this much, but with your 20% discount you only pay this much. That's a saving of £50,000. You'll have to be quick though, this is the last discounted property I have available and two other couples are coming to view it this afternoon." Not everybody will bite, but some will.

Edited by Dorkins

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Don't get how builders would get away with raising the cost bt 20% and then making a 20% "discount". All the buyer has to do is look at what an identical house on the new estate sold for last year and take off 20% - and then some more as obviously houses don't sell for the full asking price. If the asking price has not gone down, a potential buyer would have to be stupid to even look at it. It is not like supermarket tricks, this is the biggest purchase a person will ever make. Fake discounts will undoubtably be exposed by our dilligent media. B)

Unfortunately most people I know (particularly when girlfriends/wives get involved) bought their house like they would a tin of beans. Just accept the advertised price is the 'market value', dont even bother to look at previously sold prices...they dont care what prices were last year, just what the Daily Express told them they will be next year.

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Similarly why should existing home owners/renters pay for infrastructure like schools and roads in new developments through their council tax when they won't directly benefit? Also new residents will place a burden on existing infrastructure like roads that were never designed to cope with modern traffic levels.

If I was self building I'd expect to pay to build access to a main road, to connect to utilities etc, if I built in an area with no school or no school places I'd have no one to blame but myself.

My point is that most people got their local infrastructure provided through general taxation, not through a tax on new buildings. Why should existing residents be allowed to use roads and schools that they did not pay for.

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The true test of whether a 20% discount is truly being applied will be when a wily prospective buyer sends in their over-40 parents to agree a price for a house, only to then reveal that they were actually negotiating on behalf of their under-40 offspring and demand the 20% discount be applied.

Is it trading standards who ensure that, say, sofa stores are 'honestly' applying discounts? If so, and I think I already know the answer to this, I wonder if they'll be policing the discounts on houses in the same way?

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My point is that most people got their local infrastructure provided through general taxation, not through a tax on new buildings. Why should existing residents be allowed to use roads and schools that they did not pay for.

As spending comes before taxes and land costs/benefits are hugely regressive, the answer is because it's obviously ok to accrue debt and socialise risk to fund your own stuff and benefits, but not others'.

Armitage - If I was a homebuilder selling these places in the year never-never I'd just price non-FTB properties higher and FTB properties lower. Ticks all the boxes without any push back for same extra net profit.

Edited by northshore

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The one thing to note, is that if there is a big decline in prices, the government is on the hook for the 20% isn't it? So if prices dropped by say 40%, the government would be liable for the 20% it discounted, or have I read this incorrectly?

If that's the case, we go from huge deficit, to much huuuuuuger if I am thinking correctly.

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The one thing to note, is that if there is a big decline in prices, the government is on the hook for the 20% isn't it? So if prices dropped by say 40%, the government would be liable for the 20% it discounted, or have I read this incorrectly?

If that's the case, we go from huge deficit, to much huuuuuuger if I am thinking correctly.

Help to Buy Bail Banks also underwrites a 20% loss for banks on existing houses not new builds. Each day these schemes run the governbankment is clocking up more and more liability, using our taxes to underwrite losses for private firms.

If you say GDP is £1 trillion and the housing stock worth £5 trillion, each time another house is bought using Help to Buy Bail Banks, the governbankment is getting closer to gambling our total GDP that there won't be a 20% drop in house prices. They have gone all in.

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May not have a huge impact as the qualification is very limited as is the type of property, probably no more impact on house prices than say the impact of council house sales.

There is no flipping allowed, the sites will be brownfield, and probably be the short straw location that developers had previously rejected.

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Unfortunately most people I know (particularly when girlfriends/wives get involved) bought their house like they would a tin of beans. Just accept the advertised price is the 'market value', dont even bother to look at previously sold prices...they dont care what prices were last year, just what the Daily Express told them they will be next year.

Price anchoring is an effective and well known bias.

If a house (or anythin) is offered at £250k people will offer, say, £235k.

If same house is priced at £200k theyll offer, say, £190k.

Our brains fool us (and valuers, banks etc too, obviously)

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The important thing is that it makes a pre-election headline to try to cut off at the pass those who say in the election run up that house prices are far too steep for first time buyers. 20% off along with Help to Buy will be their first response in any argument. That's why they've been timed for now.

That'll work with the unquestioning media but in any real debate it's easy to point out that the consequential crazy house price increases have made things even worse for most first time buyers and also for everyone else except for owners who are downsizing or staying put.

The builders won't lose out because they wouldn't build if that was a risk but they get another sales tool - 20% off a price of their choosing (so plenty of scope). Apart from that anyone who buys under the scheme will get a house in an industrial/post industrial area in a first time buyer ghetto which limits the future sales market.

20% off? they're having a laugh. 60% off maybe.

Edited by billybong

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