Yes, Gordon Brown has lifted the level at which properties attract stamp duty from £125,000 to £175,000, taking it from being effectively a blanket tax on home buyers to, err, a slightly less than blanket tax on home buyers. Oh, and the so-called ‘holiday’ is only set to last for one year. Radical stuff, eh?
Given that just two days ago chancellor Alistair Darling called the current downturn the worst in 60 years, you could be forgiven for thinking that this is a spectacularly inadequate response. Are we really supposed to believe that some of the government’s best and brightest have been boiling their brains all through the dismal summer to come up with this wizard wheeze? And do they seriously believe it will make any difference? House prices may be dropping like a stone but there are still precious few places where you can buy even a starter home for less than £175,000.
To be fair, the stamp duty reduction is only the headline act in a rescue package aimed primarily at first time buyers. Other measures announced include plans to offer interest free loans to couples earning less than £60,000 a year. Up to 30% of the value of a purchase will be available, interest free for five years. In the sixth year the loan becomes a charge against the house – so it will come off the price if they sell it – but if they don’t move the loan only falls due for repayment after 10 years.
There is also a scheme intended to tackle the rising tide of repossessions, allowing councils and social housing landlords to take over the mortgage debts of would-be defaulters in return for charging them an affordable rent.
These last two measures are laudable enough – if they work. But the simple truth is that UK property prices have been rising too fast for too long and need to come down. Attempts to buck the market and reduce the pain of such corrections can help but are always fraught with danger – remember Black Wednesday and the UK’s ignominious exit from the European exchange rate mechanism.
But once the decision to try and do so has been made, the government needs above all to telegraph confidence and surefootedness to the market place if it is going to stand even the slightest chance of success. Here at MT, we don’t think these measures do anything of the kind.