Stamp Duty Freeze Confirmed

A stamp duty freeze was hinted at last month – leading to claims that the housing market had been slowed further by the rumor. It has just been announce by the Treasury that the current £125,000 threshold will be raised to £175,000 for 12 months in an attempt to boost the market.

Around half of the 90,000 homes bought each month cost £175,000, or less. A house buyer purchasing a property at the average UK price of £165,000 will now save £1,650 (1% stamp duty) under the scheme, which could cost the Treasury as much as £600 million over the next year.

The government has not indicated how it will cover the massive tax revenue shortfall resulting from the stamp duty freeze. Chancellor Alistair Darling said that he would give more details in his Autumn Pre-Budget Report. He also stated that the Government was considering ways of increasing access to mortgage finance.

Other housing moves announced by the government, exclusively for properties in England, include:

• “Free” five year loans of up to 30% of a property’s value for first time buyers

• Extension of powers for councils and housing associations to pay off the debts of homeowners who can no longer afford mortgage repayments – and charge them rent instead.

• Shortening the period before Income Support for Mortgage Interest is paid from 39 weeks to 13 weeks.

• Bringing forward spending from future years to encourage more social housing to be built

Is This Now a Housing Price Crash

The flood of negative news from the UK property market continues leading analysts to ask – is this now a house price crash? House prices are falling at their fastest rate for nearly 18 years as potential buyers stay away from the market. Figures from the Nationwide just released underline the scale of the problem now facing the market. Average property prices have fallen across the UK by 10.5 per cent over the last year, and worse still the pace of decline is accelerating according to Nationwide Building Society. While prices fell by 1.5% in July, this has accelerated to 1.9 per cent in August.

House prices have now fallen for 10 months in a row. On a brighter note, while there was still a great deal of uncertainty, the Bank of England’s forecasts for growth and inflation have been widely interpreted as opening the door to rate cuts.

Market rates are beginning to respond to this, and as a result mortgage rates, particularly fixed-rate deals, have started come down. But the competition is limited to borrowers with large deposits, with many lenders now offering their best deals only to people borrowing less than 60% of their home’s value.

UK House Price Affordability Index

UK house prices remain near extreme levels of unaffordability that requires a substantial fall in UK house prices until prices reach the levels of even 2002. The current trend clearly indicates a weak UK housing market for several years. During a recessionary period that the UK is expected to enter towards the end of 2008, real disposable incomes tend to decline. This suggests that despite falling house prices, the affordability index may not see any significant improvement until 2010.

Conclusion

The UK Housing market is on track for a significant drop in prices until at least 2010.

Stamp Duty Scrapped?

With the prime minister expected to announce details of how to kick start the economy, reports suggest that suspending stamp duty could be key to his plans, according to the Sun newspaper.

Stamp duty could be suspended temporarily in a package designed to boost the faltering economy.

Stamp duty is paid at 1% on homes bought for £125,001 – £250,000, 3% on homes bought for £250,001 – £500,000, and 4% on homes bought for over £500,000.