Stamp duty axed below £175,000

Legendary stupidity from an ailing government trying to buy safe passage through the next election:

Homebuyers will not have to pay stamp duty on properties costing £175,000 or less for the next 12 months.

You cannot stop the market from finding its own level. This measure will at best delay the inevitable and at worst cost the Treasury £600m in tax revenue without significantly impacting the housing crash. The measures don’t stop there though – there’s more stupidity to come:

* “Free” five year loans of up to 30% of a property’s value for first time buyers of new homes in England

* Extension of powers for councils and housing associations to be able to pay off debt for homeowners who can no longer afford mortgage payments and then charge rent.

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

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

The funding for these measures, which unlike the stamp duty move will only apply in England, has been previously allocated and brought forward, the Treasury said.

BBC NEWS | Politics | Stamp duty axed below £175,000.

So this funding is just being ‘brought forward’ then? Does that mean the government was planning to introduce the 13 week period for Income Support anyway? I don’t believe it. The entire nation is borrowing from the future to save the skin of Gordon Brown.

Recessions are not pleasant for most of us but they are necessary to correct the market after a period of runaway growth.  Mr Brown’s protestations of unique circumstances not enountered for generations are ridiculous. We regularly have boom and bust in pretty much every market.

The government recently added nearly £100bn to the national debt with the Northern Rock fiasco – that’s around £3,000 for every household in the land. In 2007 the national debt was estimated at 43% of DGP (Source: CIA World Factbook) which ranks us 50th worst in the world. However there have been others who argue that much of our debt is disguised:

The respected Centre for Policy Studies think tank says the official Treasury figure of £487 billion wrongly excludes the cost of public sector pensions liabilities, the hidden costs of Labour’s flagship Private Finance Initiative contracts and debts incurred by Network Rail.

When these are taken into account the total is £1,340 billion, which is 103.5 per cent of GDP

Daily Mail | 26 November 2006

So while Gordon and his buddies go about freely spending our money let’s not forget who will pay the price in years to come.

UK pensioners sitting on £762bn despite property crash

The Prudential’s Equity Release Index recently found that homeowners aged 65 or over have £726bn of equity in their homes.  Of course as house prices continue to fall this figure is decreasing.  I wonder if there’s any connection between this fact and the recent increase in equity release business in the UK?

SHIP (Safe Home Income Plans) – the trade body that represents more than 90% of the equity release market in the UK – announced on 16 July this year that equity release business volumes produced by its members in the second quarter of this year had increased by 14% over volumes in quarter one. A total of £275.7 million of equity was released by SHIP members in the second quarter, 14% higher than the £242.7 million released in the first quarter.

So how far will house prices fall?  Nobody knows but estimates from those who dare to forecast seem to range from around 30-70%.  I wouldn’t be surprised by 50%.  Rental yields are a good way to value property and they are incredibly low.  In order for yields to recover we need either (or both) prices to fall and rents to increase massively.  I don’t think rents are coming up any time soon since: (a) many people have sold  recently and opted to rent while the market is suffering so there is no shortage of rental property; and (b) the economy as a whole is suffering thus reducing available cash in renters’ pockets.  Therefore prices must fall further and there’s certainly plenty of evidence for this.  Today the bank of England announced that the number of new mortgages approved for home buyers fell in July to just 33,000 – down by 71% on a year ago.

More to the point for those who already own property, how long will it last?  When property crashed at the end of the 80s bubble the market took 5 years to hit the bottom and another 5 for prices to recover to pre-crash levels.  But it could be worse – Mr Darling told a newspaper at the weekend that Britain was facing its worst economic crisis for 60 years.  Maybe he’s just lowering our expectations so we’re not disappointed by his performance later.