Stamp duty 'holiday' could leave £600m hold in Budget
Homes worth £175,000 or less will be exempt from stamp duty for the next 12 months, the Chancellor announced in an attempt to shore up the housing market.
But economists warned the move may force up Government borrowing further in this autumn’s Pre-Budget Report after Alistair Darling declined to say how he would pay the estimated £600 million bill.
The change, which could save as many as half a million home-buyers up to £1,750, was the central plank of a package of measures to ease the housing crisis also including support for first-time buyers and those at risk of repossession in England.
It was welcomed by estate agents and mortgage lenders but industry figures warned it would not be enough to restore stability to the market.
Economist David Page, of Investec, said any savings for home-buyers would be wiped out in less than a month by plummeting property values which fell by 10.5 per cent to an average of £165,000 over the last year according to Nationwide Building Society.
About half of homes sold in the UK are worth £175,000 or less, though those under £125,000 are already exempt from the one per cent levy.
Stamp duty is imposed at three per cent on homes costing £250,001 to £500,000 and four per cent above that level.
On a day when the OECD warned Britain was facing recession in 2008, Conservatives accused ministers of drawing up “a short term survival plan for the Prime Minister, not a long term recovery plan for the economy”.
But Gordon Brown insisted the Government was doing the right thing to bring Britain’s economy through a difficult period.
“Home-owners need to know that we will do everything we can to keep the housing market moving forward,” he said.
“Help with stamp duty, help for first-time buyers, help to build more social housing, help to take unsold properties off the housing market and help for people who get into difficulties.
“These are the things a Government should do to help us come through what is a difficult situation and show that our economy is resilient and will come through these problems.”
Communities Secretary Hazel Blears unveiled a £200 million mortgage rescue scheme, allowing those at risk of repossession to sell all or part of their home to a Registered Social Landlord and then rent it back at an affordable rate.
She also unveiled a £300 million HomeBuy Direct scheme offering 10,000 first-time buyers a 30 per cent loan towards the price of a newly-built property.
About £400 million of funding for 5,500 social homes is to be brought forward and income support rules are being amended to give home-owners who lose their jobs help with mortgage payments after 13 weeks, instead of the current 39.
The package forms part of a political fightback by Mr Brown after a bruising summer in the polls and is expected to be followed by further initiatives to tackle high fuel prices.
Mr Darling sparked speculation over his future as Chancellor with an interview last weekend in which he claimed Britain was facing arguably the worst economic conditions for 60 years.
Asked about his relationship with Mr Brown, he said: “The Prime Minister and I have always worked and will continue to work closely together because both of us have the same objective. Here we are in unprecedented conditions ... we are determined to do everything we can to help people and help the country.”
The Chancellor said he would set out how the stamp duty holiday will be funded in his Pre-Budget Report, expected in November or December.
He added: “I believe the package we have announced today ... will help us get through what is undoubtedly a difficult time. But I am optimistic that we will get through it.”
Shadow Chancellor George Osborne was scathing: “This is a short-term survival plan for the Prime Minister, not a long-term recovery plan for the economy.
“Most families will not be helped and the micro-measures announced are overshadowed by today’s gloomy news that the OECD is predicting a recession in Britain in the second half of this year - the only country that it makes that prediction about.”
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* These are the main points from the Government announcement:
Stamp Duty
Homes worth £175,000 or less will be exempt from stamp duty from September 3 this year until September 3, 2009.
The Government claims the move, which will cost it £600 million, will help half a million homebuyers.
It will save people buying a home for £175,000 £1,750, as they would previously have had to pay stamp duty at one per cent of the purchase price.
The higher stamp duty thresholds of £250,000, above which the tax is paid at three per cent and £500,000, when the four per cent rate kicks in, are unaffected by the move.
Mortgage Rescue Scheme
The Government’s £200 million mortgage rescue scheme aims to help 6,000 vulnerable families who face repossession not lose their homes.
Targeted at families who can no longer afford their mortgage repayments and who would be eligible for homelessness assistance, homeowners will be able to sell their property to a registered social landlord (RSL) and rent it back at a level they can afford.
They will also have the option of selling a share of their property to a RSL or a RSL could provide them with an equity loan.
HomeBuy Direct
The Government is investing £300 million in a new shared equity scheme, which will help up to 10,000 first-time buyers buy a new build property.
First-time buyers with a household income of less than £60,000 will be offered an equity loan of up to 30 per cent of a property’s value, co-funded by the Government and housing developer.The loan will be free for five years.
It is hoped that the initiative will not only help first-time buyers, but also the struggling housebuilding industry, which has seen sales dive since house prices began to fall.
Affordable Housing Schemes
In a bid to increase the supply of affordable housing, the Government is bringing forward £400 million of funding for social housing from existing budgets.
It hopes the move will lead to 5,500 more homes being delivered during the coming 18 months.
Local authorities with existing housing stock will be able to apply for a grant to build social housing, alongside RSLs, for the first time.
Income Support for Mortgage Interest
The Department for Work and Pensions is reforming Income Support for Mortgage Interest (SMI) so that the Government will step in and help people who have lost their income pay their mortgage after 13 weeks, rather than the current 39 weeks.
It is also increasing the size of a mortgage on which it will cover interest payments, raising it from £100,000 to £175,000.
It is investing £100 million in the change, which it estimates will prevent a further 10,000 people from having their homes repossessed over two years.
Regional Development Agencies
The Government plans to work with Regional Development Agencies to support the most critical regeneration schemes.
Some are slowing down or have stalled.
The Government will work with Regional Development Agencies and the Homes and Communities Agency to look at possible ways of intervening on projects that will deliver most benefits.
