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Government Help for the Housing Market



In a bid to keep the housing market moving, the government stepped in this week by announcing a number of measures that will help first time buyers and home owners facing repossession. The most publicised of the steps was the temporary scrapping of stamp duty for all transactions of £175,000 and below. The threshold has been moved up from £125,000 for 12 months only and the government claims that this will make half of all property transactions free of stamp duty for that period.

Other measures introduced by the government include: 

• Discounted 5 year loans of up to 30% of a property’s value for first time buyers
• The extension of local councils and housing association powers to help out home owners in financial trouble
• Shortening the period before Income Support for Mortgage Interest is paid from 39 weeks to 13 weeks
• Spending for future years brought forward to encourage the building of more social housing

Prime Minister Gordon Brown said that the package of measures showed the government was taking action to help people through difficult times: “Home owners need to know that we will do everything we can to keep the housing market moving” he said. However, the Conservative opposition, who say they will scrap stamp duty on all transactions worth £250,000 or less for first time buyers, dismissed it as a short term survival plan to keep Mr Brown in a job. The move will cost the treasury an estimated £600m and it is not clear how this will be funded. The Chancellor Alistair Darling says that he will reveal more details in the autumn pre-budget.

Under the new discounted loan system, households in England earning less than £60,000 per annum will be offered loans free of charge for five years on new properties. The new scheme is called HomeBuy Direct and is co-funded by the state and developers. At the end of the five year period the home buyer will be asked to pay a fee – although the details of the magnitude of this fee have yet to be provided. In a statement the Department for Communities and Local Government (DCLG) said: “Not only will this help first time buyers...it will help the house building industry weather difficult conditions.”

There has also been widespread criticism of the government’s timing in the announcement of these measures. Most people believe the market has still some way to fall, so in addition to most buyers not being particularly keen to take the plunge at the moment, the government is essentially investing tax-payers money into a falling market. Although a discounted loan will help first-time buyers raise a deposit the fact remains that there are desperately few mortgage products available for them. To illustrate this fact the Financial Mail newspaper asked a mortgage broker to arrange a mortgage for a young couple with good earnings and a 5% deposit to buy a £150,000 property. The broker came back with just four available loans, all with either high interest rates or high set-up costs. A year ago the story would have been very different; such borrowers would have had around 40 different products to choose from with competitive interest rates and no fees.



Just how housing associations would step in to help out home owners in distress was not spelt out clearly either. It is not clear if this plan will induce shared ownership or shared equity; the two are very different from a legal perspective. The £200m pledged by the government for this project will only be enough to help a few thousand households and with 45,000 homes set to be repossessed this year, this figure would appear to be nowhere near large enough for the task.