High time to lift the housing market

YOUR MONEY Personal Finance
DAVID MILES, the economist at Merril Lynch, argued in the Independent last Monday that measures to stimulate the housing market merely transfer wealth from sellers to buyers without adding to the national assets. But at least it would be a more economical way of easing a visibly worsening problem than general reflation. As of now, this Government looks like wrecking the consumer side of the economy for an abstract point of principle.

I hear the Labour Party, if and when it comes to power, would take steps to ensure that the housing market recovers by a steady 3 per cent a year for three or four years - until the bulk of the problem of negative equity has been washed away by a rising tide of property prices.

It is not a revolutionary concept. John Redwood's Thatch- erite think- tank might well come to an identical conclusion. The trick is exactly how to achieve the desired recovery in property prices without over-egging the omelette and creating a full-blown boom that would lead to widespread general inflation.

But any Chancellor has a variety of levers he can pull to stimulate demand for property. He could abolish or suspend the 0.5 per cent stamp duty still payable on houses over pounds 50,000, although that alone might not do much for a market looking at a further 3 per cent fall in values this year.

He could raise the tax allowance on mortgage interest back to 25 per cent , or raise the ceiling for the allowance from pounds 30,000 to pounds 40,000. He could extend either or both concessions to first-time buyers alone, or to all buyers, depending on how much stimulus he considered necessary - and he could withdraw the concessions if the situation looked like getting out of hand.

There is a real risk of misjudging the situation, as Nigel Lawson did famously in 1988 when he gave notice of abolishing double tax relief for unmarried couples and triggered a four-month buying frenzy by couples struggling to beat the ban. But with the market as dead as it is, the risk looks containable.

On balance, general measures to stimulate the housing market would be preferable to specific measures. General measures may be wasteful by targeting the undeserving as well as the needy, but selective measures run the risk of antagonising the many who fail to benefit from a tax break.

General measures to lift the market are also more likely to succeed than schemes to help directly those individuals in negative equity. A growing number of lenders are now offering selective help - for example by extending 100 per cent mortgages to borrowers trap-ped by negative equity but otherwise able to take on a new mortgage.

But the total number who have been able to take advantage of such special deals is probably less than 10,000 out of the 1 million who owe more than their house is worth, and possibly 100,000 of who would actually like to move but cannot.

In this context, the landmark court judgment last week allowing a Halifax borrower with negative equity to sell his house at a loss to a private buyer and deduct his own expenses before passing the proceeds to the lender looks less of a landmark than it did.

There is everything to be said for a private sale if its realises more than repossession and a public auction, which only profits property speculators. It may benefit the seller, the lender and the insurance company, which otherwises picks up a bigger indemnity bill.

But it still leaves borrowers with a debt from which they cannot walk away. If the lender or the insurer feel they have rigged the sale, they are still liable to be pursued for debt.

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