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.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links