Rescue plan to save property market
Alistair Darling is drawing up a series of radical proposals to revive Britain's beleaguered housing market as new figures show soaring numbers of homes being repossessed.
Among the measures being considered by the Chancellor are:
*A plan to reintroduce income support for mortgage interest payments for homeowners who lose their jobs.
*Suspending stamp duty so buyers only pay the tax after several years in their new home, or perhaps not until they sell the property.
*Creating a new, tax-free fund to help first-time buyers raise the deposit they need to get on the housing ladder.
Ministers are also looking at extending schemes to buy empty properties, particularly in city centres, and turn them into social housing. Mr Darling is desperate to have the proposals ready by the time MPs get back from the summer break in order to stave off a backbench rebellion against Gordon Brown. But yesterday he gave a grim warning that the economic downturn is likely to be prolonged. Economists believe the country could be on the brink of recession, with growth almost at a standstill.
Pressed on reports that he planned to offer a stamp duty holiday to house buyers, Mr Darling left open the possibility of stopping the tax altogether for the duration of the current downturn.
But The Independent has learnt that the most likely course of action will be to defer, rather than cancel, the stamp duty charges paid by the majority of home buyers. Officials, who emphasised that no final decisions had been taken, said the idea would have the attraction of providing a filip to the housing market without ultimately depriving the Treasury of the billions of pounds raised from stamp duty.
Ministers are also preparing to announce a new saving scheme aimed at first-time home buyers. It would enable them to put cash into a tax-free fund similar to Individual Savings Accounts to help build the deposit required by most lenders, who are now refusing to offer 100 per cent mortgages because of the credit crunch.
Asked about the stamp duty holiday plan, Mr Darling said: "I am looking at a number of measures and I am not going to be drawn on that today because we have not concluded what exactly we need to do. It is helping people that is important. I want to look at a range of options."
Stamp duty is paid at 1 per cent on homes bought for between £125,001 and £250,000, 3 per cent between £250,001 and £500,000, and 4 per cent for properties bought for more than £500,000. Overall, the levy has brought in £31.5bn over the past 10 years, and has increased rapidly as house prices have risen.
Under another plan being examined at the Treasury, stamp duty would be be levied at its higher rate only on that part of the price above the threshold, rather than triggering the tax on the whole amount. That would also remove the distortions in the market around the threshold levels.
Home financing specialists questioned the effectiveness of altering the stamp duty regime. They said the price paid by a first-time buyer was about £130,000, only just liable for the duty, and further falls in prices would bring more properties out of stamp duty. A more significant barrier to ownership for first-time buyers remains the disappearance of the 100 per cent mortgage.
There are also signs that buyers are waiting for house prices to decline further. Approvals of new mortgages are down 70 per cent on their peak a year ago, according to the Bank of England.
The Financial Services Authority said 9,152 homes were repossessed in the first three months of the year, a rise of 40 per cent on the same period in 2007. It also reported that the number of mortgages three months or more in arrears rose by 15 per cent, to 302,000, in the three month period – 2.5 per cent of Britain's total mortgage loan book.
The Council of Mortgage Lenders has talked to the Government about a return to income support for mortgage interest payments for homeowners who lose their jobs. But supporting mortgage holders would be costly and could put too large a strain on government finances.
Ministers could also strongly encourage the Bank of England to reform its new Special Liquidity Scheme, which would allow banks to swap unmarketable but relatively good quality mortgage-backed securities for government securities. Thus, the state in effect lends the banking system the money to grant mortgages, using older mortgage books as collateral on the loan, albeit at a punitive rate of interest.
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