Properties costing less than £175,000 (Nationwide average house price index has slipped quite a bit below £175,000 to £164,000) will face 0% property tax for the next 12 months in an attempt to kickstart the housing market.
With house prices falling at the fastest rate for 25 years, even this significant benefit may not be enough to persuade people to buy; there are good reasons to wait another 12 months, in which time house prices could have fallen by another £10,000.
Arguably, there is is a lot of political motivation behind this move; but, if it can help limit the extent of house price falls it may help limit a feeling of panic which has overcome the mortgage and housing industries. Previously I wrote of a danger that there may be an overreaction to falling house prices as nobody wants to buy when prices are falling so much.
The other good news for homeowners is that interest rates now look set to fall in October or November. Banks and building societies have already cut fixed rate mortgages in anticipation of lower base rates later in the year.
The average cost of a 2 year fixed mortgage has fallen from over 7% in July 2008 to 6.3% now.
Base rates look set to fall because of:
- An easing of cost push inflation
- Economy entering recession which will further reduce demand pull inflation.
2 comments ↓
[...] especially with the ongoing problems in the credit markets. Even half hearted measures like a freeze on stamp duty will do little to change the sentiments of the market. Therefore, I feel house prices will continue [...]
Whether an attempt to help the housing market or Mr Browns publicity it was something, which is better than nothing one would guess - however I don’t think I have heard anyone mention that stamp duty was ever a problem facing the housing markets current crisis.
What I mean is people are being turned down for mortgage applications because the mortgage institutions have no money to lend not because they can’t afford stamp duty!
I am sure the reduction in stamp duty will help a small percentage of people but until the government can tell the lending institutions to relax their underwriting criteria (which will never happen) there’s not a lot they can do other than trying to boost consumer confidence (which is what I think was intended by the increase in stamp duty threshold), that and a vague attempt to make it look like the government was actually doing something!
So whilst it was good to hear something is being done, I doubt it will have any impact in real terms on the market as a whole. Reducing stamp duty is no good if people are not getting mortgages approved in the first place.
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