UK government plans housing market rescue
By Jane Wardell
LONDON — The British government unveiled a package of tax cuts and increased spending targeted at first-time home buyers on Tuesday in a bid to reverse the country’s worst housing slump in almost two decades.
However, industry leaders and analysts say the financial incentives are unlikely to spur buyers back into the market, suggesting that the package is more about reviving Prime Minister Gordon Brown’s flagging popularity.
As the OECD issued its most dire warning on the British economy yet, predicting it will fall into recession in the second half of the year, the government announced that it was temporarily scrapping the tax that borrowers are required to pay on house purchases at the lower end of the market.
Brown also revealed plans to spend 1 billion pounds ($1.8 billion) to help buyers hit by tighter mortgage lending criteria in the face of the global credit crunch, giving low-income purchasers a fee-free five-year loan worth up to 30 percent of a home’s value.
Communities Secretary Hazel Blears said the measures would not "transform the world," but would "make a big difference to those people that are struggling."
"We can’t run people’s lives but we can try and help," Blears said. "What we’re saying is ... we will help you get the deposit so you can get the mortgage and you can get into the housing market."
However, economists, mortgage lenders and builders said that the government’s financial package is dwarfed by the massive scale of the housing crisis, as house prices continue to slide and home repossessions rise to their highest levels since Britain was last in recession in the early 1990s.
"While these measures are obviously very welcome for the people who benefit from them, we suspect that they will only have a very limited overall impact in supporting the housing market as the underlying fundamentals remain poor," said Global Insight economist Howard Archer.
The Treasury said that its decision to freeze so-called stamp duty on properties up to 175,000 pounds ($312,500) for a year from Wednesday would cost around 600 million pounds (around $1.08 billion) in total, suggesting that it expects about half a million home-buyers to benefit from the change.
The freeze means that anyone buying an average-priced home — the latest figures from the Nationwide Building Society show the average house price at 164,654 pounds ($1.1 billion) — won’t pay the duty.
However, industry analysts pointed out that the plan narrows the gap between the stamp duty tiers, which kick into a 3 percent charge at the 250,000 pound ($446,000) mark, which they argue will make buyers reluctant to purchase properties above that level.
Others said the measures do not go far enough to resolve the issue of mortgage funding.
"Today’s proposals do not address the core problem, which is the collapse in mortgage availability," said Roger Humber, spokesman for the National Federation of Builders, adding that the package was "little more than a political sticking-plaster."
Brown, the former Treasury chief who has presided over an unprecedented period of economic growth since the ruling Labour Party came to power in 1997, is being increasingly criticized for his handling of the current crisis.
Brown’s replacement at the Treasury, Alistair Darling, warned this week that Britain faced its worst economic situation in 60 years, comments viewed by many economists as foreshadowing a significant downward revision in the government’s forecasts for GDP growth from the current 2.5 percent for this year.
That prediction is a stark contrast to the revised 1.2 percent growth forecast by the Organization for Economic Cooperation and Development on Tuesday. The OECD added that it expects the British economy to shrink 0.3 percent in the third quarter and 0.4 percent in the final quarter — meeting the commonly accepted definition of a recession of two quarters of negative growth.
With the main opposition Conservative Party pulling well ahead in the polls, Brown is keen to be seen to helping vulnerable families who are also being hit by rising fuel and food costs.
"I suspect what we will see in the coming weeks is a desperate and short-term survival plan for the prime minister rather than the long-term economic plan the country needs," said George Osborne, the Conservative Party’s economic spokesman.