The Government has confirmed a shake-up to stamp duty rules that will see properties of £175,000 or less exempt from the controversial levy.
The move is part of a host of measures unveiled today designed to kick-start the housing market. The stamp duty relief will apply on all properties (under £175,000) on or after 3 September 2008 and before 3 September 2009.
Other measures include offering "free" loans to first-time buyers earning less than £60,000. The HomeBuy Direct loans will be interest-free for five years and will enable eligible buyers to raise deposits of 30% on new-build properties. It will be co-funded by the property developers as well as taxpayers.
Although the loans are interest-free, borrowers will be obliged to pay a fee at the end of the five-year period. However, it is not yet clear how much the fee will be or how people's affordability will be calculated when applying for a mortgage.
Finally, the Government has also launched what it terms a mortgage rescue package to help homeowners struggling to meet their repayments and at risk of repossession.
As part of the package, local authorities will assess local families and offer assistance to the "most vulnerable" and those not deemed to have "acted recklessly or irresponsibly".
Those deemed worthy will then be offered one of three options:
1. Sale and rent back: a registered social landlord will pay off all secured debt on the property and the resident can then rent the property at a "level they can afford".
2. Shared ownership: a registered social landlord buys a share in the property. The money raised can be used to pay off part of the mortgage.
3. Shared equity: a registered social landlord provides an equity loan to the householder, which again can be used to reduce the mortgage.
Too good to be true?
The measures have been welcomed by the industry but experts say they do not go nearly far enough in helping homeowners. In addition, the measures are unlikely to be enough to kick-start the housing market or help the majority of homeowners.
Ray Boulger, of brokerage John Charcol, says the new stamp duty measures are not the answer to helping to avoid a house price crash. "The issue lies more with mortgage lenders and their 'shut up shop' attitude to lending above certain loan-to-values," he says. "One has to question whether the Government has truly thought this through."
Andrew Montlake, a director at brokerage Cobalt Capital, agrees and says the measures are a "damp squib".
"The stamp duty exemption is a half-hearted gesture as it is only £50,000 more generous than current levels, plus it won't make much impact in London and the South East where property values are higher" he says. "By leaking its plans to increase stamp duty, the Government created an expectation of making a big move to help homebuyers - but it this measure does not live up to this expectation."
The stamp duty leak effecitvely brought an already weak housing market to a stand-still as buyers withdrew offers in the hope that delaying would mean they could avoid paying this tax.
The finer details of the HomeBuy Direct loan are also a concern to Montlake. Because the loans will only apply to new build properties, he says they will not help restart housing transactions and the property ladder will remain stagnated.
In addition, he believes the measure is more about the Government trying to help developers and meet its housing targets rather than the property market.
"New build properties are notoriously hard to value, because you pay a premium for the fact it is new - so why would you want to encourage a first-time buyers to take out a mortgage and a loan (albeit an interest-free one) for 100% of a property that will deplete in value straight away?" he asks.
The mortgage rescue package also fails to impress Montlake. "The devil is in the detail," he says.
For one, the scheme is aimed specifically at vulnerable families at risk of repossession. Therefore, the scheme will not reach the vast majority of homeowners hit by the credit crunch. Nor will it do anything to increase confidence among buyers or ease pressures among lenders.
"The two biggest issues are a lack of consumer confidence and a lack of mortgage lender liquidity," says Montlake. "Until banks and building societies have the funds to be able to offer more mortgages to more people, the housing market will remain stagnant."
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