Wednesday, 6 August 2008

Postponement of stamp duty may not work

With far far fewer mortgages completing in the UK these days the government understandably are wondering if they can do something to stimulate the housing market. One rumoured idea is that perhaps stamp duty on house purchase might be put off for a while, an idea that the Tories used at the time of the recession in the early nineties apparently. Now I don't know how effective the scheme was back then and would like to know but it seems to me that this isn't a good idea under present circumstances.

The first point I would make is that nothing is likely to happen for a few weeks so that I can imagine quite a few people might wait until a decision is made; on a £150,000 property there is at present 1% or £1500 to pay, in my book quite a chunk of money. I don't understand why options such as this are allowed to leak out, unless of course they want to float the idea and see how the media react first. If, as is being mooted, payment of stamp duty is merely going to be deferred then when and how will the house purchaser actually pay it. Would it be in the form of a lump sum or in instalments. If the former that would not be too popular with a general election on the horizon.

However at the moment surely it isn't consideration of the cost of stamp duty slowing the market right down. No it's the shortage of mortgage funds generally but more significantly it is the cessation of 100% or greater mortgages. With a purchaser, particularly a first time buyer, now having to find a deposit of 10,15, 20 thousand pounds which wasn't something that had to be done before the "crunch" then it's evident that tinkering with the stamp duty will not necessarily have the hoped for effect.

I've said before that Gordon Brown was chancellor whilst economic conditions generally were benign. It is his hard luck now that western economies are faced with horrendous problems and it is difficult to see just what the government, cash strapped as it now is, can do about it.

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