Tuesday, 9 September 2008

Politicians don't understand history

One of the problems that seems to beset the politicians in this country is the fact that they don't seem to be capable of learning from history. Take the recent example of the stamp duty holiday whereby for the next 12 months those purchasing a property between £125,000 and £175,000 will be exempt from paying the 1% stamp duty. The Tories tried a similar idea back in the 1990's when we had the last recession and they admit that the measure had almost no effect on the property market then. So what is the reasoning over the stamp duty giveaway now?

Firstly the government with typical ineptness started hinting about a stamp duty holiday some weeks ago. For estate agents August is one of the quieter months at the best of times and they needed the uncertainty about stamp duty like a hole in the head. Having dropped heavy hints about the relaxation of stamp duty before thinking things through the government could hardly not do something about it. Now as a fundamental principle it seems wrong that the government should take money from you for the simple act of moving home (obviously though if property stamp duty were abolished tomorrow then they would have to take our money in some other way). But the basic question is - will this measure enliven the sluggish property market and encourage first time buyers? Going back to my first paragraph I would say most likely not.

Let's rewind to some 12 to 24 months ago with property prices going up. Doing something about stamp duty back then when plenty of funds were flowing into the Treasury would have seemed a good and popular thing to do. Last year when the Tories at their annual conference suggested cutting back on stamp duty then Labour asked how they, the Tories, would pay for this. The obvious question is "how can the government pay for this now?". With the stamp duty holiday having been announced will there be a rush to buy? With house prices still falling and with concerns about retaining one's job then I would have thought potential purchasers would prefer to hold on for the moment. The other factor of course is the little matter of shortage of mortgage funds and the business of now having to find a reasonable deposit - just like the old days in fact for those with long memories.

Under present market conditions therefore I don't see the stamp duty holiday being of great use; but Gordon has to be seen to be doing something of course! One of the biggest curses of our property obsessed country is the way that house prices have periodically to adjust to peoples salaries and prospects. Even without the severity of the current 'credit crunch' I think that a massive correction was due.

Some people are saying that the boss of 'The Nationwide' was being too pessimistic anticipating average house prices dropping by 25% from when the downturn started. I'm not sure that he's too far off the mark. We will see over the coming months.

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