Lunchtime news Wednesday 3 September 2023

The centrepiece of yesterday’s housing industry rescue package – the stamp duty holiday - has come under fire today. Referred to as a ‘sticking plaster’ by many, the Royal Institute of Chartered Surveyors said it will have little impact in London, where a first-time buyer’s property averages at around £260,000. As many as nine out of 10 transactions will be unaffected around the country said RICS. RICS wants a complete holiday from stamp duty, followed by a reform to the system. The Government believes that half of all homebuyers will now pay no stamp duty. Most commentators feel that a one per cent saving is not enough to tempt first-time buyers back to the market, when anaylsis shows that house prices still have some way to fall, and may yet lose a further 30 – 40 per cent in value. Alistair Darling has yet to explain how this £600 million package will be funded, saying more details would be provided in the pre-budget report in the autumn.

The three-pronged mortgage rescue scheme, worth £200 million of the £1 billion price tag for the entire package, is aiming to help 6,000 families currently at risk of repossession. Under sale and rent back, people struggling with their mortgage would have the debt cleared by a housing association, with the former homeowners paying rent at a level they can afford. Alternatively owners could part-buy, part-rent their homes under a shared ownership deal with their housing association. Or housing associations could offer equity loans to struggling homeowners. Mortgage lenders have welcomed the move, but others such as the Council of Mortgage Lenders who have estimated that as many as 45,000 households could have their homes repossessed in the next year, see the move as having little impact.

The government has also been criticised for not doing enough to free up overall finance to the mortgage market. Only 10,000 buyers will benefit from the £300 million initiative to extend HomeBuy Direct, a shared equity scheme, and the money must be used to buy new builds within specific developments. RICS and the Home Builders’ Federation came out against the measures, accusing the government of ‘failing to listen to the property industry’ and saying the proposals will have little impact on those who need it most.

Meanwhile, it is believed that lenders have taken £200 billion from the Bank of England’s special liquidity fund – well above the initial £50 billion set aside. A bank spokesperson said that it had always been the case that there was no cap on the scheme – its size would reflect its use. However, economists were surprised by the forecast saying it was ‘unlikely but plausible.’ If right, it means British banking is relying much more heavily on state support than either Europe or the US.

The rescue package announcement was overshadowed somewhat by a warning from the Organisation for Economic Cooperation and Development (OECD) that the economy will shrink in the final two quarters of the year, leading Britain into recession by the end of the year – the only G7 economy to suffer such a fate. After nearly 16 years of consecutive growth, the OECD has downgraded the annual rate from 1.8 per cent to 1.2 per cent. It said the sharp downturn in the property market and the increased importance of housing in the economy had led it to slash its forecast.

Meanwhile in Scotland, Alex Salmond has announced his intention to introduce a bill to Parliament removing council tax, and replace it with a local income tax. Calling council tax ‘regressive and unfair’ Mr Salmond said the move would lift 85,000 individuals from poverty and save the average family up to £535 a year. He told a meeting of MSPs that eight out of 10 families would be better off. The move is facing widespread public criticism, while Treasury said that if Scotland no longer had council tax, it would be ineligible for £400 million in council tax benefit.