Stamp duty: Little help

Andrew Ellson

Any plan to suspend stamp duty will be warmly welcomed by prospective homebuyers, sellers and also estate agents, who are going out of business at a rate of more than 100 a week because of the slump in sales. Whether it will be enough to turn round the battered housing market is a different matter.

House prices are falling at an annual rate of 8 per cent, according to Nationwide. However, this is nothing compared to the reduction in buying activity, which has fallen off a cliff in recent months. In June last year there were 105,000 homes sold in England and Wales. In June this year, just 17,681 sales were registered, a fall of 83 per cent. In more than a third of postcodes, there were no sales at all.

A suspension of stamp duty would save someone buying a £200,000 home £2,000 while someone buying a £1 million home would save £40,000. This is likely to encourage prospective purchasers back into the market, particularly if the changes are only temporary. The decision will also help first-time buyers put more of their money towards saving for an all-important deposit. However, the fundamental factors undermining housing market activity are the availability of mortgages and buyer confidence not the level of stamp duty.

Total mortgage lending has fallen by two thirds in a year as the market in mortgage-backed securities, which most banks used to finance a significant proportion of their home loans, has effectively closed. With buyers also expecting prices to fall, there is an incentive to delay making a purchase, which further undermines demand.

Prospective first-time buyers may be encouraged by the prospect of saving a couple of thousand pounds in stamp duty but if they are still unable to get a mortgage, it will not make a scrap of difference to their ability to buy. Perversely, any suspension of stamp duty is likely to be of greater benefit to the higher end of the housing market because the levels of the tax are proportionately much bigger.

While many will welcome the suspension of stamp duty, it is not without risk and is unlikely to solve the problems of the property market overnight.

Northern Rock: Desperate measures

Patrick Hosking

In one sense, nothing has changed as a result of Alistair Darling's proposed reworking of the Northern Rock balance sheet. No extra public sector cash is being injected into the nationalised bank as a result of the conversion of £3 billion of taxpayer-funded loans into equity. In theory, what taxpayers lose on the loan swings, they gain on the equity roundabout. In theory, Northern Rock will fetch much more if and when the Government feels able to sell it back into private hands. And as Mr Darling was only too keen to point out, Rock is far from alone in needing to strengthen its balance sheet. Barclays, Royal Bank of Scotland, HBOS and Bradford & Bingley have all had to resort to equity infusions as a result of the arctic conditions in the banking world.

In practice, however, there is an unnerving smell about this transaction. Debt-for-equity swaps are typically undertaken by companies in deep trouble. Debt holders typically exchange a pound's worth of debt for a few pence worth of equity. In the event of a winding-up, equity holders rank lower than debt holders and other creditors in the queue for recompense. Now the Treasury will have to sell what's left of Rock for at least £3 billion just for taxpayers to come away unscathed. For comparison, Alliance & Leicester, a bank in much better health than Rock, has just been sold for a mere £1.3 billion.

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