Terry Murden's blog

Published on Tuesday 2 September 2008 12:22

WELL, the government had to do something. And removing the burden of stamp duty from thousands of homebuyers will be seen as a good thing. Except that it will not make that much difference.

Already City commentators and the Council of Mortgage Lenders have said the effect will be minimal. One unimpressed analyst said simply: "So what?"

Raising the threshold for a year may at least prompt some waverers to leap into the market, but it will do little for those buying or selling new-built properties as it is already quite common for housebuilding companies to pay a buyer's stamp duty as part of a package of incentives.

As the suspension of duty only applies to property up to 175,000 it also leaves those buying even a modest two-bedroomed apartment with a sizeable bill.

The other assistance offered by yesterday's announcement from the UK Communities Secretary Hazel Blears is also of dubious benefit. Shared equity, help for those facing repossession and more investment in affordable housing are already available in Scotland, and were introduced to varying degrees by the previous regime. The Scottish housing market has not suffered as badly as the rest of the UK, but the fact that these measures have not stopped the decline or stagnation in the market north of the border shows they are having a limited impact.

The problem for governments north and south is that they cannot intervene too much in the housing market - and why should they? - and yet tinkering with taxes does not appear to have the desired affect.

Rampant house price inflation - notwithstanding recent falls - together with the tightening of the mortgage market remain beyond these new measures. The former will correct itself through supply and demand while the latter requires liquidity and confidence to return to the banking system.

While the current housing log-jam is painful those caught up in it, a correction was long overdue to bring the market to its senses. House prices and lending criteria have been well out of kilter with incomes for some time. When lenders are offering six times income it is time to call a halt. And we have reached that station.

Lenders now require greater security from borrowers. And so they should. When buyers, sellers and lenders return to proper affordability measures then it will no longer be necessary for governments to step in at all.

Terry Murden is Business and City Editor, Scotland on Sunday