UK Housing Market Freezes as Chancellor Dithers Over Stamp Duty
Housing-Market / UK Housing Aug 08, 2008 - 02:02 AMBy: Nadeem_Walayat
The crashing UK housing market is heading for a further deep freeze following speculation that the Chancellor, Alistair Darling is about to suspend the Stamp Duty tax charged on house purchases in an attempt to stabalise the housing market. The few buyers that are in a position to proceed with home purchases are now delaying completing contracts or pulling out altogether and thereby likely to make the collapse in the level of market transactions even worse, thus contributing to the squeeze on sellers, estate agents and other housing market transaction beneficiaries.
The potential savings of suspension of Stamp duty to house purchasers is huge, as the tax is charged at 1% on houses of between £125,001 and £250,000, rising to 3% for those between £250,001 and £500,000 and a whopping 4% tax on those above £500,000.The government was already heading towards busting its fiscal rule of government debt to keep below 40% of GDP, a loss of the tax generated from stamp duty would hasten this trend as the UK government debt looks set to explode higher to above 60% of GDP by the end of 2009.
The volume of transactions before this latest government intervention was already on par with the 1990's bear market having fallen by more than 50%, additionally supporting data from the British Bankers Association reveals an even sharper contraction in the supply of mortgages as the number of loans approved for house purchases slumps by 66% for June data.
Yesterday, the Bank of England paralysed by fear of igniting stagflation kept interest rates on hold at 5% despite the crash in the UK housing market and the UK economy falling off the edge of the cliff which will become apparent on release of GDP quarter 3 data, that even after the application of a suspect price deflator against will show a sharp deterioration in the UK economy towards economic contraction. The inflation data for July is expected to see inflation continue to nudge higher to above 4% CPI on data to be released next week, which ensures Bank of England inaction for a further few months until release of GDP quarter 3 data.
UK house prices for July as reported by the Halifax came in precisely on target for a fall of 1.7% on the month which now brings average house prices down from the August 07 peak by over £20,000 to the current crash in progress level of being down by 8.9%, against the existing forecast as of August 2007 for prices to fall at by an average rate of 7.5% per annum (minimum) from Aug 07 to Aug 09, as per the recent trend forecast into end 2008 as illustrated below.
Look out for the 2009 UK Interest rates forcast, as well as a major update to the UK house price forecast later this month that seeks to map out the UK house price trend for the next 3 years.
Meanwhile, It is literally amazing to watch this Mr Bean Labour government in virtually every move make matters far worse than before by letting spin get ahead of policy and thus undermining the original objective of the proposed action. This has happened numerous time with the most significant Mr Bean moment being the bottling out of the highly spun October 2007 General Election.
What does the Mr Bean Labour Party have next in store for British Economy?
By Nadeem Walayat
http://www.marketoracle.co.uk
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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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