Best Financial Markets Analysis Article Whilst house prices are tumbling at the rate of 2% a month, the labour government finally revealed its feeble attempt to interfere with market forces by suspending the 1% stamp duty taxed on house purchases on properties up to a value of £175,000 for a period of 1 year.

Whilst the stamp duty suspension has been long on the cards as indicated on in the article of 8th August - UK Housing Market Freezes as Chancellor Dithers Over Stamp Duty, the actual action taken is far more muted, as it was originally envisaged to have any impact the stamp duty freeze would need to be applied to the whole housing market right across the board, whereas the announced decision just seems to be targeted towards first time buyers.

Frankly this is the last thing the government should be doing which is to lasso first time buyers into entering into a falling housing market, a 1% saving in stamp duty amidst an a market that is falling at a rate of more than 10% per annum loads first time buyers with a great deal of risk.

The sums just do not not stack up

House value = £175,000

Stamp duty saved at 1% = +£1750

House prices fall by 10% = -£17,500

Mortgage at 6% = -£10,200

Rental at 5% = +£8,500

Estate agent and other costs i.e. insurance -£1200

Will leave first time buyers in 12 months time a net £18,650 worse off than not taking advantage of the governments apparent kindness, that's if first time buyers can find a mortgage.

Other measures announced are aimed more at existing home owners such as providing local Councils with more cash to buy properties from homeowners at risk of repossession and then rent the properties back by turning homeowners into council tenants.

New Homebuy Direct Interest Free loans

A five year interest free loan of up to 30% of the value of new builds. On face value this looks like a pretty good initiative for prospective home buyers that is also aiming to support the construction industry. However new homes tend to be over priced and there the real market value will put home owners into immediate negative equity as soon as they sign on the dotted line. Also the initiative again is forcing prospective home owners to borrow more than they can afford as it is likely after the 5 years are up the interest rate will jump to perhaps base rate plus 1%. Still of the three announcements this is probably the most useful to prospective homeowners, off course the costs will be bourne by all tax payers that on say a £200k property would in effect be subsidising home buyers to the tune of £18,000 over 5 years!

As to where house prices are heading ?

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 forecast, as well as a major update to the UK house price forecast that seeks to map out the UK house price trend for the next 2 years.

By Nadeem Walayat
http://www.marketoracle.co.uk

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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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