The Governments’ answer to the waiting game but has another one begun?

On Wednesday 3 September 2008 the Government announced that buyers of homes up to £175,000 will be excluded from paying the 1 per cent stamp duty levy, meaning the threshold before tax need be paid has been increased by a staggering £50,000. However the realities of this increase need examining to see whether it will help the property market.

With house prices currently averaging between £180,000 and £170,000 and falling, the new threshold would unequivocally benefit many buyers. There would be immediate ramifications of this measure, such as certainty among buyers to purchase as the waiting game for them is over; the government is unlikely to go back on this one, business for estate agents, a kick start in the mortgage market to alleviate the lending famine and more business for conveyancing solicitors. All in all benefits all around.

It also needs to be noted that the government needs to be seen to be taking steps to reduce the negative impact of the economy; this measure clearly works in their favour. Despite this loss of stamp duty for the government and arguably extra burden on the public purse, this measure has wider implications, namely to resuscitate and employ confidence in the property market and the economy in general.

However, the flip side to the above is that from a geographical point of view, there is no practical benefit of the governments’ measure to those of us where the average house price is above £175,000. With that in mind, it is likely that those home owners will become reluctant to sell and prefer to hold onto their cherished asset and hoping for confidence to return to the property market and economy or even further interventions by the government – unlikely! So it would seem that for those homeowners, they will have to just wait and see – let round two of the waiting game commence.

In conclusion, the government has been prudent with their tactics for recovery of the property market, by operating on a step by step basis. Undoubtedly, this measure has been a step in the right direction, albeit at the cost of those where the increase of the threshold provides no immediate benefits. If a further increase in the threshold had been made, this would have given buyers a reason to buy into a falling market, which would and could have only been disastrous for everyone at large. In spite of the government self inflicting the current economic climate, they should be given a degree of merit for their initial attempt to jump-start the property market.