UK Housing Slump Adds to Recession Concerns

The UK pound marked a sixth straight day of losses against the surging U.S. dollar as news of a continuing slump in property values hampered Prime Minister Gordon Brown’s attempts to avoid an all-out recession. It has been almost twenty years since the UK last dealt with a prolonged economic contraction but the probability of avoiding a recession looks less likely in light of rising energy and food costs together with falling property values that have dropped more than ten percent in the past year alone.^[1]

In a bid to attract more buyers to the market, Brown recently announced the availability of interest-free loans to lower-income individuals to help first-time buyers qualify for mortgages. For current homeowners facing repossession due largely to a combination of the subprime credit crunch and rising unemployment, the government also revealed a support plan to provide funds in return for partial ownership in the properties. The scheme calls for the establishment of “housing associations” that would use government funds to buy at-risk properties and then rent the properties back to the struggling homeowners.^[2]

Elimination of the Stamp Tax Duty

On Tuesday, Brown revealed the latest government initiative to stem the decline in property values with the elimination of the Stamp Tax Duty on homes valued under 175,000 pounds. The Stamp Tax – which is to be suspended for one year – is a tax on legal documents in the UK and was previously only exempted for properties valued at less than 125,000 pounds.

During the announcement Brown stated that these recent policy changes would help the country through a difficult period and that “homeowners need to know that we will do everything possible to keep the housing market moving forward.” ^[3]

The Stamp Duty rate is one percent for properties valued between 175,000 and 250,000 pounds, three percent for properties valued between 250,000 and 500,000 pounds, and four percent for any property exceeding half a million pounds. In 2007, the stamp duty on property sales raised nearly 13 and a half billion pounds for government coffers.

References

1. ↑ Taylor Wimpey Slumps on Property Values – Reuters News.
2. ↑ UK Homebuilders Rise on Government Rescue Package – Bloomberg
3. ↑ Stamp Duty Slashed in a Bid to Boost Housing Market – Yahoo News

About the Author

Scott Boyd has been working in and writing about the financial industry since the early 1990s. As a technical writer and project manager with several of Canada’s leading financial institutions, Scott has produced educational materials for investment system end-users including portfolio managers and traders. Scott now administers and contributes to OANDA FXPedia and regularly provides commentaries for the OANDA FXTrade website.

This article is for general information purposes only. It is not investment advice or a solicitation to buy or sell securities. Opinions are the author’s — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use apply.