Stamp duty in for a licking

So the government is considering temporarily lifting stamp duty on the first £250,000 of the price paid for a home. So that means no stamp duty for homes less than a quarter of a million. And stamp duty on the value of the home minus £250,000 for the rest. It is a desperate gamble. The move will be expensive, and if it doesn’t work, it is money down the drain.

Actually, the move from the government will be the equivalent to it handing people buying properties an amount of money worth 1 per cent of the home’s value. Or if it is worth more than £250,000, £2,500. So that means buyers find themselves getting closer to the deposit they need all the quicker.

The snag is this. It is only 1 per cent. House prices are falling by more than that each month – it is not difficult to see why this may not work. In the last house price crash, John Major tried something similar – his move failed. But a more pertinent question is this. Why does the government want to do this? When house prices were rising too fast, it stayed clear. If you believe the current housing market turmoil is all a little odd, and solely down to this credit crunch which had nothing to do with us, then the move makes sense. If you believe house prices are falling because they are too expensive, and the credit crunch is down to lending that was too high, based on property valuations that were not sustainable, then reducing stamp duty would be a fool’s errand. It seems more likely that this move will just result in a short pick up in opinion polls, followed by the loss of taxpayers’ money – never to be seen again.

Quite frankly, the government would be better off using the money it would spend on reducing stamp duty, giving us all some kind of tax credit. Vince Cable, the Liberal Democrats’ shadow chancellor, said: “The falls we are seeing in the housing market are painful, but necessary, if homes are to become affordable once more for those not on the property ladder. “Ministers allowed house prices to get hopelessly out of control. They must not now artificially prop up the market for political expediency.”

And as for the markets…….. well they had another day of celebrating yesterday – although when you drill down and examine the reason why, it does seem a tad daft. The Dow Jones soared 331 points, one of its best days of the year. The FTSE 100 rose a healthy 134 points, the German DAX index was up 168 points. But the news in the US, UK and Germany was hardly the stuff booms are made of. In fact, you could say all three economies saw a catalogue of woes yesterday.

So why did markets celebrate? Well, for one thing, the Fed stopped talking about “continued increases” in energy prices, and merely said they were “elevated.” As for growth. Last time, the Fed said the downside risks to growth “appear to have diminished somewhat.” This time it merely said “the downside risks to growth remain.” All we can conclude is that the markets are only a slight guide to what is going on, but for those interested in what is actually going on whilst equities were performing well certain popular commodities had a tougher day with Oil down 2.16% and Gold also down 14.1%.