Page last updated at 13:01 GMT, Tuesday, 2 September 2008 14:01 UK

New policies target repossessions

Analysis
By Ian Pollock
Personal finance reporter, BBC News

For Sale signs
There are big doubts about the effect of suspending stamp duty

Government ministers have been very careful to avoid claiming that their package of measures will, in some way or other, revive the country's moribund property market.

The closest the Prime Minister would come to making such a bold claim was when he said the aim was to keep the housing market "moving forward".

It is not obvious that it will achieve even this.

The number of house sales have halved in the past year, with mortgage approvals down by 71%, and they are likely to fall even further by the end of this year.

No wonder many experts think prices too have much further to fall.

Even so, the government's plans, will make a big difference to some groups of people.

And it is worth saying that the eye-catching, but temporary, change to stamp duty is one of the least important parts.

Repossessions

Seeing your house fall by 10%, or 20%, in value is small beer compared to being evicted because unemployment or illness means you can no longer pay your mortgage.

And this problem, against a background of rising unemployment and rising repossessions, is the one that has attracted the most substantial help.

People on income support or claiming job seekers allowance (JSA) will now be able to apply for much more government money to help repay the interest on their mortgages.

The waiting period for those on income support, or JSA, will be cut from 39 weeks to 13.

And the value of the mortgage on which the interest is repaid will go up from 100,000 to 175,000.

Around 200,000 people are already claiming this benefit, known as Income Support for Mortgage Interest.

The Department for Work and Pensions (DWP) says this extra help will stop 10,000 people being repossessed in the coming two years, at an estimated cost of 100m.

However, the new help will be limited to two years for JSA claimants, on the grounds that they should be able to get a job within that time.

Shared equity

Another 6,000 repossessions will be headed off by a new mortgage rescue scheme targeted at people in England, the government hopes.

We are giving a leg-up to first-time buyers keen to own a place of their own
Caroline Flint, housing minister

Families who can no longer afford their repayments will be able to ask their local councils to bail them out, in one of three ways.

A "social landlord" such as a housing association could buy the home, pay off the loan, and rent the house back to the family instead.

It could buy a share in the home, letting the owner pay off part of their mortgage.

Or it could simply lend the homeowner the money.

The government is putting up 200m towards this mortgage rescue scheme.

Empty flats

Faced by the sight of newly built flats standing unsold and empty in many city centres, built by developers and building firms which now appear to be on the verge of going bust, the government has looked at ways of lifting sales.

It is putting up another 300m in England in the form of five-year interest free loans to help first-time buyers, who earn less than 60,000 a year, put down 30% deposits on such properties.

Called HomeBuy Direct, it is an expansion of the current home-buy schemes.

"We are giving a leg-up to first-time buyers keen to own a place of their own," said the housing minister Caroline Flint.

"Not only will this help first time buyers, but it will also support the industry by identifying buyers for their new homes," she added.

The government hopes that about 10,000 people will be helped by this scheme to buy a flat.

It is worth noting that rolling up at a bank or building society with a cheque from HomeBuy Direct will not guarantee that you will be offered a 70% mortgage for the rest of the purchase price.

The CML says individual lenders will still scrutinise borrowers' finances to make sure they can repay their loans, when all their other outgoings are taken into account.

And lenders will not be forced to lend on properties they think may fall sharply in value - as city-centre flats have been doing recently.

Stamp duty

Some observers have questioned the government's plans to raise, for one year only, the 1% stamp duty band.

Anyone who is in a position to buy a home worth between 125,000 (the old starting point for stamp duty) and 175,000 (the new starting point) will be happy.

The government's move will save them 1,750 each and cost it 600m in lost tax revenues.

A suspension for one year on stamp duty for properties up to 175,000 is absolutely not the answer to the problem
Ray Boulger, John Charcol

And perhaps the most interesting opportunity in the next year will be for buyers, with an eye on a home worth just over 175,000 - they may be tempted to try to cajole their vendors into lowering the price so that the sale goes through tax free for the buyer.

But saving the odd couple of thousand pounds is not fundamental to the working of the property market at the moment, analysts said.

"A suspension for one year on stamp duty for properties up to 175,000 is absolutely not the answer to the problem," said Ray Boulger of John Charcol.

"It will help a small minority of people, but the issue lies more with mortgage lenders and their 'shut up shop' attitude to lending above certain loan-to-values."

How many?

According to estimates from the Council of Mortgage Lenders (CML) there were just over 289,000 mortgages granted to house buyers in the first half of this year in the UK.

Of those, 50,000 would have benefited if the new tax regime had applied, and the CML reckons that 22,500 of them would have been first time buyers as well.

So the number of people who will be affected by the changes is noticeable without being huge.

The real problem for the property market as a whole is that banks and building societies, many of which have lost money on international investments and have been tightening up their lending criteria as a result, have started asking for larger deposits from people looking to buy a home.

Many people who, a year ago, thought they might be certain to be granted a mortgage have had a big surprise.

They are now routinely told they have to raise a deposit of 10%, 15% or even 20% of the property's value, instead of the previous standard 5% deposit.

For many people, this is a financial stretch too far and the housing market has been plunged headlong into its biggest and quickest slowdown since World War II.

Tweaking tax rates will not, on their own, change that outlook, analysts said.

It is worth remembering that when the then Tory Chancellor Norman Lamont suspended stamp duty for eight months during the middle of the last property slump, in December 1991, it had no effect at all.

House sales, and prices, continued falling the following year.

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