Government Intervention and Policy

Recently the government has taken steps to try and boost the financial markets and the economy, which will hopefully have some direct effect on the property sector. A 'bail out' of the banking system, and the cut in interest rates from 4.5% to 3% and then even further to 2% will hopefully see more money available to lend to investors, it is however essential that this cut in interest rates is passed on to borrowers. The cut in the interest rate will hopefully see a fall in the number of repossessions by making mortgage repayments for many homeowners cheaper. This cut will automatically be passed on to those with tracker mortgages; however it is at the discretion of the banks whether or not they choose to pass this on to other customers, currently 51% of mortgages are on fixed rate terms. It has been suggested by media that many businesses are urging the government to cut interest rates even further in order to encourage spending.
Asides from the interest rate cuts, Gordon Brown has also hinted at possible tax cuts and recently cut the rate of VAT to 15%. Any cuts in tax’s means people having more money to spend, increasing the amount of disposable income and hopefully encouraging spending, this would also help in some way to cut repossessions and thus possibly stimulate the housing market. The NAEA has asked the government to use the pre-budget report to remove stamp duty and help thousands of young people currently priced out of the housing market. It is claimed that the raising of the stamp duty threshold to 175k has helped certain parts of the country, particularly the North, with the lowest house price falls being in the North East (0.7%) and Yorkshire and Humber (1.1%). This could suggest that the change in the threshold could have had more impact in places where property values are lower, with few properties in much of the south costing less than £175,000. There is also great potential for political change with there having to be a general election before 3rd June 2010. Although it is too early to try and speculate on the outcome, all three of the main parties have different ideas about how they would try and overcome the recession. One particular manifesto proposal is from the conservatives who would like to cut the amount that companies have to pay in National Insurance which they believe would create 350,000 jobs.

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