Is the UK Economy Heading for a Massive Recession?
UK Prime Minister Gordon Brown suspended a homebuyer tax and proposed spending 1 billion pounds sooner than planned to help reverse Britain’s worst housing slump in at least 18 years. The economic slowdown has sent the pound to a record low against the euro. Britain is heading for its first recession since the early 1990s after the economy stagnated in the second quarter.
The funds will be used to help people buy new homes and support those struggling to pay their mortgages. From tomorrow, residential properties worth less than 175,000 pounds will be exempt from stamp duty for a year under plans announced by Chancellor of the Exchequer Alistair Darling.
It’s claimed that the chances are the economy is fast heading into a recession if something radical isn’t done and done quickly.
So how is the package funded? The rescue package will be funded by spending more quickly the 6.5 billion pounds earmarked for social-housing programs over the next three years so that more of it is used in the next 12 months.
The stamp duty move effectively raises the current threshold for paying the tax from 125,000 pounds. As a result, the share of housing transactions exempt from the levy will rise to a half from a third. The move will cost the Treasury 600 million pounds in foregone revenue over the 12 months.
So what about the mention of Interest-Free Loans? This would offer help to first-time buyers earning less than 60k a year for up to a third of the value of a newly built property. The interest-free loans, funded by the government and the property developer, will be available for up to five years before ending, this will give a significant boost for first time buyers to get on the housing ladder.
Another announcement confirmed the government will also give money to several thousand households at risk of falling behind with mortgage payments in return for an equity stake in the properties. Housing associations would be given the money to buy and then rent back properties to those struggling to make payments, or buy or rent a share of the property to help reduce payments. The plans are part of a broader economic package that Brown will unveil by Sept. 8, when the Cabinet meets for the first time following the summer parliamentary recess.
So is the UK heading for a recession?
The U.K. Stamp Duty – British Prime Minister Gordon Brown’s government cut an unpopular tax on home purchases on Tuesday to also help the slumping housing market. Some feel the stamp duty holiday may provide the domestic housing market with a marginal stimulus but there is doubt it will give a major effect in getting the housing market moving again.
The stamp duty equals 1 percent of the purchase price for houses costing between 125,000 pounds and 250,000 pounds. The fee rises to 3 percent for homes up to 500,000 pounds and to 4 percent above that level. The average U.K. house price was 178,364 pounds in July, according to the Land Registry, making the levy about 1,700 pounds.
A surge in food and fuel costs ate into the wages of consumers as a worldwide credit crunch dried up mortgage financing.