At first sight the Pre-Budget report went well for homeowners ‘ it was good news because there was no bad news.
The main concern was that Gordon Brown could have used escalating house prices as an excuse to increase Stamp Duty even further.
While in one way we can breath a sigh of relief that he decided to leave Stamp Duty alone for now, one cannot help but feel disappointed that this was yet another lost opportunity to reform the current ‘slab system’ and make the way that Stamp Duty is calculated fairer.
Charging Stamp Duty in tiers, calculated on that portion of the property’s value which falls within each price bracket, rather than the current grossly unfair system of charging a single rate based on the property’s value, is the single most important change the Chancellor should introduce. Instead, in the current Stamp Duty review, all he is doing is tinkering with the admittedly outdated administration proc- ess rather than addressing the area of greatest concern to most people.
The Chancellor’s borrowing binge, plus the unsurprising forecast that this year’s 2.5% inflation target will be met coupled with the setting of next year’s target at 2.25%, makes it less likely we will see a cut in base rate in the short term.
We are experiencing the silly season at the moment as far as house price statistics are concerned, but when we have clear evidence of the slowdown in house price inflation reflected in the Halifax and Nationwide indices, the Monetary Policy Committee (MPC) may feel less concerned about the housing market.
Depending on the health of the wider global economy, the MPC may decide on a cut but until then we still see interest rates hovering around the 4% mark for some time.
It has been said the construction industry is concerned that conventional house price statistics are flawed and could be used to justify an unnecessary increase in interest rates.
Building firms say the selling price of new houses has grown by between 8% and 15% this year, way below the annual rates shown by the Nationwide and Halifax indices.
As a result of a meeting between the major house-builders on 2 December they decided to ask their trade association to compile its own figures as, historically, price trends in the new housing market and second hand housing market have not diverged as far as today.
One factor that is undoubtedly distorting both lenders’ statistics is that they both exclude a sector of the market that has actually been falling in many areas, and that area is properties over £1m.
Ray Boulger is senior technical manger at Charcol