The headline on this blog’s adviser to Alistair Darling last month was “A stamp duty cut would boost the economy – but wait”. The chancellor obviously liked the idea, but instead of waiting he has talked about it. Now he has no choice but to act immediately – even if it is to kill the idea.

It is not the government’s duty to boost the housing market or protect homeowners but the importance of a stable property market cannot be underestimated for an economy sliding rapidly towards recession. It gives people the confidence to spend.

The upfront stamp duty payment – 1 per cent of the whole price for properties above £125,000 or 4 per cent on £500,000-plus homes - is one deterrent to purchasing. For a first-time buyer borrowing 95 per cent of the price, the stamp duty increases the upfront cost by one-fifth – an extra 1 per cent on the 5 per cent deposit.

But by admitting an easing of stamp duty is on the agenda rather than spelling out his plans, Darling risks halting a market that has already slowed. Anyone about to exchange contracts on a purchase – few as they are – will postpone the signature in the hope of saving £1000 or more by buying a few weeks later. In this market, sellers have no choice but to accept the delay or lose the sale.

I told Darling to wait because to offer the tax incentive now would induce people to buy an asset that is falling in value – and the political flak for that, if not the demands for compensation, would be greater than the gain. And the market is also falling so fast that this tax incentive alone would not turn it.

But he cannot now wait. He must say there is no tax cut coming and let the market continue on its course or say what the incentive is – and apply it immediately. Otherwise expect no property transactions until he makes his decision – and be ready for disappointment if hopes have been falsely raised.

Darling’s reputation as a ditherer is on the line again but as last month’s blog pointed out, the financial cost is low. He cannot afford tax give-aways, but as the volume of housing deals has collapsed by more than 50 per cent and prices are down 10 per cent, the revenue has already been lost.

But if he does forgo the tax – abolishing it for lower-cost homes or deferring the collection – who gains?

In a rising market (which is when the Tories proposed a cut last year as an aid for cash-strapped buyers) a tax cut would simply give buyers more money to push up the property price by the same sum, exacerbating the problem rather than solving it.

In a falling market, when lenders are demanding a higher equity contribution from the purchaser, a cut in the front-end tax payment would allow buyers to acquire the same home on a smaller loan. That could make an impossible sale possible without boosting the price.

But whether Darling says yes or no on stamp duty, he must say something before he is blamed for causing a weak market to seize up.

Share this: