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A new call to action

19th November 2008 |

After all the recent moves by the government to raise stamp duty thresholds, recapitalise the banks and add liquidity to the financial system, not to mention two large cuts in interest rates, it might be suggested that those involved in the property industry will have good reason to be grateful and should now wait in optimistic expectation of better times ahead.

Not so, however. There is no sign yet of recovery, either in terms of transactions or prices, with recession being the word on everybody's lips. For this reason, the National Association of Estate Agents (NAEA) has asked for more to be done.

In a statement made this morning, the NAEA president Chris Brown said that some good trends were emerging - such as the acceptance by homeowners wishing to sell that they have no option but to drop their prices, which has made homes more affordable for buyers.

He stated: "Sellers are beginning to face up to the reality that their houses are not worth as much now as they were 12 months ago. They are ripping up last year's price tags and beginning to come to terms with the new economic reality," adding that "realistic" prices offer better prospects for those who "desperately want to buy houses to get onto the market".

However, Mr Brown stated, action by sellers is not enough. He noted that 54 per cent of estate agents in a poll by the NAEA did not have confidence in current government policies. They want to see two things - a suspension of stamp duty and another base rate cut.

The stamp duty issue may be distinctly double-edged. It was on September 2nd that chancellor Alistair Darling announced that for exactly a year the minimum threshold would be raised from £125,000 to £175,000. This has already saved money for many buyers. Council of Mortgage Lenders figures for September showed that 51 per cent of all buyers paid no stamp duty, compared with 22 per cent in the same month in 2007.

On the other hand, stamp duty thresholds of this size are little use in areas where the average house price is much higher. In London, for example, the most up-to-date figures from the Land Registry show that the average house price is £328,927. Even in the cheapest borough in the capital, Braking and Dagenham, it is £243,840. If a suspension were to occur, homebuyers and investors would benefit most in the capital and other costly areas of southern England.

Whether or not the stamp duty call will be heeded, the minutes of the Bank of England's monetary policy committee (MPC) meeting this month suggest another rate cut may not be far off. The MPC voted unanimously for the 1.5 per cent reduction, but not until it had seriously discussed a two per cent slashing of the rate.

In the end, the minutes stated, it held back, not least because of the alarm the city would have felt. Better, the MPC reasoned, to explain its expectations for the consumer prices index in the quarterly inflation report the following week. Some members also reasoned that it was no bad idea to keep some powder dry to cut again if the downturn becomes more severe.

With this and the recent inflation report in mind, the NAEA may be satisfied that, whatever happens on the stamp duty front, another rate cut is far from unlikely. Indeed, some may judge it as being just a matter of time.